AO Must Address Objections with Speaking Order Before Reassessment: Calcutta HC

PCIT Vs Champalal Omprakash (Calcutta High Court)

Calcutta High Court ruled that an Assessing Officer (AO) must pass a speaking order while disposing of an assessee’s objections to reassessment before proceeding further. The case involved Principal Commissioner of Income Tax (PCIT) vs. Champalal Omprakash, where the revenue challenged an order by the Income Tax Appellate Tribunal (ITAT), which had quashed the assessment order due to the AO’s failure to address the assessee’s objections. The revenue’s appeal, filed under Section 260A of the Income Tax Act, 1961, questioned whether the Tribunal had erred in following a precedent set by the Madras High Court and Supreme Court in similar cases. The revenue also argued that the Tribunal should have considered the merits of the case rather than quashing the assessment order solely on procedural grounds.

The Tribunal relied on the Supreme Court ruling in GKN Driveshafts (India) Ltd. vs. ITO, which mandates that an AO must consider and address written objections against reassessment through a formal order. The Tribunal found that the AO had failed to follow this mandatory procedure, leading to a procedural lapse. Since the AO did not submit a remand report when the Commissioner of Income Tax (Appeals) [CIT(A)] requested it, the reassessment process was deemed flawed. The High Court upheld the Tribunal’s decision, dismissing the revenue’s appeal and ruling that the AO’s failure to pass a speaking order violated procedural fairness. Consequently, the appeal was dismissed, with the substantial legal questions left open for future consideration.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

We have heard learned Counsel on behalf of either sides.

This appeal has been filed by the revenue under Section 260A of the Income

Tax Act, 1961 challenging the order dated 15.01.2024 passed by the learned Income Tax Appellate Tribunal “B” Bench (The Tribunal) in ITA/1169/Kol/2019 for the asessment year 2011-2012. The revenue has raised the following substantial questions of law for consideration :-

“1. Whether the learned Tribunal has committed substantial error in law by allowing appeal in view of finding of Hon’ble Madras High Court’s Judgement, in M/s. Home Finders Housing Limited vs. The Income Tax Officer [W.A. No.463 of 2017], that non-compliance of procedure indicated in GKN Driveshafts [India] Ltd. [2002] 125 Taxmann 963 [SC]?

2. Whether the learned Tribunal has committed substantial error in law by allowing the appeal of the assessee, quashing the assessment order u/s 147/143[3] of the Income Tax Act, 1961 dated 29.12.2017, by deleting the addition of Rs.4,13,29,247/- made by AO only for not disposing off the objections raised by the assessee to the reason recorded for reopening of the case, before completion of the assessment ?

3. Whether the learned Tribunal has committed substantial error in law by not going into the merit of the case, more so in the light of judgment of Hon’ble High Court at Calcutta in the case, Principal Commissioner of Income Tax -5, Kolkata versus Swati Bajaj reported in the year of 2022 where it was observed that the assessee has failed to discharge legal obligations to prove the genuineness of the transaction and creditworthiness of the transaction ?”

There is a delay of 191 days in filing the appeal. As the explanation offered for the delay is acceptable, the application is allowed and the delay is condoned.

The revenue is aggrieved by a common order passed by the learned Tribunal in the appeals filed by the assessee as well as the department against the order passed by the Commissioner of Income Tax – 13(Appeals) Kolkata, CIT(A) dated 19t^h March, 2019 by which the CIT(A) affirmed the assessment order dated 29.12.2017. Though several issues were raised before the learned Tribunal the first issue is taken up for consideration by the learned Tribunal was whether the assessing officer was right in not disposing of the written objection submitted by the assessee for reopening of the assessment. In fact, this ground was canvassed by the assessee before the CIT(A) which call for a remand report but unfortunately the assessing officer did not submit the remand report and the CIT(A) proceeded to take a decision on merits and particularly allowed the appeal of the assessee but with regard to the percentage of the gross profit rate on the entire turnover and made a restriction thereof. The learned Tribunal, in our view, rightly took note of the decision of the Hon’ble Court in GKN Driveshafts [India] Ltd. vs. ITO [2003] 259 ITR 19 [SC]. The duty cast upon the assessing officer is to decide the written objections given by the assessee to the proposed reopening and passing a speaking order and if the order goes against the assessee, the assesee has a liberty to challenge the order by filing a writ petition as no other alternative remedy is provided under the provisions of the Income Tax Act, 1961. In the instant case, it is not in dispute that the assessing officer did not follow the procedure laid down by the Hon’ble Court in GKN Driveshafts [India] Ltd. [supra]. Therefore, the learned Tribunal was justified in allowing the assessee’s appeal on the said ground. Thus, we find no ground to interfere with the impugned order. Accordingly, the appeal filed by the revenue is dismissed and the substantial question of law No. 1 is decided against the revenue and in favour of the assessee. Consequently, the three substantial questions of law are left open. The application is also dismissed.