Court dismisses writ petition, directs adherence to procedure outlined in GKN Driveshafts case.

The court dismissed the writ petition, emphasizing that the petitioner must follow the procedure outlined by the Supreme Court in GKN Driveshafts (India) Ltd vs. ITO. The petitioner was granted liberty to submit objections to the reasons for reopening within three weeks, and the Assessing Officer was directed to decide on the objections on merits and in accordance with the law, after affording an opportunity of personal hearing to the petitioner.

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Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Failure to issue notice under Section 143(2) within the statutory time limit.
3. Levy of penalty under Section 271BA.
4. Reference to Transfer Pricing Officer under Section 92CA.
5. Alleged revenue loss due to incorrect claim of capital loss as business loss.

Detailed Analysis:

1. Validity of Notice under Section 148 of the Income Tax Act:
The petitioner, a 100% Export Oriented Unit, sought to quash the notice issued by the respondent under Section 148 of the Income Tax Act, 1961, for the assessment year 2005-06. The notice was based on the belief that the petitioner’s income had escaped assessment. The petitioner argued that the notice was issued without reasonable cause and was an attempt to cover up the failure to initiate assessment proceedings within the statutory time limit. The court, however, emphasized the procedure outlined by the Supreme Court in GKN Driveshafts (India) Ltd vs. ITO, which mandates that the noticee should file a return, seek reasons for the notice, file objections, and await a speaking order from the Assessing Officer. The court held that the petitioner must follow this procedure and dismissed the writ petition as premature.

2. Failure to Issue Notice under Section 143(2) within the Statutory Time Limit:
The petitioner contended that the respondent failed to issue a notice under Section 143(2) within the statutory time limit, which precluded the respondent from reopening the assessment under Section 148. The court referred to the decision in CIT vs. M.Chellappan, which stated that the omission to issue a notice within the statutory time does not empower the Assessing Officer to reopen the assessment. However, the court noted that the petitioner did not follow the procedural requirements as outlined in GKN Driveshafts (India) Ltd vs. ITO and thus, the challenge to the notice was premature.

3. Levy of Penalty under Section 271BA:
The petitioner argued that the respondent had levied a penalty under Section 271BA for non-filing of the audit report along with the return of income for the assessment year 2005-06 before completing the assessment. The respondent countered that the penalty was justified as the petitioner failed to comply with the requirements of Section 92E within the due date. The court did not delve into the merits of the penalty but emphasized that the petitioner should raise these factual issues before the Assessing Officer.

4. Reference to Transfer Pricing Officer under Section 92CA:
The petitioner contended that the respondent exceeded his jurisdiction by referring the matter to the Transfer Pricing Officer under Section 92CA, which was arbitrary. The respondent justified the reference, stating that the petitioner had international transactions with associated enterprises and failed to file the required report in Form 3CEB on time. The court held that these are factual issues to be addressed by the Assessing Officer and not by the writ court.

5. Alleged Revenue Loss due to Incorrect Claim of Capital Loss as Business Loss:
The petitioner claimed that even if the loss on the sale of assets amounting to Rs. 69,243 was disallowed, the taxable income would still be NIL, and there was no revenue loss to the department. The court noted that the petitioner’s income was exempt under Section 10A/10B and that the dispute was whether the loss on the sale of assets should be considered a capital loss or a business loss. The court held that these factual determinations should be made by the Assessing Officer and not by the writ court.

Conclusion:
The court dismissed the writ petition, holding that the petitioner must follow the procedure outlined by the Supreme Court in GKN Driveshafts (India) Ltd vs. ITO. The petitioner was granted liberty to submit objections to the reasons for reopening within three weeks, and the Assessing Officer was directed to decide on the objections on merits and in accordance with the law, after affording an opportunity of personal hearing to the petitioner.

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