Case Law Details
Girraj Prasad Gilara HUF Vs ITO (ITAT Jaipur)
The revenue has not disputed that the assessee has raised the objections vide letter dated 19th July, 2016 against the notice issued under section 148 of the IT Act.
Assessee has raised the objections against the reopening of the assessment on the ground that there is no tangible material to conclude or to form the opinion that due to Client Code Modification Facility used by the broker the income of the assessee assessable to tax has escaped assessment. These objections raised by the assessee no doubt are required to be disposed off by the AO by a separate and speaking order before passing the reassessment order.
As the AO has not dealt with and disposed of the objections raised by the assessee against reopening of the assessment on merits meaning thereby has disposed of the objections without considering the objections on merits solely on the ground that assessee has not filed return of income within period not less than 30 days from the date of receipt of notice under Section 1 48 of the Act, impugned orders disposing of the objections are hereby quashed and set aside and the matters are remanded to the AO to consider, decide and dispose of the objections on its own merits and in accordance with law and in light of the observations made herein above. The aforesaid exercise shall be completed by the AO within a period of two months from the date of receipt of writ of the present order. However, it is made clear that this Court has not expressed anything on merits with respect to legality and validity of the notice under Section 148 of the Act or even with respect to objections raised against the reopening of the assessment for respective assessment years.
Requirement of disposing off the objections against the notice issued under section 148 by a separate and speaking order is a mandatory requirement in view of the judgment of the Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. vs. ITO (supra), the failure of the AO to dispose off the objections renders the reassessment order not sustainable in law. In the case in hand there is complete failure on the part of the AO to dispose off the objections against notice u/s 148 of the Act and not merely a procedural irregularity of separate and speaking order. Accordingly, in the facts and circumstances of the case and specifically involving the issue of addition of Rs. 2,71,317/-, we find that in this case the AO does not deserve a second inning. Accordingly, without remitting the matter to the record of the AO, the reassessment order passed by the AO is set aside being invalid.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against the order dated 8th January, 2019 of ld. CIT (A), Ajmer for the assessment year 2009-10. The assessee has raised the following grounds :-
“1. On the facts and in the circumstances of the case and in law the assessment order passed by AO u/s 143(3) r.w.s. 147 of Income Tax Act dated 29/11/2016 is bad in law and perverse, void ab initio and deserves to be annulled as the same is based on presumptions, assumptions conjectures, and surmises having no material against the assessee or irrelevant material and/or on the material/findings which do not having any bearing in the case of the assessee and also relying on the material without providing the opportunity to assessee of confrontation.
2. On the facts and in the circumstances of the case and in law the CIT (A) erred in confirming the addition of Rs. 2,71,317/-made by ld. AO by disallowing the loss of Rs. 2,71,317/- incurred in F & O trading of shares treating the same as accommodation loss.
3. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in confirming the addition of Rs. 5,426/- made by ld. AO on account of alleged unaccounted commission paid for acquiring alleged accommodation loss.
4. The assessee prays for leave to add, to amend, to delete, to modify the all or any grounds of appeal on or before the hearing of appeal.
Vide application dated 16.07.2020, the assessee has also raised additional grounds of appeal as under :-
“ 1. On the facts and in the circumstances of the case and in law the assessment order passed by AO u/s 143(3) r.w.s. 147 of Income-Tax Act dated 29/11/2016 is bad in law and perverse, void ab initio and deserves to be annulled as the ld. AO recorded his satisfaction only on the basis of information received from the DIT (I & CI) without carrying out his independent enquiries and hence he assumed jurisdiction merely on borrowed satisfaction which is impermissible in law.
2. On the facts and in the circumstances of the case and in law the assessment order passed by AO u/s 143(3) r.w.s. 147 of Income-Tax Act dated 29/11/2016 is bad in law and perverse, void ab initio and deserves to be annulled as the reassessment order passed without disposing off the objections raised by the assessee regarding reopening/initiating reassessment proceedings objected vide letter dated 19/07/2016.
The hearing of the appeal is concluded through Video Conference due to prevailing condition of COVID 19 pandemic.
