2023 (6) TMI 673 - HC - Income Tax

Reassessment under s.143(3) read with s.147 quashed for failing to dispose taxpayer's objections by speaking order before assessment

HC held for the assessee that when reasons for reopening under s.147 are communicated and the taxpayer replies, the AO must first dispose of those ... Reopening of assessment u/s 147 - procedure prescribed for reassessment - mandatory procedure of disposal of objections by the AO - HELD THAT:- Admittedly, the reasons for reopening having been communicated as per Annexure-F and reply to such reasons having been furnished by the petitioner, the Assessing Officer is bound to dispose off the same by passing a speaking order before proceeding to pass an order under Section 143(3) read with Section 147 - In light of the limitation expiring on 31.12.2018, the practical difficulties of the Assessing Officer could be of no reason to condone the non-adherence to the procedure in GKN Driveshafts [2002 (11) TMI 7 - SUPREME COURT] The effect of non-following such procedure has been dealt with by the judgment of the Division Bench of this Court in Deepak Extrusions [2017 (3) TMI 1257 - KARNATAKA HIGH COURT] wherein as rightly held that the mandatory procedure of disposal of objections by the Assessing Officer not having been followed, the order of assessment cannot be sustained. The contention of revenue relying on the judgment of Home Finders [2018 (5) TMI 260 - MADRAS HIGH COURT] cannot be accepted in light of the declaration in the case of Deepak Extrusions [2017 (3) TMI 1257 - KARNATAKA HIGH COURT]stating that the procedure prescribed in GKN Driveshafts (supra) is a mandatory procedure which would vitiate the assessment order - Assessing Officer is bound to dispose off the objections filed by passing a speaking order - Decided in favour of assessee. Issues involved:The issues involved in this case are the legality of the proceedings initiated by the respondents under Section 147 read with Section 148 of the Income Tax Act, 1961, and the validity of various notices and orders issued for the assessment year 2011-12.Issue 1: Bar on limitation and jurisdiction of proceedingsThe petitioner sought relief declaring that the proceedings initiated by the 2nd Respondent and continued by the 1st Respondent are barred by limitation and without jurisdiction under Section 147 read with Section 148 of the Act. The petitioner also requested quashing of the notice and re-assessment order issued by the respondents.Issue 2: Compliance with procedural requirementsThe petitioner argued that the procedure laid down in the case of GKN Driveshafts (India) Limited vs. Income-Tax Officer is mandatory. The petitioner contended that the reassessment order should be set aside as the objections raised were not adjudicated upon before passing the reassessment order, as required by law.Issue 3: Interpretation of procedural complianceThe respondent argued that non-compliance with the procedure prescribed in GKN Driveshafts does not take away the substantive right of the authority. They suggested that the notice under Section 148 should be protected, and the assessing officer should redo the procedure while following the prescribed steps.Judgment:The High Court emphasized that the procedure outlined in GKN Driveshafts is mandatory when issuing a notice under Section 148 of the Act. The Court highlighted that the assessing officer must dispose of objections filed by passing a speaking order before proceeding with the assessment. Failure to adhere to this procedure renders the assessment order unsustainable.The Court referred to previous judgments, including Deepak Extrusions, which emphasized the importance of following the prescribed procedure. The Court rejected the contention that the procedure could be overlooked, citing the mandatory nature of the requirements.Ultimately, the Court set aside the reassessment order, along with the related notices issued by the respondents, due to non-compliance with the procedural requirements outlined in GKN Driveshafts.