DCIT Vs Hewlett Packward Financial Services (India) Pvt Ltd (Karnataka High Court)
Karnataka High Court has dismissed an intra-court appeal filed by the revenue department, upholding a single judge’s decision to quash a reassessment order issued to Hewlett Packard Financial Services (India) Pvt Ltd. The High Court’s ruling, delivered recently, reinforced the mandatory nature of disposing of an assessee’s objections to a reassessment notice under Section 148 of the Income Tax Act, 1961, before proceeding with the assessment.
The case originated from a reassessment order dated December 30, 2018, against Hewlett Packard Financial Services. This order, along with subsequent notices, was challenged by the assessee in W.P.No.2392/2019 (T-IT). A learned Single Judge had ruled in favor of the assessee on June 1, 2023, setting aside the reassessment order and related notices, including the initial notice under Section 148.
The revenue department subsequently filed an intra-court appeal, arguing that the non-passing of an order on the assessee’s objections to the reopening of assessment was a curable irregularity, not a legal illegality that would void the assessment. The department’s counsel contended that the matter should have been remitted for fresh consideration, rather than the assessment order being rendered null and void. They further submitted that the assessee’s failure to file a return in response to the Section 148 notice or to file objections in time should also be considered. The revenue also expressed disagreement with the Single Judge’s reliance on the judicial precedents of Deepak Extrusions (P) Ltd. v. Deputy Commissioner of Income Tax, Central Circle and GKN Driveshafts (India) Ltd. v. Income Tax Officer.
Conversely, the assessee’s Senior Advocate, Mr. T Suryanarayan, defended the Single Judge’s order. He emphasized that the passing of an order on preliminary objections is a prerequisite for making an assessment order, citing the Supreme Court’s decision in GKN Driveshafts. He also opposed the revenue’s proposal for a remand, pointing out that the prescribed limitation period had expired on March 31, 2018.
After reviewing the arguments and appeal papers, the Division Bench of the Karnataka High Court declined to intervene, largely concurring with the Single Judge’s findings. The Court reiterated that once reasons for issuing a notice under Section 143(2) (read with Section 148) are communicated and objections are filed by the assessee, the reassessment proceedings are liable to be voided if these objections are not considered and disposed of by a speaking order.
Judicial Precedents: The High Court’s decision heavily relied on established judicial precedents, particularly:
1. GKN Driveshafts (India) Ltd. v. Income Tax Officer (259 ITR 19 (Sc)): This landmark Supreme Court ruling laid down the procedure to be followed when a notice under Section 148 of the Income Tax Act is issued. The Supreme Court clarified that upon receiving such a notice, the assessee should file a return and, if desired, seek reasons for the notice. The assessing officer is then bound to furnish these reasons within a reasonable time. Crucially, upon receipt of the reasons, the assessee is entitled to file objections to the notice, and the assessing officer is bound to dispose of these objections by passing a speaking order before proceeding with the assessment. The Karnataka High Court emphasized that this procedure is mandatory, and non-compliance vitiates the assessment.
2. Deepak Extrusions (P) Ltd. v. Deputy Commissioner of Income Tax, Central Circle (80 TAXMANN.COM 77 (KAR)): A Division Bench of the Karnataka High Court in Deepak Extrusions had already held that the mandatory procedure of disposing of objections by the Assessing Officer, as outlined in GKN Driveshafts, must be followed. Failure to do so renders the assessment order unsustainable. The Single Judge in the current case had relied on this decision, and the Division Bench affirmed its applicability.
The High Court specifically noted the Single Judge’s observations at Paragraphs 11 and 12 of the impugned order. The Single Judge had underscored that reassessment proceedings under Section 148 effectively reopen an assessment. In this context, the non-adherence to the GKN Driveshafts procedure becomes critical. The Single Judge had pointed out that despite the reasons for reopening being communicated and the petitioner furnishing a reply, the Assessing Officer failed to dispose of these objections by a speaking order before passing the assessment order. The practical difficulties of the Assessing Officer due to the limitation expiring on December 31, 2018, were deemed irrelevant in condoning the non-adherence to this mandatory procedure.
The Single Judge had also dismissed the revenue’s reliance on a Madras High Court judgment in Home Finders, stating that it could not be accepted in light of the Division Bench’s declaration in Deepak Extrusions and another Division Bench judgment in W.A.No.919/2019 (disposed of on January 24, 2023), both affirming the mandatory nature of the GKN Driveshafts procedure.
In conclusion, the Karnataka High Court found the intra-court appeal to be without merit, affirming that the failure of the Assessing Officer to dispose of the assessee’s objections by a speaking order, as mandated by the Supreme Court in GKN Driveshafts and reiterated by the Karnataka High Court in Deepak Extrusions, was a fatal procedural flaw that rendered the reassessment order void. The appeal was therefore rejected.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