2. As regards the additional ground no. 1, we find that the assessee has already raised the ground challenging the validity of initiation of reassessment proceedings under section 147/148 in ground no. 1 and, therefore, the additional ground no. 1 is nothing but extension of ground no. 1 raised by the assessee in Form No. 36 of the Memorandum of Appeal. Accordingly, additional ground no. 1 is not raising any new issue but it is subsumed in the ground no. 1 of the assessee’s appeal.
3. As regards the additional ground no. 2 challenging the validity of the reassessment order passed under section 147 of the IT Act on the ground that the AO has passed the impugned reassessment order dated 29.11.2016 without disposing off the objections raised by the assessee vide letter dated 19th July, 2016. The ld. A/R of the assessee has submitted that this additional ground is purely legal in nature and goes to the root of the matter. Further, the facts necessary to adjudicate this ground are already on record and, therefore, no new facts or material are required to be verified for adjudication of this ground. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in case of NTPC vs. CIT, 229 ITR 383 (SC) and submitted that the Hon’ble Supreme Court has held that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having bearing on the tax liability of the assessee. The ld. A/R has also relied upon the Hon’ble Jurisdictional High Court in case of Zakir Hussain vs. CIT, 202 CTR (Raj.) 40 and submitted that the Hon’ble High Court has held that the Tribunal has wide powers to permit raising of additional ground at any stage of proceedings in deciding the appeal.
4. On the other hand, the ld. D/R has submitted that the assessee cannot be allowed to raise such a new plea at this stage without explaining the reasons as to why this ground was not raised in Form No. 36 as well as before the authorities below. The ld. D/R has objected to the admission of the additional ground.
5. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the additional ground no. 2 involves the pure question of law and no new facts or material are required to be verified or examined for the purpose of adjudication of this ground. On the contrary, all the relevant facts required for adjudication of this ground are already on record and not in dispute. We further note that this is not a fresh plea raised by the assessee first time before this Tribunal, but the assessee has raised this plea before the ld. CIT (A) in support of its ground no. 1 raised before the ld. CIT (A) regarding validity of the reassessment order. The relevant part of this contention of the assessee has been recorded by the ld. CIT (A) at pages 5 & 6 of the impugned order as under :-
“iv) Further the reassessment proceedings were complete without disposing off the objections raised by the assessee regarding reopening of the reassessment proceedings objected vide letter dated 19.07.2016. The Assessing Officer failed to dispose of the objections raised by the assessee against the reassessment under Section 148 and completed the reassessment in the first round. The procedure for reassessment proceedings has been prescribed by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO 259 ITR 19 (SC). In this case it is categorically held that the reasons recorded must be provided to the assessee and the objections as made by the assessee are required to be dealt with the Assessing Officer. In the present case, other than providing the reasons recorded the Assessing Officer had not dealt with the objections though the assessee had filed their objections.
Therefore, the assessment completed by the Assessing Officer without first deciding the objections against the reasons for reopening is bad in law. Since the Assessing Officer has committed an illegality in not deciding the objections against the reopening of the assessment separately and prior to the completion of the assessment. Therefore the order passed by the Assessing Officer is in violation of the decision o f the Hon’ble Supreme Court in the case of GKN Drive Shaft India Ltd. (supra). Hence the assessment order so passed is illegal and without jurisdiction and liable to be quashed. The further reliance is placed in following–decisions: –
(i) Pushpak Bullion Pvt. Ltd. Vs. DCIT 371 ITR 81 (Guj)
(ii) General Motors India P. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj)
(iii) G N Mohan Raju Vs. ITO (2015) 167 TTJ (Bang) 236.
(iv) Hon’ble Bombay High Court in the case of Allana Cold Storage Ltd. Vs. ITO and others (2006) 287 ITR 1 has quashed the assessment where the Assessing Officer did not follow the procedure of considering the objections.
