H. P. Diamonds India Pvt. Ltd. Vs DCIT (Bombay High Court)
Objections First, Scrutiny Later: Bombay High Court Stops the AO from Putting the Cart Before the Horse
The controversy
Can the Assessing Officer issue a scrutiny notice in reassessment proceedings before supplying the recorded reasons and deciding the assessee’s objections? Does the obligation to decide objections first merely prevent passing the final assessment order, or does it also prevent commencement of scrutiny?
The Bombay High Court held that the Assessing Officer must dispose of the assessee’s objections by a speaking order before issuing notices under Sections 143(2) or 142(1) in reassessment proceedings.
It also enforced the protection recognised in Asian Paints Ltd.: after rejection of objections, the Assessing Officer must wait four weeks from service of the rejection order before proceeding further.
The Court quashed both notices and all action taken pursuant to them.
Share premium had undergone original scrutiny
The company, engaged in trading in diamonds, filed its return for AY 2012–13 declaring nil income and claiming a business loss of ₹15,000.
During the original scrutiny assessment, the Assessing Officer raised detailed queries concerning share capital and share premium, including the subscribers’ identity and creditworthiness, supporting documents and share valuation.
The company furnished explanations and documents. The assessment was completed under Section 143(3) on 19 March 2015, determining income at nil after disallowing the ₹15,000 business loss.
In a subsequent assessment for AY 2016–17, the Department examined shares issued in FY 2011–12 that were forfeited in FY 2015–16 for non-payment of call money. It made an addition of ₹2 crore under Section 68, alternatively invoking Section 56(2)(ix). The appeal against that assessment remained pending before the CIT(A).
Meanwhile, the Department issued a notice dated 31 March 2019 under Section 148, reopening AY 2012–13.
The sequence that proved fatal
The company filed its return in response to the reopening notice on 10 April 2019 and requested the recorded reasons on 15 April 2019.
However, the Assessing Officer issued a Section 143(2) notice on 2 September 2019, while the reasons were furnished only on 3 September 2019.
The company filed objections on 2 October 2019, raising several jurisdictional challenges, including change of opinion and absence of failure to disclose material facts fully and truly.
The objections were rejected on 31 October 2019. The Assessing Officer then issued a Section 142(1) notice on 12 November 2019, before expiry of four weeks even from the date of the rejection order.
Thus, scrutiny commenced before the reasons were supplied, and further proceedings followed without observing the prescribed waiting period.
Supreme Court remand brought the matter back
The High Court had initially dismissed the writ petition on 11 January 2022.
The Supreme Court set aside that dismissal on 20 May 2022, describing it as a non-speaking and non-reasoned order. Referring to Vishal Ashwin Patel, it remanded the matter for a fresh decision on merits through a reasoned and speaking order.
On rehearing, the company pressed the procedural objection concerning premature commencement of reassessment scrutiny. The High Court confined its decision to that issue.
“Proceeding with assessment” includes issuing scrutiny notices
The Revenue argued that GKN Driveshafts (India) Ltd. v. ITO only prohibited passing the final assessment order before deciding objections.
The High Court rejected that interpretation.
It explained that a return filed in response to Section 148 is processed as a return furnished under Section 139. Where scrutiny is undertaken, issuance of the Section 143(2) notice is the starting point of the assessment proceedings.
The objections may challenge the very jurisdiction to reopen. Accordingly, the Assessing Officer must first rule on those objections before moving into scrutiny.
Issuing the scrutiny notice before deciding jurisdictional objections would, in the Court’s words, amount to putting the cart before the horse. The requirement in GKN Driveshafts was not restricted to withholding the final order.
Four-week protection also breached
The Court separately applied Asian Paints Ltd. v. DCIT, 308 ITR 195 (Bom.), which requires the Assessing Officer to refrain from proceeding further for four weeks after service of the order rejecting objections.
Even assuming that the rejection order was served on 31 October 2019 itself, the notice dated 12 November 2019 was premature.
The Court therefore quashed the Section 143(2) and Section 142(1) notices, together with any action taken in furtherance of them.
