Non-disposal of objections filed by the assessee before the completion of assessment is against the procedure prescribed by Hon’ble Supreme Court in the case of GKN Driveshafts (P) Ltd (supra). Hence the same will vitiate the impugned assessment order.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The revenue has filed this appeal challenging the order dated 20.3.2015 passed by Ld. CIT(A), Mysore and the assessee has filed the cross objection. Both relate to assessment year 2011-12. In the cross objection, the assessee is challenging the validity of assessment order.
2. The Cross objection is delayed by 489 days. The Ld A.R submitted that the assessee has filed a petition before the bench for condoning the delay. He submitted that the assessee had raised the ground on validity of reopening of assessment before Ld CIT(A) and the same was decided against him. Hence the assessee could have raised the legal contention under Rule 27 of Appellate Tribunal Rules before the Tribunal. However, he has filed the cross objection only on abundant caution, as advised by his counsel, raising the above said legal issue. Accordingly, the Ld A.R prayed the bench to condone the delay in filing the cross objection.
3. We heard Ld D.R on this preliminary issue. Having regard to the submissions made in the petition, we condone the delay and admit the cross objection filed by the assessee
4. As noticed earlier, the assessee has challenged the validity of assessment order. We heard the parties on the above said legal issue.
5. The assessee is a contractor and he filed the return of income for the year under consideration declaring the total income of Rs.4,98,540/- on 10.3.2012. Subsequently, a survey operation u/s 133A of the Income-tax Act,1961 [‘the Act’ for short] was conducted in the business premises of the assessee on 4.10.2012. It was noticed that the assessee has declared business income u/s 44AD of the Act in the original return of income filed by the assessee. During the course of survey operation, it was noticed that the assessee has made investment in M/s. Venkateshwara Hotel Project at Mogarahalli. However, the said investment was neither reflected nor explained in the original return of income. Accordingly, assessing officer reopened the assessment by issuing notice u/s 148 of the Act on 11.10.2012. The A.O. completed the assessment by determining the total income of the assessee at Rs.1,79,470/-.
6. Before Ld. CIT(A), the assessee raised following grounds with regard to the validity of reopening of assessment.
1. “The assessment Order passed U/s.147 R.W.S. 143(3) for A Y 2011-12 dated30.04.2013 is against the Law and the fact of the case to the extent the assessee is aggrieved.
REGARDING VALIDITY OF 147 ASSESMENT
2. The order U/s.147 made on 30.04.2013 by not following the guidelines and procedures laid down by the Apex Court in the case of GKN Drive Shafts (India) Ltd., V/s. ITO 259 1TR 19 in disposing of the written objection filed against the initiation of action U/s.147 in a speaking order and giving an opportunity to the assessee to contest the validity of the initiation of 147 proceedings by filing an appeal before the CIT (Appeals), before completing the assessment U/s.147 requires to be quashed as held by the Gujarat High Court in the case, of Vishwanath Engineers Vis. ACIT reported in 72 DTR (Guj) 113 and also applying theratio of the Delhi High Court of Makhan Singh Gurucharan Singh (HUF) Vs. CIT Reported in 254 ITR 645 / 122 Taxmann 818 and the decision of Rajasthan High court in the case of Hanuman Sahai Choudhary V/s. Union Of India and Others(2004) 136 Taxmann 93 (Raj).
3. The initiation of Action U/s. 47 on the issues touched by the A 0 in the order sheet notings dated 11.10.2012 is not based on tangible evidence gathered which was not furnished by the assessee in the belated return filed U/s.39(4) since non-maintenance of accounts cannot be a ground for a reason to believe for initiating action U/s.147 when the assessee as per law was not required to maintain accounts in view of insertion of sub-sec.6 to Sec. 44AD with retrospective effect from 01.0,.2011 or prior to insertion of Sub-Sec.6 to Sec. 44AD by the specific application of Sec. 44AA(4). As regards the alleged work progress report relied upon by the A 0, the moot question for consideration is with reference to which information which was not furnished by the assessee in the return filed, the A 0 is comparing the information gathered during the survey to hold that non-furnishing of such information in the returncan be construed as non-disclosure of full and true material facts necessary for assessment? The A.O. has failed to note that the information if any gathered during survey could at best be considered as good information for a regular assessment for verification of an issue and it is a settled law that action u/s 147 is not permitted for verification of an issue.”
7. The Ld. CIT(A) disposed of the above said ground as under:
“As regards the ground that the proceedings initiated u/s 147 is not in accordance with the provisions of law and needs to be cancelled it is suffice to say that the information gathered during the survey as regards the amounts incurred towards construction of the hotel building & more importantly with not even a whisper about it in the return of income originally filed on 4.3.2012, prompted the AO to form a belief that income has escaped assessment. The case laws cited by the appellant are not applicable to the facts of his case & are in fact wholly extraneous to the facts on hand.
In view of the above finding I hold that the assessing officer has followed the procedure as contemplate in the Act and I find that there is no infirmity in the actin of the assessing officer in reopening the assessment and the said reopening of the assessment is in accordance with law. This ground of appeal raised by the appellant is therefore dismissed.”
8. Before us, the assessee is contending that the A.O. has not followed the procedure laid down by the Hon’ble Supreme Court in the case of GKN Driveshaft (India) Ltd (supra) and hence it will vitiate the assessment order passed by the AO.
