2025 (6) TMI 49 - AT - Income Tax

Reassessment proceedings quashed for procedural violations - objections not disposed separately, violating natural justice principles

Prasanth Sunil Kumar Bohra Versus ITO, Ward – 20 (2) (1), Mumbai

Prasanth Sunil Kumar Bohra Versus ITO, Ward – 20 (2) (1), Mumbai - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals include:Whether the reopening of the assessment under section 147 of the Income Tax Act, 1961, was valid, particularly focusing on the validity of the notice under section 148 and the approval under section 151;Whether the Assessing Officer (AO) complied with the procedural requirement of disposing of the objections raised by the assessee against the reopening of the assessment, in accordance with the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO;Whether the addition made under section 69 of the Act on account of alleged transactions with a third party (Shripal Vora) was justified, given the assessee's denial of such transactions and the applicability of section 69 only when investments are not recorded in the books of account;Whether the assessment order passed without disposing of the objections raised by the assessee violates the principle of natural justice and is therefore void;Whether the penalty proceedings under section 274 read with section 271(1)(c) and the charging of interest under section 234B were valid;Whether the permission granted under section 151 was mechanical and based on wrong facts, thereby vitiating the subsequent proceedings;Whether the CIT(A) erred in confirming the validity of the reopening and penalty proceedings and in dismissing the objections raised by the assessee.2. ISSUE-WISE DETAILED ANALYSISValidity of Reopening under Section 147 and Notice under Section 148Legal Framework and Precedents: The reopening of assessment under section 147 requires that the AO has reason to believe that income chargeable to tax has escaped assessment. The procedure mandates issuance of a notice under section 148 after obtaining approval under section 151. The Supreme Court in GKN Driveshafts (India) Ltd. v. ITO emphasized that objections raised by the assessee against the reopening must be disposed of by a separate, speaking order before proceeding with reassessment.Court's Interpretation and Reasoning: The Tribunal examined the sequence of events where the AO issued notice under section 148, provided reasons for reopening, and received objections from the assessee denying any transaction with the alleged third party. However, the AO passed the reassessment order without disposing of these objections through a separate reasoned order, thereby violating the procedural safeguards.Key Evidence and Findings: The assessee filed objections on 15.01.2022 against the reopening, which were not disposed of separately. The AO's order dated 30.03.2022 passed under sections 147 read with 144B did not address these objections distinctly. The Tribunal relied on the decision of the Bombay High Court in Kesar Terminals & Infrastructure Ltd. v. DCIT, which held that failure to dispose of objections separately breaches principles of natural justice and renders the reassessment void.Application of Law to Facts: The Tribunal held that the AO's failure to comply with the judicial mandate of disposing objections separately vitiated the reopening proceedings. The procedural lapse was fatal to the validity of the reassessment.Treatment of Competing Arguments: The Revenue relied on judgments from the Madras and Gujarat High Courts that non-disposal of objections does not invalidate reassessment. The Tribunal distinguished these decisions on jurisdictional grounds, emphasizing the binding nature of the Bombay High Court ruling for the present case. The Tribunal also referred to the Supreme Court's ruling in Union of India v. Kamalakshi Finance Corporation Ltd., which accords precedence to jurisdictional High Court decisions.Conclusions: The reopening of assessment was held invalid due to non-compliance with procedural requirements, specifically the failure to dispose of objections separately, thereby quashing the reassessment.Validity of Approval under Section 151Legal Framework: Section 151 requires that reopening under section 147 be preceded by approval from a higher authority (PCIT). The approval must be based on proper facts and not be mechanical.Court's Interpretation: The assessee contended that the approval was mechanical and based on incorrect facts. However, since the reassessment itself was quashed on procedural grounds, the Tribunal did not delve deeply into this issue. The CIT(A) had earlier dismissed this ground.Conclusion: The issue became academic following the quashing of the reassessment.Additions under Section 69 on Alleged Transactions with Shripal VoraLegal Framework: Section 69 applies to unexplained investments not recorded in the books of account. The assessee denied any transaction with Shripal Vora, asserting that no such transaction took place.Court's Interpretation and Reasoning: The AO