It did not quash the Section 148 notice or decide the other reopening grounds. Those contentions were expressly left open.
Author’s comments
The opportunity to object to reopening must precede scrutiny, not merely the final assessment order. Otherwise, the jurisdictional safeguard becomes an exercise conducted after the AO has already proceeded on the assumption that jurisdiction exists.
For practitioners, the chronology matters: the request for reasons, supply of reasons, objections, rejection order, its service and subsequent notices should be examined carefully.
This judgment concerns reopening under the statutory framework applicable to the 2019 notice. Its precise relief must also be preserved: the scrutiny notices and consequential action were quashed, while the remaining jurisdictional challenges were left undecided.
An AO cannot rush into reassessment and reserve the question of authority for later.
Cases Discussed:
- GKN Driveshafts (India) Ltd. v. Income Tax Officer & Ors., (2003) 259 ITR 19 (SC) / (2002) 125 Taxman 963 (SC) — followed; objections to reopening must be disposed of by a speaking order before the AO proceeds with assessment.
- Asian Paints Ltd. v. Deputy Commissioner of Income Tax, 308 ITR 195 (Bom.) — followed; AO must not proceed further for four weeks from service of the order rejecting objections.
- Vishal Ashwin Patel v. Assistant Commissioner of Income Tax Circle 25(3) & Ors., 2022 (5) SCALE 392 — referred to by the Supreme Court while setting aside the earlier non-speaking dismissal and remanding the writ petition.
- Hindustan Lever Ltd. v. R. B. Wadkar, (2004) 268 ITR 332 (Bom.) — relied upon by the assessee on the requirement that reopening reasons disclose the alleged failure to make a full and true disclosure.
FULL TEXT OF THE JUDGMENT OF BOMBAY HIGH COURT
1. Rule. Respondents waive service. With the consent of the parties, Rule made returnable forthwith and heard finally.
2. The above Writ Petition is filed seeking to quash and set aside the Notice issued under Section 148 of the Income Tax Act, 1961 (the IT Act) dated 31st March 2019 and the subsequent order disposing of the objections dated 31st October 2019, as well as the Notice issued under Section 143(2) dated 2nd September 2019 and the Notice issued under Section 142(1) dated 12th November 2019. The Assessment Year in question is A.Y.2012-13.
3. At the outset, we must note that this Writ Petition was dismissed by this Court vide its order dated 11th January 2022. For the sake of convenience the said order is reproduced hereunder:-
“P.C.:
1. Heard learned counsel and considered the petition as well as the affidavit in reply. Mr. Jain says he has not been served a copy of affidavit in reply. Notwithstanding that considering the petition itself we are not inclined to exercise our jurisdiction under Article 226 of the Constitution of India.
2. Petition dismissed.”
4. Being aggrieved by this order, the Petitioner approached the Hon’ble Supreme Court. The Hon’ble Supreme Court, by its order dated 20th May 2022, set aside the order passed by this Court on 11th January 2022 and remanded the Writ Petition to this Court to be heard afresh. The order of the Hon’ble Supreme Court reads as under:
“Issue notice.
In view of our earlier decision in the case of Vishal Ashwin Patel Vs. Assistant Commissioner of Income Tax Circle 25(3) and Ors., 2022 (5) SCALE 392, the matter is to be remanded to the High Court as the impugned judgment and order passed by the High Court is a non-speaking and non-reasoned order, we request Shri Balbir Singh, learned ASG to accept notice on behalf of the respondents.
Leave granted.
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Judicature at Bombay in Writ Petition No.3233/2019 by which the High Court has dismissed the said writ petition in the most casual and cursory manner and the order is a non-speaking order and nothing has been discussed on merits at all and the recent decision of this Court in the case of Vishal Ashwin Patel Vs. Assistant Commissioner of Income Tax Circle 25(3) and Ors. (supra) by which this Court has set aside the similar order passed by the very Bench and remanded the matter to the High Court, we set aside the impugned order passed by the High Court dismissing the writ petition.
We remand the matter to the High Court to decide and dispose of the writ petition in accordance with law and on merits and to pass a reasoned and speaking order.
