Venkataramanappa Vs ITO (Karnataka High Court)
Summary: The assessee’s assessment for AY 2009-10 was reopened under Section 147 of the Income Tax Act, 1961 by notice under Section 148 dated 29.03.2016, and the assessee filed detailed objections to the recorded reasons on 24.10.2016, but the Assessing Officer completed the reassessment under Sections 143(3) read with 147 on 30.12.2016 without first disposing of those objections. Relying on GKN Driveshafts (India) Ltd. v. ITO, (2003) 1 SCC 72, the Karnataka High Court held that the Assessing Officer is duty bound to dispose of objections by a speaking order before proceeding with the assessment and consequently the reassessment order could not be sustained. However, the Court distinguished the valid assumption of jurisdiction through the notice under Section 148 from the subsequent procedural defect in continuing and completing the reassessment without following the mandatory procedure. It held that non-disposal of objections does not obliterate jurisdiction validly assumed under Section 148 and that the object of the GKN Driveshafts procedure would be achieved by restoring the proceedings to the stage immediately after filing of objections. The Court also held that earlier Karnataka High Court decisions uniformly finding that non-disposal of objections vitiates the reassessment order had not considered whether complete quashing or restoration to the objection stage was the appropriate consequential relief, and therefore the different reliefs granted in those cases did not create conflicting binding precedents. The assessee’s reliance on the Tribunal’s order concerning the co-owner, SHRI LAKSHMANA V. ITO, was likewise rejected because the Tribunal had not consciously adjudicated the legal issue concerning the appropriate relief. The High Court upheld the Tribunal’s direction setting aside the reassessment order and remitting the matter to the AO to dispose of the objections and, if rejected, proceed with the assessment afresh, and dismissed the Income Tax Appeal.
The assessee’s assessment for AY 2009-10 was reopened through a notice issued u/s 148. After receiving the recorded reasons, the assessee filed detailed objections challenging the reopening. However, the AO completed the reassessment without first disposing of those objections by a separate speaking order. The ITAT set aside the reassessment order but remanded the matter to the AO with directions to decide the objections and, if they were rejected, proceed with the assessment afresh.
Before the Karnataka High Court, the assessee contended that failure to follow the mandatory procedure prescribed by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO rendered the entire reassessment proceedings void, and that the ITAT ought to have quashed the reopening instead of granting the AO another opportunity. The assessee also relied upon the Tribunal’s decision in the case of a co-owner, where the reassessment proceedings had been completely set aside.
The High Court accepted that, under GKN Driveshafts, the AO is duty-bound to dispose of the assessee’s objections by a speaking order before proceeding with the reassessment. Consequently, the reassessment order passed without complying with this mandatory requirement could not be sustained.
However, the Court drew a distinction between the assumption of jurisdiction and a procedural defect occurring after jurisdiction had been assumed. It held that the notice under Section 148 constitutes the statutory foundation for reopening, and failure to dispose of objections does not destroy the jurisdiction validly assumed through that notice. The defect lies in continuing and completing the reassessment without following the mandatory procedure, and not in the initial initiation of proceedings.
The Court further observed that earlier Karnataka High Court decisions had uniformly held that non-disposal of objections vitiates the reassessment order. However, those decisions had not specifically examined whether the proper consequential relief should be complete quashing of the proceedings or restoration to the objection stage. Therefore, the different reliefs granted in those cases did not constitute conflicting binding precedents. A judgment is an authority only for the proposition actually considered and decided.
The assessee’s reliance on the ITAT order relating to the co-owner was also rejected because the Tribunal had not consciously adjudicated the legal question concerning the appropriate relief after finding non-compliance with GKN Driveshafts.
Accordingly, the High Court held that the object of the mandatory procedure would be fully achieved by restoring the reassessment proceedings to the stage immediately after the filing of objections. The AO must first dispose of the objections through a reasoned speaking order and may thereafter proceed further in accordance with law. The ITAT’s remand was upheld, and the assessee’s appeal was dismissed.
List of Cases Discussed / Relied Upon
- GKN Driveshafts (India) Ltd. Vs ITO,(2003) 1 SCC 72 — Supreme Court decision requiring the Assessing Officer to dispose of objections to reopening by a speaking order before proceeding with the assessment.
- M/S. Deepak Extrusions Pvt. Ltd. V. DCIT,(2017 SCC ONLINE KAR 1566) — Karnataka High Court decision concerning non-compliance with the GKN Driveshafts procedure and the sustainability of the assessment order.
- M/S Swadesh Trading Co. Vs DCIT, Writ Appeal No. 828 of 2019 (T-IT) — Karnataka High Court decision concerning non-disposal of objections before undertaking the assessment.
- ACIT Vs M/S Mphasis Ltd., Writ Appeal No. 919/2019 (T-IT), judgment dated 24.01.2023 — Karnataka High Court decision concerning the mandatory procedure for disposal of objections.
- DCIT Vs Hewlett Packard Financial Services (India)(P.) Ltd., Writ Appeal No. 989/2023 (T-IT), judgment dated 12.02.2025 — Karnataka High Court decision concerning the consequence of non-compliance with the GKN Driveshafts procedure.
- SHRI LAKSHMANA V. ITO,ITA No.382/Bang/2018, order dated 28.07.2021 — Tribunal order concerning the co-owner, relied upon by the assessee for consistency of relief.
- M.P. GOPALAKRISHNAN NAIR V. STATE OF KERALA,(2005) 11 SCC 45 — Supreme Court decision cited for the principle that a decision is an authority for what it actually decides and not for what logically follows from it.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