(v) A Division Bench of this Court in Arvind Mills Ltd. v. Assistant Commissioner of Wealth Tax (No.2), (2004) 270 ITR 469 after considering the decision of this Court in Garden Finance Ltd. v. ACIT, (2004) 268 ITR 48 (Guj.) held in the majority opinion as under :-
“…….. What the Supreme Court has now done in the GKN’s case (2003) 259 ITR 19 is not to whittle down the principle laid down by the Constitution Bench of the Apex Court in Calcutta Discount Co. Ltd.’s case (1961) 41 ITR 191 but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the re-assessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the reassessment proceedings which would have entailed the liability to pay tax and interest on re-assessment and also to go ITR No. 1559 to 1562/ Bang/2010 through the gamut of appeal, second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to the High Court. Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the reassessment notice under section 148 has been considerably softened by the Apex Court in the GKN’s case (2003) 259 ITR 19 in the year 2003. In my view, therefore, the GKN’s case (2003) 259 ITR 19 does not run counter to the Calcutta Discount Co. Ltd.’s case (1961) 41 ITR 191(SC) but it merely provides for challenge to the re-assessment notice in two stages, that is—
(i) raising preliminary objections before the Assessing Officer and in case of failure before the Assessing Officer,
(ii) challenging the speaking order of the Assessing Officer under section 148 of the Act. ”
Thus in view of above the position in law is thus well settled After a notice for re-assessment has been issued an assessee is required to file the return and seek reasons for issuance of such notice. The Assessing Officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the Assessing Officer is under a mandate to dispose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued.”
In view of above submission ‘this is to submit that order passed u/s 143(3) r.w.s. 147 of Income Tax Act, 1961 is bad in law, void-ab ignition and deserve to be annulled. “
Thus it is clear that the assessee has not only challenged the validity of reopening but also challenged the impugned reassessment order passed by the AO on the specific ground that the AO has not disposed off the objections raised by the assessee against the notice issued under section 148 of the IT Act. The assessee has also relied upon various decisions as part of the submissions before the ld. CIT (A) reproduced above. Thus the issue raised in the additional ground no. 2 is arising from the impugned order of the ld. CIT (A) though the ld. CIT (A) has not disposed off this objection of the assessee in specific terms. The relevant part of the order of the ld. CIT (A) rejecting the ground raised against the validity of the reassessment order in para 4.3 is as under :-
“4.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the AO had specific information in his possession that the appellant had shifted in ascertained losses in order to reduce his income by misuse of facility of Client Code Modification through his broker. Hence, I am of the considered opinion that the AO had sufficient material with him to form the belief that income pertaining to A. Y. 2009-10 had escaped assessment. Therefore, the reopening of assessment u/s 147 and issue of notice u/s 148 for the A. Y. 2009-10 in the case of the appellant by the AO is held to be valid and in accordance with the provisions of law. This ground of appeal is dismissed.”
Once the assessee has raised this plea before the ld. CIT (A), then the mere not raising the same in the Memorandum of Appeal would not prohibit the assessee from raising this plea during the appellate proceedings. Accordingly, in the facts and circumstances of the case as well as following the decision of Hon’ble Supreme Court in the case of NTPC vs. CIT (supra), we admit the additional ground no. 2 for adjudication on merits. Since the additional ground no. 2 is purely legal in nature and goes to the root of the matter, therefore, first we take up this additional ground for adjudication.
6. The ld. A/R of the assessee has submitted that the assessee filed its original return of income under section 139(1) on 24.07.2009 disclosing all the relevant facts regarding the income of the assessee and particularly the income from share trading. Subsequently, the AO has reopened the assessment by issuing a notice under section 148 on 28th March, 2016 on the ground that the assessee has shown fictitious profit and loss created by some brokers by misusing Client Code Modification Facility and thereby the net total income of the assessee got reduced by Rs. 2,71,317/-. Thus the ld. A/R has submitted that in the reasons recorded by the AO, the AO has not established a direct nexus with the Client Code Modification Facility availed by the broker and the alleged income of the assessee assessable to tax has escaped assessment. The ld. A/R has pointed out that the assessee vide letter dated 19th July, 2016 has raised the objection against the notice under section 148 of the Act but the AO has not disposed off the objection raised by the assessee by a separate and specific order before passing the reassessment order. Therefore, the reassessment order passed by the AO is not sustainable in law when the AO has failed to dispose off the objections of the assessee. In support of his contention, he has relied upon the following decisions :-
Pushpak Bullion Pvt. Ltd. vs. DCIT 379 ITR 81 (Guj.)