The present Appeal is accordingly allowed to the aforesaid extent. No costs.”
5. This is how the above Petition has once again come up before this Court.
6. The brief facts of this case are that the Petitioner is in the business of trading in diamonds. For the Assessment Year in question (AY 2012-13), the Petitioner had filed its Return of Income on 28th September 2012 declaring its Income as Rs. NIL (claiming a business loss of Rs.15,000/). The Return of Income of the Petitioner was selected for scrutiny by Respondent No.1 and a Notice under Section 143(2) dated 6th August 2013 was issued and served upon the Petitioner. Thereafter, Notices dated 16th June 2014, 2nd July 2014 and 9th February 2015, were issued under Section 142(1) calling upon the Petitioner to submit various details. Vide Notice dated 16th June 2014, Respondent No.1 specifically required the Petitioner to submit several details in relation to the large share premium received by the Petitioner, along with supporting documentary evidence, such as the list of subscribers with names, PAN, evidence of identity and creditworthiness, and computation of share valuation as on the date of issue. The Petitioner, vide its reply dated 2nd July 2014, provided some of the details and informed that the balance details would be provided soon.
7. Thereafter, another detailed questionnaire was issued under Section 142(1) dated 2nd July 2014 calling for various details related to share capital and share premium as more particularly set out in the said letter. The Petitioner, vide its reply dated 1st September 2014, gave a detailed explanation about the share capital and share premium and submitted various documents. Over and above this, to the Notice dated 9th February 2015, the Petitioner submitted its reply offering a detailed justification of the share premium charged. After all this, vide order dated 19th March 2015, the assessment for A.Y.2012-13 was completed under Section 143(3) of the IT Act determining the total income of the Petitioner at Rs. NIL and disallowing the business loss of Rs.15,000/-.
8. It appears that for A.Y. 2016-17 the Return of Income of the Petitioner was taken up for limited scrutiny by issuing a Notice dated 11th July 2017 under Section 143(2). The issue was whether the funds received in the form of share premium were from disclosed sources and had been correctly offered to tax. In the course of these assessment proceedings for A.Y. 2016-17, a Notice was issued under Section 142(1) specifically asking the Petitioner to provide various details, the relevant portion of which is as hereunder:-
“1) It is seen from Note 2 (Reserves & Surplus) of the Balance Sheet for FY 2015-16 that in the Securities Premium Account, an amount of Rs.10 Lakh is credited therein under the sub-head Share forfeiture account. In this connection, you are required to furnish the following details:
i. Terms and conditions of issue of shares in respect of which the said amount is credited, along with supporting documents in this regard.
ii. Total capital raised and details of persons/subscribers of the share capital.
iii. Details of the investing companies/ persons along with their balance sheet, Profit and Loss account, copy of Income and Bank State for AY 2015-16 and AY 2016-17.”
9. In reply to this Notice, the Petitioner, vide its letter dated 24th December 2018, stated that it had already provided detailed submissions on the subject matter during the assessment proceedings for A.Y. 2012-13 and re-submitted those submissions along with the necessary explanations asked for in that regard. Be that as it may, the assessment for A.Y. 2016-17 was completed on 31st December 2018 under Section 143(3) by making an addition of Rs.2 Crores under Section 68 of the IT Act in respect of shares issued in F.Y. 2011-12, and which were forfeited during the F.Y. 2015-16 for non-payment of call money. The same amount was also alternatively added under Section 56(2)(ix) of the IT Act. Being aggrieved by the Assessment Order passed under Section 143(3) for A.Y. 2016-17, the Petitioner challenged the same in an Appeal before the CIT (Appeals) on 25th January 2019. This Appeal is still pending before the CIT (Appeals).
