S. 147 Objections of assessee cannot be disposed off on an Imaginary Ground

Brief of the Case:

In was held by High Court of Bombay and Goa in the case of M/s V M Salgaoncar Sale International V/s ACIT, that objections raised by the assessee against the reasons recorded U/s 148 of the Act can not be disposed off on an imaginary ground by the assessing Officer.

Facts of the Case:

This assessee challenges the notice dated 28/10/2014 issued under section 148 of the Act on the following grounds:

1. Under invoicing of the exports
2. Income arising out of mining is an illegal income

The assessee by letter dated 09/02/2015 objected to the reasons recorded in the notice stating that they were not holding any mining leases. They were engaged only in the business of buying iron ore, processing it and exporting the processed iron ore.

The assessing officer, without application of mind, vide order dated 20/02/2015 disposed of the petitioner’s objections by stating in his order that the government of Goa has renewed a number of leases with effect from 22.11.2007 for another 20 years. The facts pointed out by the assessee need analysis and understanding of the entire scheme of the mining activities and consequential actions taken by various authorities in pursuance of the Hon’ble supreme court order. In addition to this, the aforesaid order was supported by an affidavit from Deputy Commissioner of Income dated 06/05/2015 stating that even if we assume that the assessee is only into trading, the notice is valid on the ground of under invoicing of the exports.

Question of Law:

Whether objections raised by the assessee against the reasons recorded U/s 148 of the Act, be disposed of on basis of imaginary ground?

Contention of the Assessee:

It was contended by the assessee that they were only engaged n the business of buying iron ore, processing it and exporting the processed iron ore and therefore question of income arising out of mining does not arise. Also the assessment is not sustainable on the ground of under invoicing on the basis of various other contentions raised by assessee.

Contention of Revenue:

It was held by revenue that the procedure to be followed before reassessing an assessee under section 147 of the act has been laid down by the Supreme Court in GKN Driveshafts (I) Ltd. V/s. ITO reported in 259 ITR 19, states that whenever a notice to reopen an assessment under section 148 of the Act is issued to an assessee, the reasons recorded in support of the same must be furnished to the Assessee on his furnishing the return of Income. The assessee would have an opportunity to object to the reasons in support of the notice for reopening an assessment and the Assessing Officer would dispose of the objections by a speaking order to ensure that there is due application of mind. The procedure laid down by the Apex Court is a salutary provision as it ensures that an Assessee is not dragged into a reassessment proceedings unnecessarily. Therefore, before commencing reassessment proceedings the AO can have a second look at his reasons in the context of the objections of the Assessee.

In the present facts, we find that the assessee does not own any mining leases. In fact, the reasons recorded in support of the Impugned notice commence by introducing assessee as a Partnership Firm engaged in buying iron ore, processing the same and exporting it. However the order dated 20/02/2015 and the affidavit dated 06/05/2015, dispose of the objections on the imaginary ground. Thus, the second ground/ reason recorded in support of the notice viz. illegal mining would not apply.

Held By High Court:

It was held by high court that the officers of Revenue should realize that they are not mere revenue collectors, but Officers administering the Act and they must ensure that both assessee and officers complies with the law. Thus, the entire order dated 20/02/2015 disposing of the petitioner’s objection is set aside and restore the petitioner’s objection dated 09/02/2015 to the impugned notice before the respondent-revenue. However, the respondent will assign this issue of objection raised by the petitioner to the Impugned notice to the officer other than the AO who authored the order dated 02/02/2015 and the deponent of the affidavit dated 06/05/2015 filed in the Court.