General Motors India P. Ltd. vs. DCIT 354 ITR 244 (Guj.)
Allana Cold Storage Ltd. vs. ITO and Others 287 ITR 1 (Bombay)
7. On the other hand, the ld. D/R has submitted that the assessee has participated in the assessment proceedings and never pursued the alleged objections filed against the notice under section 148 of the Act. The ld. D/R has further contended that though the assessee challenged the validity of reopening, however, no specific ground was raised before the ld. CIT (A) against the non disposal of the objections by the AO before passing the reassessment order. Once the assessee has participated in the proceedings and allowed the AO to pass the reassessment order, then the assessee cannot be allowed to raise this objection. Further the ld. D/R has submitted that it is only a curable defect and the objections can be disposed off by the AO. In support of her contention, the ld. D/R has relied upon the decision of Hon’ble Supreme Court in case of Home Finders Housing Ltd. vs. ITO 94 Taxmann.com 84 (SC).
8. We have considered the rival submissions as well as the relevant material on record. The revenue has not disputed that the assessee has raised the objections vide letter dated 19th July, 2016 against the notice issued under section 148 of the IT Act. The relevant part of the objections raised by the assessee are as under :-
“ Respected Sir,
In connection to above cited subject and on behalf of our above captioned client we submit as under for your kind perusal and consideration :-
“1) Kindly refer to copy of notice issued u/s 148 of Income Tax Act, 1961 dated 28.03.2016 which was not served to assessee and the copy of the same was taken from your office on 18.07.2016. In compliance to your notice this is to submit that the assessee has already filed its Income Tax return u/s 139(1) of Income Tax Act, 1961 on 24.07.2009 and the same may kindly be treated as filed in compliance to notice issued u/s 148 of Income Tax Act, 1961.The copy of ack. of ITR and computation of total income is enclosed herewith at Page No. 1 to 3.
2) Kindly refer to reasons record for reopening of the case of the assessee which has been provided by your honour during the course of hearing on 18.07.2016. Regarding the reasons recorded we may submit as under: –
a) In the reasons recorded by your honour it has been mentioned that on some brokers and clients, survey u/s 133A of Income Tax Act, 1961 was carried out and they confirmed having misused the facility of client code modification to create fictitious losses/profits. From the reasons so recorded it is not clear that how the assessee is concerned with such survey or how the conclusion drawn as a result of such survey is applicable on the assessee. It is not mentioned that what short o f evidence was-gathered as a result of survey against the assessee.
b) In the reasons it has been-mentioned that assessee has taken entries o f fictitious profit/loss by misusing of facility of client code modification resulting in net reduction in income of Rs. 2,71,317/- but the reason recorded your honour is not backed with any working/supporting. Your honour is therefore requested kindly to provide the complete documents, evidences and reports etc. gathered as a result of survey on brokers/clients on the basis of which your honour opined that the assessee has claimed loss amounting to Rs. 2,71,317/- through client code modification.
c) It is further submitted that all the transaction carried out by the assessee are genuine transactions and the same is supported by documents. Whatever transaction carried out by the assessee are supported by contract note cum bill issued by stock broker (copies O f the same are enclosed herewith at Page No. 4 to 6) and the whatever brokerage paid is duly charged by the broker in his bill payment o f which was either adjusted out of profit of the assessee or made through. a/c payee cheque.
