2023 (2) TMI 303 - AT - Income Tax

Reassessment Void: Reasons & Speaking Order Essential

The Tribunal held that the non-furnishing of reasons for reassessment and the failure to dispose of objections by a speaking order are fundamental ... Validity of reopening of assessment u/s 147 - Non Supply of reasons recorded - HELD THAT:- In view of the above legal position as in the case of CIT Vs. Pentafour Software Employees Welfare Foundation [2019 (9) TMI 313 - MADRAS HIGH COURT] held that violation of law laid down by Hon’ble Supreme Court is not a procedural error because the word “bound” would be rendered meaningless if it is held to be procedural error and it would lead to abuse of power and such a construction would dilute the decision in the case of GKN Driveshafts (India) Ltd. [2002 (11) TMI 7 - SUPREME COURT]. Hence, we hold that the non supply of reasons till the Appellate Tribunal stage vitiate the assessment proceedings and hence, void ab initio and bad in law. Hence, we quash the reassessment order and set aside the order of CIT(A) and the appeal of the assessee is allowed. Issues Involved:1. Non-furnishing of reasons recorded for re-assessment.2. Non-disposal of objections by a speaking order.3. Non-service of notice under Section 143(2) of the Income Tax Act.Issue-wise Detailed Analysis:1. Non-furnishing of Reasons Recorded for Re-assessment:The primary jurisdictional issue raised by the assessee was the non-furnishing of reasons recorded for re-assessment, which is a gross violation of the law laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2002] 259 ITR 19 (SC). The assessee contended that despite repeated requests, the Assessing Officer (A.O.) failed to provide the reasons for reopening the assessment. The CIT(A) upheld the reassessment order, treating the non-furnishing of reasons as a mere procedural breach, asserting that the assessee was aware of the reasons and had filed objections during the reassessment proceedings. However, the Tribunal found that there was no mention in the reassessment order of the reasons being supplied or objections being dealt with, which is a mandatory requirement as per the Supreme Court's decision in GKN Driveshafts. The Tribunal concluded that non-furnishing of reasons is not a procedural irregularity but a fundamental requirement that goes to the root of the matter, rendering the reassessment void ab initio.2. Non-disposal of Objections by a Speaking Order:The assessee argued that the A.O. did not dispose of the objections raised against the reopening of the assessment by a speaking order, as required by the Supreme Court in GKN Driveshafts. The CIT(A) considered this a curable procedural irregularity, citing the Hon'ble Jurisdictional High Court's decision in Home Finders Housing Ltd. v. ITO, which held that non-compliance with the procedure is a procedural irregularity that can be cured. However, the Tribunal referred to the Hon'ble Madras High Court's decision in CIT v. Pentafour Software Employees Welfare Foundation, which emphasized that passing a speaking order on objections is a mandatory requirement and not a mere procedural formality. The Tribunal held that failure to pass a speaking order on objections affects the jurisdiction of the A.O. and renders the reassessment proceedings invalid.3. Non-service of Notice under Section 143(2) of the Income Tax Act:The assessee also raised the issue of non-service of notice under Section 143(2) of the Act. The Tribunal did not delve into this issue in detail as it had already quashed the reassessment on the primary jurisdictional issue of non-furnishing of reasons. The Tribunal noted that since the reassessment was quashed on the ground of non-furnishing of reasons, it was unnecessary to address other aspects of the matter, including the non-service of notice under Section 143(2).Conclusion:The Tribunal concluded that the non-furnishing of reasons for reopening the assessment and the failure to dispose of objections by a speaking order are not mere procedural irregularities but fundamental requirements that affect the jurisdiction of the A.O. The reassessment proceedings were quashed as void ab initio and bad in law. Consequently, the appeal of the assessee was allowed, and the reassessment order was set aside.