Case Law Details
Supply of Reasons Recorded for Making Reassessment is Necessary Otherwise the Income Escaping Assessment shall be Void
Introduction:
In GKN Driveshafts (India) Ltd. vs. ITO [(2003) 259 ITR 19 (SC)], it has been held that when a notice under section 148 of the Income Tax Act, 1961(herein referred to as the ‘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(AO) 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 AO is bound to dispose of the same by passing a speaking order.
Recently, in the CIT(Large Tax Payer Unit), Mumbai vs. IDBI Ltd. [Income Tax Appeal No.494 Of 2014, Decided On 19.09.2016], one of the question raised before Mumbai High Court was whether on the facts and in the circumstances of the case and in law, the ITAT was right in quashing the reassessment proceedings even though the assessee was aware of the reasons of reopening and also participated in the assessment proceedings.
Facts & Decision in brief of IDBI case(supra):
In the above mentioned appeal, for the A.Y. 1993 -94, the regular assessment was completed by an order dated 26.03.1996 under section 143(3) of the Act. Thereafter, on 09.12.1996, the AO issued a notice under section 147 read with Section 148 of the Act, seeking to reopen the assessment for the A.Y. 1993-94. On receipt of notice, the Respondent Assessee sought from the A.O. a copy of reasons recorded for issuing reopening notice dated 09.12.1996. However, the same was not supplied. The AO, in fact passed an Assessment Order on 26.03.1999 consequent to the impugned notice for reassessment dated 09.12.1996 without supplying the copy of the reasons recorded.
Aggrieved by the order, the Respondent Assessee carried the issue in appeal to the CIT(A). In its appeal, the RespondentAssessee inter alia challenged the jurisdiction of the AO to complete the assessment on a reopening notice under Section 148 of the Act without having supplied the copy of the reasons in support of the impugned notice to the Appellant and also on merits i.e. depreciation on leased assets. By an order dated 19 December 2003, the CIT(A) dismissed the Respondent Assessee’s appeal to the extent it related to the lack of jurisdiction with the AO to complete the assessment on a reopening notice without having furnished a copy of the reasons in support thereof to the Assessee.
On this, the Respondent carried the issue in appeal to the ITAT, Mumbai. The ITAT found that it is an undisputed position that in spite of repeated requests made by the Respondent Assessee, the AO did not supply its reasons in support of the reopening notice under Section 148 of the Act. The ITAT by placing reliance upon the decisions of Mumbai High Court in Siesta Steel Construction (P) Ltd. vs. K.K. Shikare [1984] 17 Taxman 122(Bom) page 547, CIT vs. Fomento Resorts and Hotels Ltd. [ITA No.71/2006] and upon the decision of its coordinate bench in case of Tata International Ltd. vs. DCIT [ITA Nos.3359 to 3369/Mum/2009] concluded that the nonsupply of reasons in support of the reopening notice made the order passed thereon bad in law.
On appeal by Revenue before Mumbai High Court challenging the order of ITAT, an alternative submission was made on behalf of the Revenue that the obligation to supply reasons on the AO was consequent to the decision of the Apex Court that GKN Driveshafts (India) Ltd. vs. ITO (supra) rendered in 2003 whi le, in the present case, the reopening notice is dated 09.12.1996. Thus it submitted at the time when the notice under Section 148 of the Act was issued and the time when assessment was completed, there was no such requirement to furnish to the assessee a copy of the reasons recorded.
The learned judges of the Bombay High Court held that the impugned order relies upon the decision of Bombay High Court in Seista Steel Construction (P.) Ltd. (supra) where it is held that in the absence of supply of reasons recorded for issue of reopening notice the assessment order would be without jurisdiction and needs to be quashed. The above view as taken by the ITAT has also been taken by Bombay High Court in CIT vs. Videsh Sanchar Nigam Ltd. [2012] 21 Taxmann 53 (Bombay) viz. nonsupply of reasons recorded to issue a reopening noticee would make the order of assessment passed thereon bad as being without jurisdiction.
Bottomline:
The decision of Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO (supra) had clarified the law in respect of the issue. The decision of the Bombay High Court has endorsed the view that in the absence of supply of reasons recorded for issue of reopening notice the assessment order would be without jurisdiction