10. Whilst the above Appeal was pending, on 31st March 2019 i.e. after a period of 4 years, and on the last day before the completion of 6 years from the end of A.Y. 2012-13, Respondent No.1 issued the impugned Notice under Section 148 seeking to reopen the Petitioner’s assessment for A.Y. 2012-13. In response to the Notice issued under Section 148, the Petitioner filed its Return of Income on 10th April 2019 (for A.Y. 2012-13), and on 15th April 2019, the Petitioner asked for the reasons recorded by Respondent No.1 for issuance of the Notice under Section 148. The reasons recorded for reopening the assessment of the Petitioner were forwarded to the Petitioner by Respondent No.1 vide his letter dated 3rd September 2019. However, even prior to furnishing the reasons to the Petitioner, Respondent No.1 issued a Notice dated 2nd September 2019 under Section 143(2) to the Petitioner.
11. The Petitioner, on 2nd October 2019, submitted its objections to the reopening of the assessment. The objections to reopening the assessment were mainly on the following grounds:-
a) That the reopening was totally based on a change of opinion as an exhaustive scrutiny had already been completed under Section 143(3) where specific queries were raised about the share premium, identity, creditworthiness and genuineness of the share capital transactions by issuance of Notices under Section 142(1), in reply to which the Petitioner had submitted its detailed explanations and evidence to the satisfaction of Respondent No.1.
b) That Respondent No.1 had aptly applied his mind to the documents as submitted by the Petitioner and had passed an order under Section 143(3) on 19th March 2015 after verifying all the records on hand. Thus, the present Notice under Section 148 merely displayed a change of opinion which is not permissible in the eyes of law.
c) That the present proceedings, in pursuance of the impugned Notice, would have been a second assessment of the Petitioner’s income which is impermissible in law. Each and every aspect and material, for the purpose of computation of its income, had fully and truly been disclosed by the Petitioner and even verified by Respondent No.1 during the original scrutiny assessment.
d) That there was no failure on the part of the Petitioner to disclose fully and truly any material particulars necessary for the assessment of its income.
e) That the reasons do not mention as to what was the failure on the part of the Petitioner, thereby not abiding by the precedent of the Jurisdictional Bombay High Court in the case of Hindustan Liver Ltd. V/S R. B. Wadkar [(2004) 268 ITR 332] wherein it was well settled that an Assessing Officer must clearly disclose in its reasons as to which fact or material was not disclosed by the Assessee fully and truly, necessary for the assessment of that assessment year, so as to establish the vital link between the reasons and the evidence.
f) That the impugned Notice under Section 148 is therefore barred by limitation as it is issued beyond four years where an assessment has already been completed.
g) That the assessment has been reopened at the fag-end of the time limit for reassessment, which clearly demonstrates that no effort to verify the records of the Petitioner was undertaken, and the reopening was initiated without any due diligence and in a mechanical way.
h) That reopening cannot be sustained where reasons have lacked application of mind by Respondent No.1 on the information in his possession. The Petitioner also specifically pointed out instances from the reasons recorded by Respondent No.1 displaying non application of mind.
i) That the reasons were recorded after obtaining approval from the Principal Commissioner under Section 151 in clear violation of the law.
12. On these objections, Respondent No.1 passed an order dated 31st October 2019 rejecting the said objections. According to the Petitioner, Respondent No.1 was unable to controvert any of the objections submitted by the Petitioner and arbitrarily rejected all its contentions. After disposing of the objections, and before a period of 4 weeks had elapsed from the said date, Respondent No.1 issued a Notice under Section 142(1) dated 12th November 2019 asking for various details. In response to the said Notice, the Petitioner pointed out that the said Notice was in contravention of the law laid down by this Court in the case of Asian Paint Ltd. V/S Deputy Commissioner of Income Tax [(2009) 308 ITR 195 (Bom)] which stipulated that the Assessing Officer should not proceed with the assessment in any manner whatsoever for a period of 4 weeks after serving the order disposing of the Assessee’s objections against the reassessment Notice.
13. Apprehending that Respondent No.1 will proceed with the reassessment and pass an Assessment Order, the Petitioner approached this Court by filing the present Petition. Initially on 3rd December 2019 this Court granted a stay to the impugned Notice dated 31st March 2019 issued under Section 148. This relief continued till the dismissal of the above Writ Petition on 11th January 2022. As mentioned earlier, this order (dated 11th January 2022) was challenged by the Petitioner before the Hon’ble Supreme Court, and the Hon’ble Supreme Court, by its order dated 20th May 2022, set aside the order passed by this Court and remanded the matter for a fresh hearing on merits.
