High Court of Karnataka partially allows appeal, quashes assessment order for AY 2011-12.

The High Court of Karnataka partly allowed the appeal, quashing the assessment order for Assessment Year 2011-12. The Court directed the Assessing Officer to decide the objections raised by the appellant before proceeding with the assessment. Additionally, the Court set aside the order issued under Section 144A and instructed the appellant to appear before the Assessing Officer for further proceedings, emphasizing the need for proper disposal of objections before assessment.

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Issues:
1. Validity of assessment order under Section 143 read with Section 147 of the Income Tax Act, 1961.
2. Effect of direction issued under Section 144A of the Income Tax Act, 1961.

Analysis:
1. Validity of Assessment Order:
The appellant filed a return of income tax for the Assessment Year 2011-12. Subsequently, a notice under Section 148 of the Income Tax Act, 1961 was issued proposing re-assessment. The appellant raised objections, seeking a direction under Section 144A of the Act. However, the assessment was concluded without deciding the objections. The appellant contended that without considering the objections, the assessment could not have been completed in law. The respondent argued that the Assessing Officer was bound by the order passed under Section 144A, citing a Supreme Court decision. The Court referred to the Apex Court's decision in GKN DRIVESHAFTS (INDIA) LTD. vs. INCOME TAX OFFICER, emphasizing the need for the Assessing Officer to dispose of objections before proceeding with assessment. The Division Bench held that failure to dispose of objections before assessment rendered the order illegal. Consequently, the Court quashed the assessment order for Assessment Year 2011-12, directing the Assessing Officer to decide the objections before undertaking assessment.

2. Effect of Direction under Section 144A:
The Court examined the effect of the direction issued under Section 144A of the Act. It was noted that the Additional Commissioner's direction did not mandate completing the assessment without deciding the objections. The Court emphasized that the Assessing Officer must act in accordance with the law, even when a direction is issued under Section 144A. The appellant informed that they were not pressing the application made under Section 144A. The Court held that the order under Section 144A did not affect the principles laid down by the Apex Court. Consequently, the Court set aside the order issued under Section 144A and directed the appellant to appear before the Assessing Officer for the objections to be decided as per the Court's directions.

In conclusion, the High Court of Karnataka, comprising the Hon'ble Chief Justice and another Judge, partly allowed the appeal, quashing the assessment order for Assessment Year 2011-12. The Court directed the Assessing Officer to decide the objections raised by the appellant before proceeding with the assessment. The Court also set aside the order issued under Section 144A and modified the previous judgment accordingly. The appellant was instructed to appear before the Assessing Officer for further proceedings, and the pending interlocutory application was disposed of.

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