2018 (5) TMI 54 - AT - Income Tax

Tribunal quashes reassessment due to procedural errors in addressing assessee's objections

SH. AMAN SHARMA Versus ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-II, FARIDABAD

The Tribunal allowed the appeal challenging the validity of reopening under section 147 and notice under section 148 of the Income Tax Act. The case ... Reopening of assessment - validity of notice u/s. 148 - AO did not dispose of objections before passing the order of reassessment - Held that:- Assessee has challenged the action of AO in not disposing off objections of the assessee which is mandated by the Hon'ble Supreme Court decision in the case of GKN Driveshafts (India) Ltd. [2002 (11) TMI 7 - SUPREME Court] We are of the considered view that AO is under a mandate to dispose of such objections before proceeding with the assessment by passing a speaking order, which has not been done by him, therefore, the reassessment under section 147 cannot be sustained and hence, we quash the reassessment order - Decided in favour of assessee. Issues:1. Validity of reopening u/s. 147 and notice u/s. 148 of the Income Tax Act, 19612. Disposal of objections by the Assessing Officer3. Addition u/s. 2(22)(e) of Rs. 18,00,000Analysis:Issue 1: Validity of Reopening and NoticeThe appeal challenged the Ld. CIT(A)'s decision upholding the reopening u/s. 147 and the notice u/s. 148. The case involved a search and seizure operation leading to the reopening of the assessment. The Assessee contended that the notice was beyond jurisdiction and void ab initio. The Hon'ble Gujarat High Court's decision in Vishwanath Engineers vs. ACIT was cited, emphasizing the need for the AO to dispose of objections raised by the assessee comprehensively. The argument was supported by the judgment in GKN Driveshafts vs. ITO. The Tribunal found that the AO failed to dispose of objections, contravening the mandate established by the Supreme Court, leading to the quashing of the reassessment.Issue 2: Disposal of ObjectionsThe AO's failure to address the objections raised by the assessee was a crucial point of contention. The Tribunal highlighted the importance of the AO providing a speaking order in response to objections, as mandated by legal precedent. The failure to do so was deemed a violation of procedural requirements, ultimately resulting in the reassessment being deemed unsustainable.Issue 3: Addition u/s. 2(22)(e) of Rs. 18,00,000The case involved the addition of Rs. 18,00,000 as deemed dividend u/s. 2(22)(e) due to a loan transaction between related parties. Despite the addition being upheld by the Ld. CIT(A), the Tribunal's focus on the procedural irregularities led to the quashing of the reassessment order. The Tribunal's decision to allow the appeal was based on the failure to address objections rather than the merits of the addition itself.In conclusion, the Tribunal allowed the appeal, emphasizing the importance of procedural compliance in reassessment proceedings. The failure to dispose of objections by the AO was deemed a critical flaw, leading to the quashing of the reassessment order. The judgment highlighted the significance of adhering to legal requirements and providing a comprehensive response to objections raised by the assessee.