9. The Ld. A.R. submitted that the A.O. framed a draft assessment order and forwarded the same to the assessee, vide his letter dated 11.2.2013, asking the assessee to file objections, if any for the proposed additions. The Ld. A.R. submitted that this is not the procedure prescribed under any of the provisions of the Income Tax Act. He submitted that the assessee, vide his letter dated 18.2.2013, requested the A.O. to furnish the reasons recorded for reopening of assessment proceedings. He submitted that the letter of the assessee is placed at page Nos.11 & 12 of the paper book. The Ld. A.R. submitted that the A.O.,vide his letter dated 19.2.2013, furnished copy of order sheet noting, wherein the reasons have been recorded before the A.O. Thereafter, the assessee filed his objections to reopening, vide a detailed letter dated 01-03-2013 filed before the AO. However, the A.O. has completed the impugned assessment on 30-04-2013 without disposing of the objections raised by the assessee. The action of the A.O. in not disposing of the objections before completion of the assessment is contrary to the procedure laid down by Hon’ble Supreme Court in the case of GKN Driveshaft (India) Ltd. (supra). Accordingly, the Ld A.R contended that the impugned assessment order is liable to be quashed. In support of these contentions, the Ld. A.R. placed his reliance on the decision rendered by Hon’ble Karnataka High Court in the case of Deepak Extrusions Pvt. Ltd. Vs. DCIT (2017) 80 taxmann.com 77.
10. The Ld. D.R. contended that non-disposing of objections filed by the assessee before completion of assessment would not vitiate the assessment order passed by the A.O. In support of this proposition, the Ld. D.R. placed his reliance on the decision rendered by Hon’ble Madras High Court in the case of Home Finders Housing Ltd. Vs. ITO (2018) 93 taxmann.com 371, wherein it has been held that non-compliance of procedure indicated by Hon’ble Supreme Court in the case of GKN Drive Shafts (India) Ltd. (supra) would not make order void or non-est and such a violation is a procedural irregularity, which could be cured by remitting the matter to the authority. The Ld. A.R. submitted that the SLP filed by the assessee against the order passed by Hon’ble Madras High Court in the above said case have since been dismissed by Hon’ble Supreme Court reported in (2018) 94 taxmann.com 84 (SC).
Accordingly, he pleaded that the matter may be restored to the file of the A.O.
11. In the rejoinder, the Ld. A.R. submitted that the dismissal of SLP by Hon’ble Supreme Court will not result in merger of decision rendered by Hon’ble Madras High Court. He submitted that the above said principle has been explained by the Hon’ble Supreme Court in the case of Kunhayammed Vs. State of Kerala (2000) 113 taxmann 470. He submitted that the jurisdictional High Court’s decision rendered in the case of Deepak Extrusions Pvt. Ltd (supra) is binding on the Tribunal. The Ld. A.R. also submitted that identical issue has been examined by the coordinate bench in the case of Shri Lakshmana Vs. ITO in ITA No.382/Bang/2018 and the Tribunal, vide its order dated 28.7.2021, has held that the assessment order is vitiated and liable to be annulled by following the jurisdictional High Court’s decision.
12. We heard the rival contentions and perused the record. The Hon’ble Karnataka High Court has observed as under in the case of Deepak Extrusions Pvt. Ltd. (supra) with regard to the non following of procedure prescribed by Hon’ble Supreme Court in the case of GKN Drive Shafts India Ltd. (supra).
“11. If the facts of the present case are examined in the light of aforesaid legal position, it is an admitted osition that the reasons for re-opening of the assessment by issuing of the notice under Section 148 of the Act were supplied to the appellant assessee. It is also admitted position that the appellant assessee after receipt of such reasons raised objections. It is also undisputed position that the Assessing Officer did not dispose of the objections prior to proceeding with the assessment further and proceeded to pass the order for assessment. Under the circumstances, it can be said that the mandatory procedure of disposal of the objection by Assessing Officer before proceeding with the assessment has not been folio ed and exercise of power can be said as not only vitiated, but the order of assessment cannot be sustained.”
13. The above said decision of the jurisdictional High Court was followed by the coordinate bench in the case of Sri Lakshmana (supra) and the relevant observations made in this regard are extracted below:
“9. We have given a careful consideration to the rival submissions. The facts are undisputed that the assessee raised objections with regard to validity of initiation of proceedings under section 147 of ale Act by his letters dated 03.10.2016 and 24.10.2016 after filing the return of income. The admitted position is the AO has not disposed off the objections by a speaking order. Under the circumstances, it is clear that the mandatory procedure of disposal of objection by the AO before proceeding with the assessment has not been followed and therefore the order of assessment cannot be sustained and has to be quashed. The decision of the Hon’ble Karnataka High Court which is the jurisdictional High Court as far as this Tribunal is concerned in the case of Deepak Extrusions Pvt. Ltd., (supra) supports the case of the assessee. The other decisions of the Hon’ble Gujarat High Court and the Hon’ble Madras High Court referred to in the order of the CIT(A) being the decisions of the non-jurisdictional High Courts, are not binding in the light of the decision of the Hon’ble jurisdictional High Court. Consequently, we uphold the grievances projected by the assessee in ground No.3 n) and hold that the order of assessment passed is vitiated and liable to be annulled. In view of the above conclusion, we are of the view that the other issue raised by the assessee in its appeal does not require examination.”
14. Following the decisions rendered by the Hon’ble jurisdictional High Court in the case of Deepak Extrusions Pvt. Ltd (supra) and the co-ordinate bench in the case of Shri Lakshmana (supra), we hold that non-disposal of objections filed by the assessee before the completion of assessment is against the procedure prescribed by Hon’ble Supreme Court in the case of GKN Driveshafts (P) Ltd (supra). Hence the same will vitiate the impugned assessment order. Accordingly, the same is liable to be quashed. We order accordingly. Since the assessment order itself is quashed, there is no necessity to deal with the grounds urged by the revenue.
15. In the result, the cross objection filed by the assessee is allowed and the appeal of the revenue is dismissed.
Order pronounced in the open court on 24th Sept, 2021.