14. In this factual backdrop, though several contentions were raised for challenging the issuance of the Notice under Section 148, the main ground pressed before us in the facts of the present case, was that the reassessment proceedings cannot go any further because the Assessing Officer had proceeded with the assessment by issuing a Notice under Section 143(2) even before supplying the reasons for reopening the assessment of the Petitioner. This was not only in the teeth of the scheme of reassessment but also contrary to the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. V/S Income Tax Officer & Ors. [(2002) 125 taxmann 963 (SC)]. Relying upon this decision, the learned Counsel appearing on behalf of the Petitioner submitted that the Hon’ble Supreme Court has clearly opined that the Assessing Officer must dispose of the objections, if filed, by passing a speaking order before proceeding with the assessment. In the facts of the present case, the Assessing Officer has proceeded with the assessment by issuing a Notice under Section 143(2) before disposing of the objections filed by the Petitioner, and hence, the Notice issued under Section 143(2) itself is bad in law and deserves to be quashed and set aside. Once the Notice under Section 143(2) is quashed and set aside, there is no question of thereafter proceeding with the assessment as that is the stage when the proceedings are initiated for scrutinizing the Return of Income filed by the Assessee pursuant to the Notice issued under Section 148. It is only after scrutinizing the Return of Income that an Assessment Order can be passed under Section 143(3) read with Section 147. Hence, if the assessment is proceeded with by issuing a Notice under Section 143(2), the same has to be issued only after the Assessing Officer disposes of the objections filed by the Petitioner. He, therefore, submitted that de hors any other argument canvassed in the above Petition, the Section 143(2) Notice must be quashed and set aside, and any proceedings taken thereafter would also necessarily have to go.
15. On the other hand, Mr. Sharma, the learned Counsel appearing on behalf of the Revenue, submitted that the reliance placed by the Counsel for the Petitioner on the decision of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) is wholly misconceived. He submitted that the said decision is being read completely out of context. When the Hon’ble Supreme Court stated in GKN Driveshafts (India) Ltd. (supra) that the Assessing Officer shall dispose of the objections filed by the Assessee before proceeding with the assessment, it really means that an Assessment Order cannot be passed under Section 143(3) read with Section 147 before disposing of the objections. He submitted that the decision of the Hon’ble Supreme Court cannot be read to mean that the Assessing Officer is precluded from issuing a Notice under Section 143(2) before disposing of the objections. He, therefore, submitted that the entire argument of the Petitioner, and which is based on the decision of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. (supra), is wholly erroneous and misconceived. Accordingly, Mr. Sharma submitted that there is no merit in the aforesaid argument and the Writ Petition ought to be dismissed.
16. We have heard the learned Counsel for the parties at great length on this issue. We have also perused the papers and proceedings in the above Writ Petition. In the facts of the present case, the impugned Notice issued under Section 148 is dated 31st March 2019. Hence, the present case would be governed by the law as it stood prior to its amendment on 1st April 2021. To put it in a nutshell the law as it stood then was this: (a) If the Assessing Officer had “reason to believe” that income of the Assessee had escaped assessment, he could issue a Notice under Section 148 within the time stipulated under the IT Act; (b) once a Notice was issued under Section 148, the Assessee was obligated to file a Return of Income; (c) after filing the Return of Income, the Assessee could call upon the Assessing Officer, if it so chose, to furnish the reasons for reopening the assessment; (d) once the reasons were furnished, the Assessee had the option to file its objections to those reasons; (e) if the objections were filed, it was incumbent upon the Assessing Officer to dispose of those objections by a speaking order; (f) thereafter, the Assessing Officer had to wait for a period of 4 weeks from the date of service of the order disposing of the objections so as to enable the Assessee to challenge the same before the Court; (g) only thereafter could the Assessing Officer proceed with the reassessment proceedings and pass an Assessment Order. We do not think that there is any dispute with reference to the law as set out by us above.