made additions assuming transactions with Shripal Vora, but the assessee consistently denied such transactions and provided bank statements to support the denial. The CIT(A) had remanded the matter for verification of the genuineness of the transactions and to afford the assessee an opportunity to explain.Application of Law to Facts: The Tribunal noted that since the reassessment was quashed on procedural grounds, the additions under section 69 could not be sustained at this stage. The merits of the addition were left open for fresh consideration after compliance with procedural safeguards.Conclusion: The addition under section 69 was not upheld due to procedural infirmities in the reassessment process.Assessment Order Passed Without Disposing Objections - Violation of Natural JusticeLegal Framework and Precedents: The Supreme Court in GKN Driveshafts (India) Ltd. v. ITO mandated that objections to reopening must be disposed of by a separate, reasoned order to uphold principles of natural justice.Court's Interpretation and Reasoning: The Tribunal found that the AO failed to pass a separate order disposing of the objections, instead addressing them only within the final assessment order. This procedure was held to contravene the principles of natural justice and fair play.Application of Law to Facts: The Tribunal relied on the Bombay High Court decision in Kesar Terminals & Infrastructure Ltd., which quashed the reassessment on similar grounds. The Tribunal applied this binding precedent to the instant cases.Conclusion: The assessment orders were held to be void for failure to comply with natural justice requirements.Penalty Proceedings under Section 274 read with Section 271(1)(c)Legal Framework: Penalty under section 271(1)(c) is leviable for concealment of income or furnishing inaccurate particulars. Section 274 prescribes the procedure for imposing penalty.Court's Interpretation: The assessee challenged the validity of penalty proceedings. However, since the reassessment itself was quashed on procedural grounds, the Tribunal did not adjudicate on the penalty merits.Conclusion: The penalty proceedings were not upheld in the present appeals due to the quashing of the underlying reassessment.Charging of Interest under Section 234BLegal Framework: Section 234B provides for interest on default in payment of advance tax.Court's Interpretation: The assessee challenged the charging of interest. As with penalty, the Tribunal refrained from deciding this issue in view of the quashing of the reassessment.Conclusion: The interest charge issue was left open pending valid assessment.3. SIGNIFICANT HOLDINGSThe Tribunal's crucial legal reasoning includes the following verbatim excerpt from the order:'...It is clear from the subsequence of events narrated above that the AO has passed the order u/s 147 r.w.s. 144 without disposing of the objection raised by the assessee against the re-opening of the assessment. As stated earlier, the appellant had raised objection on 15.01.2022 against the re-opening but the same was not disposed of by the AO by passing a speaking order as per the guidelines issued by the Hon'ble Supreme Court in case of KGN Driveshafts (supra)... The Hon'ble Bombay High Court observed that the Assessing Officer's approach of addressing the objections within the final reassessment order, rather than through a separate, reasoned order, contravened the procedural safeguards designed to ensure fairness in reassessment proceedings... Consequently, the Hon'ble Bombay High Court quashed both the reassessment notice and the subsequent order, holding them to be vitiated due to non-compliance with jurisdictional parameters and procedural requirements... In view of the binding precedent set by the Hon'ble Jurisdictional High Court, it is evident that the Ld. AO failed to comply with the judicial parameters laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (supra). Accordingly, the impugned reassessment stands quashed and is hereby set aside.'Core principles established include:Reopening of assessment under section 147 requires not only valid reasons and approval but also procedural compliance with disposal of objections by a separate, reasoned order;Failure to dispose of objections against reopening violates principles of natural justice and renders reassessment void;Jurisdictional High Court decisions have binding precedential value over non-jurisdictional High Court rulings for the Tribunal;Additions under section 69 require factual basis of unexplained investments or transactions, which must be established after affording opportunity to the assessee;Penalty and interest proceedings depend on the validity of the underlying assessment and are not sustainable if the assessment is quashed on procedural grounds.Final determinations on each issue were that the reassessment and consequent additions, penalty, and interest were quashed due to procedural infirmities, specifically the failure to dispose of objections separately, and the appeals were allowed accordingly.