Thus the entire reassessment proceedings. is, solely hased on some report which is not coupled with any documentary evidence, therefore the reopening of assessment proceedings is bad-in-law, invalid, void-ab-inition and deserve to be drop. ”
Thus the assessee has raised the objections against the reopening of the assessment on the ground that there is no tangible material to conclude or to form the opinion that due to Client Code Modification Facility used by the broker the income of the assessee assessable to tax has escaped assessment. These objections raised by the assessee no doubt are required to be disposed off by the AO by a separate and speaking order before passing the reassessment order. The assessee has relied upon various decisions including the decision of Hon’ble Gujarat High Court in case of Pushpak Bullion Pvt. Ltd. vs. DCIT, 379 ITR 81 (Guj.) wherein the Hon’ble High Court while considering the issue of validity of reassessment order passed by the AO without disposing off the objections has observed in para 7 to 9 as under :-
“7. Having heard the learned advocates for the respective parties and considering the impugned orders by the AO disposing of the objections, it appears that the AO has disposed of the said objections without deciding it on merits and solely on the ground that as the assessee has not filed the return pursuant to the notice issued under Section 148 of the Act within a period not less than 30 days from the date of receipt of the notice under Section 148 of the Act. That while disposing of the said objections on the aforesaid ground, the AO has relied upon and considered the decision of the Division Bench of this Court in the case of Sahakari Khand Udyog Mandal Ltd. (supra). However, on considering the directions issued by the Division Bench of this Court in the case of Sahakari Khand Udyog Mandal Ltd. (supra), it appears that AO has misread and/or misinterpreted the directions issued by the Division Bench of this Court in the case of Sahakari Khand Udyog Mandal Ltd. (supra).
8. In the case of Sahakari Khand Udyog Mandal Ltd. (supra) the Division Bench had an occasion to consider the various difference stages from the date of notice under Section 148 of the Act to the reassessment order and ultimately after considering the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra), in para 14 had issued the following directions;
“1. Once the Assessing Officer serves to an assessee a notice of reopening of assessment under section 148 of the Income Tax Act, 1961, and within the time permitted in such notice, the assessee files his return of income in response to such notice, the Assessing Officer shall supply the reasons recorded by him for issuing such notice within 30 days of the filing of the return by the assessee without waiting for the assessee to demand such reasons.
2. Once the assessee receives such reasons, he would be expected to raise his objections, if he so desires, within 60 days of receipt of such reasons.
3. If objections are received by the Assessing Officer from the assessee within the time permitted hereinabove, the Assessing Officer would dispose of the objections, as far as possible, within four months of date of receipt of the objections filed by the assessee.
4. This is being done in order to ensure that sufficient time is available with the Assessing Officer to frame the assessment after carrying out proper scrutiny. The requirement and the time-frame for supplying the reasons without being demanded by the assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening. Likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. This, however, would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) would not apply. It only means that the time frame provided hereinabove would not apply in such cases.
5. In the communication supplying the reasons recorded by the Assessing Officer, he shall intimate to the assessee that he is expected to raise the objections within 60 days of receipt of the reasons and shall reproduce the directions contained in sub-para 1 to 4 hereinabove giving reference to this judgment of the High Court.
6. The Chief Commissioner of Income Tax and Cadre Controlling Authority of the Gujarat State, shall issue a circular to all the Assessing Officers for scrupulously carrying out the directions contained in this judgment.”
8.1 From the aforesaid, it does not appear that any observation has been made by the Division Bench and/or any direction is issued by the Division Bench that assessee has to file return of income in response to the notice under Section 148 of the Act within a period not less than 30 days. What is observed/directed by the Division Bench is that if the assessee when files his return of income in response to notice under Section 148 of the Act, the AO shall supply the reasons recorded by him for issuing such notice within 30 days of the filing of the return by the assessee without waiting for the assessee to demand such reasons. The Division Bench has further observed and directed that once the assessee receives such reasons, he would be expected to raise his objections, if he so desires, within 60 days of receipt of such reasons and if objections are received by the Assessing Officer from the assessee within the time permitted hereinabove, the Assessing Officer would dispose of the objections, as far as possible, within four months of date of receipt of the objections filed by the assessee. That the Division Bench has also further clarified that requirement and the time-frame for supplying the reasons without being demanded by the assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening and likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. The Division Bench has also further observed and clarified that this however, would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) would not apply and it only means that the time frame provided hereinabove would not apply in such cases. Meaning thereby, the aforesaid time limit shall be strictly adhered to by the AO to supply reasons recorded; by the assessee to file objections, if he so desire within 60 days and by the AO to dispose of the objections within four months. As further clarified even in case the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) shall be followed. It is true that on receipt of notice under Section 148 of the Act, the assessee is required to file return within time prescribed in such notice and/or within reasonable time and simultaneously asked for the reasons recorded for reopening and AO is bound to dispose of such objections within time provided by the Division Bench in the case of Sahakari Khand Udyog Mandal Ltd. (supra), however in any case before the order of assessment under Section 143(3) r/w Section 147 of the Act. However, at this stage also, the AO must give reasonable time to the assessee to challenge the order disposing of the objection by way of petition under Article 226 of the Constitution of India.