17. However, the issue that arises for our consideration is whether a Notice under Section 143(2) could be issued before disposing of the objections filed by the Assessee. In other words, can it be said that by issuing a Notice under Section 143(2) before disposing of the objections filed by the Assessee, would amount to proceeding with the assessment. To decide this question, we would first refer to the relevant portion of Section 148 which reads thus:-
“148. Issue of notice where income has escaped assessment. – (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on theassessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.”
(emphasis supplied)
18. As can be seen from this Section, before making any assessment, reassessment or recomputation under Section 147, the Assessing Officer is mandated to serve upon the Assessee a Notice requiring him to furnish a Return of Income or the income of any other person in respect to which he is assessable under the Act, in the prescribed form, verified in the prescribed manner, and setting forth such other particulars as may be prescribed. Section 148 further stipulates that the provisions of IT Act, so far as may be, apply as if such return were a return required to be furnished under Section 139. In other words, once a return is filed in answer to a Notice under Section 148, the same is processed as if it was a return filed under Section 139. In such a scenario, if that return is to be scrutinized, then necessarily, first a Notice under Section 143(2) must be issued, and thereafter, Notices under Section 142(1) can also be issued asking for further particulars and other details. Thereafter, the Assessing Officer, after examining the details, if any, furnished by the Assessee, can pass the reassessment order under Section 143(3) read with Section 147. If no Return is filed or no details are forthcoming, then the Assessing Officer can also pass a reassessment order under Section 144 (best judgment assessment) read with Section 147. On analyzing the provisions of Section 148 as well as the provisions of Section 143 and 142, it is clear that when a Return is filed in answer to a Notice issued under Section 148, to procced with the reopened assessment, a Notice is issued under Section 143(2) to the concerned Assessee. This is really the starting point of the assessment proceedings. This is also clear from what is stated in Section 143(2) which reads thus:-
“143(2) Where a return has been furnished under Section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return.”
(emphasis supplied)
19. Hence, where a Return is filed by the Assessee, the issuance of a Notice under Section 143(2) would amount to proceeding with the assessment whereby the Assessing Officer issues the Notice to ensure that the Assessee has not understated its income or has not computed excessive loss or under-paid the tax in any manner, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the Assessee may rely upon in support of the return filed. The question therefore is, in reassessment proceedings, can a 143(2) Notice be issued before the objections of the Assessee to the reopening are disposed of by the Assessing Officer.
20. It is now well settled that the sine qua non for reopening the assessment for any Assessment Year, the Assessing Officer must have “reason to believe” that income has escaped assessment for that particular Assessment Year. Further, no Notice under Section 148 can be issued unless reasons are recorded by the Assessing Officer and those are placed before the concerned higher authority under Section 151, seeking its sanction for issuance of the said Notice. Once the said higher authority, after examining the reasons for reopening the assessment, is satisfied that the income of the Assessee has escaped assessment, it grants its sanction for issuance of a Notice under Section 148. Once the sanction is received by the Assessing Officer, he proceeds to issue the Notice under Section 148. When one looks at the scheme of Section 148, it is clear that reassessment proceedings can be initiated only if the Assessing Officer has “reason to believe” that income has escaped assessment. Those reasons are then finally furnished to the Assessee to which he files his objections. If those objections are upheld by the Assessing Officer, then naturally, the reassessment proceedings are dropped. If for any reason the Assessing Officer rejects the objections, then the Assessing Officer can proceed with the assessment. Once this is the scheme, we are of the view that before proceeding with assessment, namely by initiating a Notice under Section 143(2), the Assessing Officer must dispose of the objections filed by the Assessee. We say this because, in the objections, the Petitioner could certainly argue that the jurisdictional requirements for reopening the assessment have not been met in the facts and circumstances of a particular case. It is only when the Assessing Officer rules on those jurisdictional requirements can he then proceed with the assessment. If one were to issue a Section 143(2) Notice and proceed with the assessment without first disposing of the objections, it would really amount to putting the cart before the horse.
21. In the view that we have taken, we are supported by the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd (supra). In this decision, the Hon’ble Supreme Court has in fact stated that the Assessing Officer must dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment. The relevant portion of this decision reads thus:-
“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.”
