prpri Failure of A.O. to dispose objections raised render re-assessment invalid Failure of A.O. to dispose objections raised render re-assessment invalid

Case Law Details

Case Name : CIT Vs Tupperware India Pvt. Ltd. (Delhi High Court)
Appeal Number : Income Tax Appeal No. ITA 415/2015
Date of Judgement/Order : 10/08/2015
Related Assessment Year : 2003-04

The assessee filed its return of income on 02.12.2013, which was processed u/s 143(1) at the returned income and accordingly refund order of Rs. 20,16,957/- was issued. Subsequently A.O. based on reporting made by statutory auditor in the audit report in the form of 3CD u/s 44AB that the ‘management service fee to the extent of Rs. 1,36,89,075 payable to Tupperware International Holdings EV Ltd. was paid without deducting tax at source’ issued notice u/s 148 on 21.10.2005 recording that since the said deduction was inadmissible under Section 40(a)(i) of the Act, he had reasons to believe that the aforementioned amount had escaped assessment. In the resultant assessment order dated 28th December 2006, the AO recorded that “since the Assessee did not raise any objection to the proposed reassessment after having conveyed the reasons recorded under Section 148 of the Act, there was no need to dispose of the same prior to reassessment. Being aggrieved the assessee filed the appeal before first appellate authority and thereafter before ITAT which decided the issue in assessee’s favor. Consequently, Revenue was in appeal before the Hon’ble Court.

Facts supported Contention of the Assessee

In the order dated 28.01.2011 allowing the assessee’s appeal CIT(A) noted that the Assessee had indeed filed objections to the reopening of the assessment by its letter dated 09.08.2006.In the remand report dated 20th December 2010, the AO quoted a paragraph from the order sheet which stated that the aforementioned letter dated 9th August 2006 had been handed over to the AO and that the AO had sought some more information which the Assessee had not filed. Hence, apparently, the Assessee did raise an objection to the order of the AO reopening the assessment.

Decision of CIT(A)

It was held by CIT that by stating that no objections had been filed the AO had “very conveniently disregarded the guidelines” laid down by the Supreme Court in G.K.N. Driveshafts (India) Ltd. Vs. ITO (2003) 259 ITR 19 (SC).The CIT (A), therefore, agreed with the Assessee that since the procedure laid down by the SC in the aforementioned decision was mandatory, the AO had in fact not disposed of the objections by a speaking order. Nevertheless, the CIT (A) held that the said defect “does not make the assessment order illegal and hence it cannot be quashed. It is a technical mistake which is curable.” So far as dis allowance is concerned, the CIT (A) agreed with the submissions of the assessee and held that in view of the ‘Nil’ withholding certificate issued by the DDIT Circle 1(2) of the International Tax Division in favor of the Assessee in terms of the DTAA between the India and the USA, there was no need for the Assessee to charge tax or withhold tax under Section 195 of the Act. Therefore, on merits the CIT (A) deleted the dis allowance of the above deduction.

Decision of ITAT

The above finding on merits in favor of the assessee was not challenged by the Revenue before ITAT. So far as challenge of revenue was concerned w.r.t validity of reopening of assessment, ITAT hold that the reopening was not legally sustainable. The ITAT relied on the decision of Delhi High Court in CIT Vs. Orient Craft Ltd. (2013) 354 ITR 536 and the decision of the Rajasthan High Court in CIT Vs. Smt. Jyoti Devi (2008) 218 CTR 264 to answer the issue in favor of the Assessee

Contention of the Revenue

The case sought to be urged by the Revenue in this appeal was that in terms of the decision of the Supreme Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 an intimation under Section 143(1) is not an assessment. The acceptance of the Assessee’s return under Section 143(1) does not lead to formation of any opinion on merits so as to require the receipt of any new information for taking recourse to the provisions of Sections 147/148 of the Act. It was also sought to be urged that the facts of the present case were different from that of CIT Vs. Orient Craft Ltd since in that case the AO had no tangible material before to show that the income had escaped assessment.

Held by High Court

It was held that after having correctly understood the decision of the Supreme Court in G.K.N. Driveshafts (India) Ltd. as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment. At the outset it was required to be factually noticed that the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have “reasons to believe that the income had escaped assessment”. As far as the legal requirement is concerned, the Court finds that the decision in CIT v. Orient Craft Ltd. answers the question squarely in favour of the Assessee in the facts of the present case. In Orient Craft Ltd. this Court considered the decisions of the Supreme Court in CIT v. Kelvinator India Ltd. (2010) 320 ITR 561 and Rajesh Jhaveri Stock Brokers P. Ltd.

The department’s contention that the judgement in CIT Vs. Orient Craft Ltd. (2013) 354 ITR 536 (Del) was contrary to the Full Bench verdict in CIT-VI Vs. Usha International Ltd. (2012) 348 ITR 485 and the issue should be referred to a larger Bench was not acceptable because the central issue examined in the decision of the Full Bench in Usha International Ltd. was as to what constituted a “change of opinion”. The Court, therefore, did not consider the decision in Orient Craft Ltd. as being contrary to the decision in Usha International Ltd. In other words, there was no occasion for the Court to refer to a larger bench the question of the correctness of the decision in Orient Craft Ltd. which decision squarely applies to the facts of the present case.

For all of the aforementioned reasons, the Court held that no substantial question of law arises from the impugned order of the ITAT. The appeal was accordingly dismissed.

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