Mangaldas Shetty Vs ITO (Karnataka High Court)
Karnataka High Court Quashes Reassessment for Non-Disposal of Objections and Lack of Mandatory Notice
The Karnataka High Court allowed the writ petition filed by Mangaldas Shetty, quashing the entire reassessment proceedings, including notices under Sections 148 and 143(2), the assessment order under Sections 143(3) read with 147, consequential demand, and penalty proceedings.
The Court held that the reassessment was vitiated on multiple fundamental grounds. First, despite the assessee having filed detailed objections to the reasons recorded for reopening, the Assessing Officer failed to consider or dispose of those objections before completing the reassessment. Relying on the settled law laid down by the Supreme Court in GKN Driveshafts (India) Ltd., the Court reiterated that disposal of objections is mandatory and failure to do so renders the reassessment illegal and without jurisdiction.
Secondly, the Court noted that the mandatory notice under Section 143(2) had not been validly issued before passing the reassessment order. This procedural lapse, by itself, was sufficient to invalidate the assessment, as consistently held by the Supreme Court and various High Courts.
On merits as well, the Court observed that the Assessing Officer had erroneously treated a refundable deposit of ₹5 crore received under an MoU as taxable income, ignoring the contractual terms and the fact that the amount was refundable and not in the nature of income. The Court also applied the doctrine of parity, noting that in the case of the other contracting party, the Department itself had accepted that no transfer or taxable income arose.
In view of these defects, the Court held that the reassessment proceedings were arbitrary, contrary to law, and unsustainable, and accordingly quashed all impugned notices, orders, and consequential proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