(emphasis supplied)
22. As mentioned earlier, the issuance of a Notice under Section 143(2) is really the starting point of the assessment proceedings once the return is filed by an Assessee. To scrutinize that return, the Assessing Officer starts the scrutiny proceedings by issuing a Notice under Section 143(2). Therefore, we are clearly of the view that before issuance of a Notice under Section 143(2) [in reassessment proceedings] the Assessing Officer must dispose of the objections filed by the Assessee with a speaking order. In reassessment proceedings the Assessing Officer cannot issue a Notice under Section 143(2), or even a Notice under Section 142(1) before disposing of the objections filed by the Assessee by passing a speaking order.
23. In view of what we have held earlier, we are unable to agree with the argument of Mr. Sharma that in GKN Driveshafts (India) Ltd (supra), when the Hon’ble Supreme Court has stated that the Assessing Officer shall dispose of the objections filed by the Assessee before proceeding with the assessment, the same really means that an Assessment Order cannot be passed before disposing of the Assessee’s objections. There is nothing even remotely in the decision of GKN Driveshafts (India) Ltd (supra) to suggest such a conclusion. In fact, the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd (supra) has been explicit in stating that the Assessing Officer shall dispose of the objections, if filed, by a speaking order, before proceeding with the assessment. If the Hon’ble Supreme Court in fact wanted to lay down that it is only an Assessment Order that cannot be passed before the objections were decided, it would have explicitly stated so. We, therefore, find that the argument canvassed by Mr. Sharma on this aspect is wholly misconceived and is therefore rejected.
24. In the facts of the present case, we find that issuance of the Notice under Section 142(1) was also contrary to the law laid down by this Court in Asian Paints Ltd. (supra). In this decision, this Court has clearly held that if the Assessing Officer does not accept the objections filed by the Assessee, he shall not proceed further in the matter for a period of 4 weeks from the date of receipt of service of the said order on the objections by the Assessee. The relevant portion of the decision in Asian Paints Ltd. (supra) reads thus:-
“2. In all the above petitions, it is a case regarding reopening of the assessment order under section 148 of the Income-tax Act. In all the above cases, the petitioners have filed their respective objections on January 15, 2007, with regard to reopening of the assessment.
3. The learned senior counsel for the petitioner pointed out that in some of the cases as soon as the objections were rejected by the concerned Income-tax Officer, even the assessment order has been passed within a very short time whereby the assessee is left without any remedy to challenge such an order of rejection.
4. Hence we make it clear that if the Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee.”
(emphasis supplied)
25. In the facts of the present case, as mentioned earlier, the Notice under Section 143(2) [in reassessment proceedings] was issued on 2nd September 2019 and the reasons for reopening the assessment were furnished to the Petitioner only on 3rd September 2019. Once the reasons were furnished, the Petitioner filed his objections to the reasons recorded on 2nd October 2019. Those objections were rejected by the 1st Respondent by passing an order on 31st October 2019. As per the decision of this Court in Asian Paints Ltd. (supra), the Assessing Officer could not proceed further for a period of 4 weeks from 31st October 2019 [assuming that the said order was served on the very same date]. However, in the facts of the present case the Assessing Officer proceeded further by issuing a Notice under Section 142(1) on 12th November 2019. In other words, the said Notice was issued even prior to the expiry of the period of 4 weeks after the passing of the order rejecting the objections of the Petitioner. The issuance of this Notice is clearly in violation of the law laid down by this Court in Asian Paints Ltd. (supra) and hence cannot be sustained.
26. In view of the foregoing discussion, we hereby set aside the Notice dated 2nd September 2019 issued under Section 143(2) and Notice dated 12th November 2019 issued under Section 142(1) of the IT Act. Necessarily, any action taken in furtherance of these two Notices is also quashed and set aside.
27. Since this is the only issue that was pressed before us, all other contentions in the above Writ Petition have not been ruled upon and are left open to be agitated in the future if the occasion so arises.
28. Rule is made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
29. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
