2015 (12) TMI 110 - AT - Income Tax

Tribunal Upholds CIT Decision on Reassessment Proceedings | Natural Justice | Reasons Supply

Asst. Commissioner of Income Tax, Circle 6 (1), Bangalore Versus Shri M.R. Seetharam (Ind.) and Vica-Versa

The Tribunal upheld the CIT (Appeals)'s decision to cancel the reassessment proceedings due to the non-supply of reasons recorded by the Assessing ... Reopening of assessment - non issue of notice - Held that:- We do not concur with the contentions of Revenue that non-supply of copy of the reasons recorded by the Assessing Officer, for initiation of re-assessment proceedings under Section 147 of the Act, as requested for by the assessee is not fatal to the reassessment proceedings / order. The Hon'ble Apex Court in the case of GKN Drive Shafts (India) Ltd. in [2002 (11) TMI 7 - SUPREME Court ], laid down the law that it is mandatory for supply of the copy of the reasons recorded, if asked for by the assessee; provided the assessee has complied with his duty of filing a return of income in response to the notice under Section 148 of the Act. In the case on hand, the learned CIT (Appeals) in the impugned order at paras 3.4 to 3.10, after examining the records of assessment has rendered a finding that the assessee has complied with the obligations cast upon him by the notice under Section 148 of the Act and has also sought for the reasons recorded by the Assessing Officer for initiating re-assessment proceedings under Section 147 of the Act. The learned CIT (Appeals) observed that the Assessing Officer, however, has failed to furnish the assessee with a copy of the reasons so recorded and this failure on the part of the Assessing Officer, in our view, has prevented the assessee from filing his objections, if any, to the notice issued under Section 148 of the Act. This failure on the part of the Assessing Officer is in violation of the principles of natural justice - Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.2. Non-supply of reasons recorded by the Assessing Officer for initiating reassessment proceedings.3. Application of Section 292BB of the Income Tax Act.4. Protective versus substantive addition under Section 69A/69 of the Income Tax Act.5. Condonation of delay in filing Cross Objections by the assessee.Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147:The primary issue revolves around the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act. The assessee challenged the reassessment order on the grounds that the proceedings were initiated without supplying the reasons recorded by the Assessing Officer, which is a mandatory requirement. The Commissioner of Income Tax (Appeals) [CIT (Appeals)] canceled the reassessment order, holding it to be bad in law due to the non-supply of the reasons recorded for initiating the reassessment proceedings.2. Non-Supply of Reasons Recorded by the Assessing Officer:The CIT (Appeals) found that the assessee had requested the reasons recorded for the reassessment proceedings, but the Assessing Officer failed to provide them. This failure was deemed a violation of the principles of natural justice and contrary to the Supreme Court's decision in GKN Drive Shafts (India) Ltd., which mandates the supply of reasons recorded if requested by the assessee. The CIT (Appeals) relied on several judicial precedents, including decisions of the co-ordinate benches in the cases of Synopsis International Ltd. and Suez Tractabel SA, to support this finding.3. Application of Section 292BB:The Revenue argued that the non-supply of reasons was not fatal to the reassessment proceedings, citing Section 292BB of the Act, which cures procedural defects if the assessee had participated in the proceedings. However, the Tribunal found that Section 292BB does not override the mandatory requirement to supply reasons recorded for initiating reassessment proceedings. The Tribunal emphasized that the assessee's participation in the proceedings does not imply a waiver of the right to receive the reasons recorded.4. Protective versus Substantive Addition under Section 69A/69:In the case of the individual assessee, the addition of Rs. 7,16,22,000 was made substantively, while in the case of the HUF, it was made protectively. The Tribunal upheld the CIT (Appeals)'s decision to cancel the reassessment orders in both cases due to the non-supply of reasons recorded. Consequently, the Tribunal dismissed the Revenue's appeals, rendering the assessee's Cross Objections, which were supportive of the CIT (Appeals)'s orders, infructuous.5. Condonation of Delay in Filing Cross Objections:There was a delay of four days in filing the Cross Objections by the assessee. The Tribunal condoned the delay, considering the reasons provided by the assessee, which included the misplacement of the notice by the staff and the subsequent realization of the requirement to file the Cross Objections. The Tribunal found that the delay was neither intentional nor deliberate and condoned it in the interest of equity and justice.Conclusion:The Tribunal upheld the CIT (Appeals)'s orders canceling the reassessment proceedings due to the non-supply of reasons recorded for initiating the reassessment. The Tribunal dismissed the Revenue's appeals and the assessee's Cross Objections as infructuous. The decision reinforces the mandatory requirement for the Assessing Officer to supply reasons recorded for reassessment proceedings and clarifies the application of Section 292BB in such contexts.