8.2 In the case of GKN Driveshafts (India) Ltd. (supra), the Hon’ble Supreme Court has laid down an elaborate procedure as to the manner of dealing with objections raised against a notice under Section 148 of the Act in the following words:—
“. . However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the notice is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instance case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.”
8.3 In a subsequent decision in the case of Garden Finance Ltd. (supra), the effect of Supreme Court decision in the case of G.K.N. Driveshaft (India) Ltd. (supra) came up for consideration and by a majority opinion it has been thus laid down by this Court as under:
“What the Supreme Court has now done in the G.K.N. Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 is not to whittle down the principle laid down by the Constitution Bench of the Apex Court in Calcutta Discount Co. Ltd. v. ITO case [1961] 41 ITR 191 but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the re-assessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the re-assessment proceedings which would have entailed the liability to pay tax and interest on re-assessment and also to go through the gamut of appeal, the second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to the High Court.
Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the re- assessment notice under section 148 has been considerably softened by the Apex Court in G.K.N. Driveshafts (India) Ltd. v. ITO case [2003] 259 ITR 19 in the year 2003. In my view, therefore, the G.K.N. Driveshafts (India) Ltd. v. ITO case (2003) 259 ITR 19 (SC) does not run counter to the Calcutta Discount Co. Ltd. v. ITO case (1961) 41 ITR 191 (SC) but it merely provides for challenge to the re-assessment notice in two stages, that is,—
(i) raising preliminary objections before the Assessing Officer and in case of failure before the Assessing Officer,
(ii) challenging the speaking order of the Assessing Officer under section 148 of the Act (p.87).”
8.4 Thereafter, in the case of Arvind Mills Ltd. (supra), the Division Bench of this Court had an opportunity to consider the aforesaid two decisions and after considering both the aforesaid decisions, in para 9 the Division Bench has observed and held as under:
“9. The position in law is thus well settled. After a notice for re- assessment has been issued an assessee is required to file the return and seek reasons for issuance of such notice. The Assessing Officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the Assessing Officer is under a mandate to dispose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued.”
8.5 Thus, considering the aforesaid decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra)and the decision of the Full Bench of this Court in the case of Garden Finance Ltd. (supra) and the decision in the case of Arvind Mills Ltd. (supra)and the decision of the Division Bench in the case of Sahakari Khand Udyog Mandal Ltd. (supra) impugned orders disposing of the objections without deciding the objections on merits cannot be sustained and same deserve to be quashed and set aside. The impugned orders passed by the AO disposing of the objections are absolutely on misinterpretation and/or misreading of the decision of the Division Bench in the case of Sahakari Khand Udyog Mandal Ltd. (supra). As observed herein above in the case of Sahakari Khand Udyog Mandal Ltd. (supra) the Division Bench has never provided/prescribed/stipulated any time limit for the assessee to file return of income pursuant to notice under Section 148 of the Act, more particularly within a period not less than 30 days and failure to file return of income within a period not less than 30 days, AO need not decide the objections on merits. Such interpretation by the AO is absolutely on misinterpretation and/or on misread of the decision of the Division Bench of this Court in the case of Sahakari Khand Udyog Mandal Ltd. (supra). As observed herein above, it is true that on receipt of notice under Section 148 of the Act, the assessee is required to file return of income pursuant to notice under Section 148 of the Act within the time prescribed in the notice and/or within extended period and/or within reasonable period and assessee may in a given case request the AO to treat the original return as return of income pursuant to the notice under Section 148 of the Act and simultaneously may request for reasons recorded and on receipt of the reasons recorded, the assessee is required to raise objection, if he so desires, within reasonable time and thereafter the AO is bound to decide the objection on merits and decide and dispose of the objections within reasonable time, more particularly, within the time prescribed/directed by the Division Bench in the case of Sahakari Khand Udyog Mandal Ltd. (supra)and communicate the decision disposing of the objections at the earliest, however before finalizing the assessment under Section 143(3) of the Act r/w Section 147 of the Act, however after giving reasonable time to the assessee to challenge the decision/order disposing of the objections.
