Reassessment order under Section 147 set aside for failing to provide reasons despite assessee's request

The Madras HC set aside a reassessment order under Section 147 for denial of natural justice. The assessing authority passed the order on the last date for exercising reassessment power without supplying reasons pursuant to notice under Section 148, despite the petitioner's request. The court relied on precedent establishing that failure to furnish reasons for reopening upon request vitiates assessment proceedings. Following Supreme Court guidance in GKN Driveshafts case, the court held that non-furnishing of reasons causes serious prejudice and vitiates proceedings, ruling in favor of the assessee.

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Issues:
The judgment involves a challenge to an assessment order under Section 147 of the Income Tax Act, 1961 based on the grounds of failure to furnish reasons for reassessment, inadequate time for response, and non-compliance with the principles of natural justice.

Assessment Proceedings:
The petitioner, engaged in preparing engineering drawings for overseas companies, filed its original return for the assessment year 2016-17. Following scrutiny, a deduction under Section 35(1) was disallowed, resulting in a revised total income. Subsequently, a notice was received to reopen the assessment, but despite requests, reasons for reopening were not provided, leading the petitioner to believe the reassessment proceedings were dropped.

Show Cause Notices and Time Constraints:
The petitioner was served with show cause notices adding donations to total income and requesting documents under Section 142(1) of the Act. The notices were sent with short notice periods, causing difficulties in responding adequately. The assessment order under Section 147 was passed while the petitioner was gathering documents to respond to the notices.

Legal Precedents and Compliance:
The judgment refers to the decision in GKN Driveshafts Ltd. vs. Income Tax Officer, emphasizing the mandatory nature of furnishing reasons for reassessment upon request by the assessee. Failure to provide reasons was held to vitiate the proceedings, as seen in previous cases like Bayer Material Science Pvt. Ltd. and KSS Petron Pvt Ltd. The impugned order in this case was found to be in gross disregard of the procedure laid down by the Supreme Court, leading to its quashing.

Conclusion:
The High Court quashed the impugned order, citing non-compliance with the requirement to furnish reasons for reassessment and the violation of procedural fairness. The respondent was allowed to reassess within the limits of the law. No costs were awarded, and the writ petition was allowed, with the connected miscellaneous petition closed.

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