9. In view of the above and for the reasons stated above, as the AO has not dealt with and disposed of the objections raised by the assessee against reopening of the assessment on merits meaning thereby has disposed of the objections without considering the objections on merits solely on the ground that assessee has not filed return of income within period not less than 30 days from the date of receipt of notice under Section 1 48 of the Act, impugned orders disposing of the objections are hereby quashed and set aside and the matters are remanded to the AO to consider, decide and dispose of the objections on its own merits and in accordance with law and in light of the observations made herein above. The aforesaid exercise shall be completed by the AO within a period of two months from the date of receipt of writ of the present order. However, it is made clear that this Court has not expressed anything on merits with respect to legality and validity of the notice under Section 148 of the Act or even with respect to objections raised against the reopening of the assessment for respective assessment years. Rule is made absolute to the aforesaid extent in each of the petitions. No costs.”
Thus the Hon’ble High Court has held that the AO is under obligation to dispose off the objections filed by the assessee and failure to dispose off the objections, the order passed by the AO is not sustainable and deserves to be set aside and quashed. Similarly, in the case of General Motors India Pvt. Ltd. vs. DCIT (supra), the Hon’ble High Court has held that disposal of the objections before passing the reassessment order is a mandatory requirement. The Hon’ble Bombay High Court in the case of Allana Cold Storage Ltd. vs. ITO (supra) after considering the judgment of Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. vs. ITO, 259 ITR 19 (SC) has held in para 7 & 8 as under :-
“7. We have noted the submissions of both counsel. The law as laid down by the apex court is binding on this court as well as on the authorities functioning under the statute. This being the position, we fail to understand as to why the first respondent did not decide the objections separately which he is duty bound to decide. The whole idea in laying down the law in the above referred judgment of the apex court is to give an opportunity to the assessee to know as to what is the decision on his objections, which decision has also to be arrived at after giving an opportunity to the assessee. In the present case, the assessee has been denied this opportunity. Not only that but in the first three writ petitions what we find is that a common order has been passed on the objections as well as for the reassessment In the fourth matter, the assessment order does not disclose any decision on the objections at all and undoubtedly no such decision has been given separately on the objections.
8. Having noted this scenario, in our view the proper course will be to interfere with the assessment orders passed in all four matters by the concerned officer. We are aware that when an alternative remedy is resorted to, the writ jurisdiction is not to be exercised, but that is a rule of self-limitation. The orders challenged in the present matter are clearly against the law laid down by the apex court and, therefore, the exercise of writ jurisdiction is called for. That being so, we allow all these petitions and quash and set aside the orders of assessment passed in all these four petitions. Inasmuch as the assessment orders are set aside, the appeals filed by the petitioners no longer require to be prosecuted. The same will stand disposed of. ”
Thus the requirement of disposing off the objections against the notice issued under section 148 by a separate and speaking order is a mandatory requirement in view of the judgment of the Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. vs. ITO (supra), the failure of the AO to dispose off the objections renders the reassessment order not sustainable in law. In the case in hand there is complete failure on the part of the AO to dispose off the objections against notice u/s 148 of the Act and not merely a procedural irregularity of separate and speaking order. Accordingly, in the facts and circumstances of the case and specifically involving the issue of addition of Rs. 2,71,317/-, we find that in this case the AO does not deserve a second inning. Accordingly, without remitting the matter to the record of the AO, the reassessment order passed by the AO is set aside being invalid.
9. Since we have set aside the reassessment order on legal issue, therefore, we do not propose to go to the other grounds raised by the assessee.
10. In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 06/10/2020.
