Vildirect: IncomeTax-caselaws-2013-VIL-980-ITAT-MUM

2013-VIL-980-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

ITA No.902/Mum/2013

Date: 25.03.2013

TRENDS ELECTRONICS

ITO 24 (1) (2) , MUMBAI

For the Appellant : Shri Vijay Mehta
For the Respondent: Shri P.K.Singh

BENCH

SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER)

JUDGMENT

Per B.R.Mittal, JM:

The assesee has filed this appeal for assessment year 2008-09 against order dated 6.11.2012 of ld CIT(A)-34,,Mumbai.

2. Ground Nos.6 & 7 of appeal taken by the assessee are as under:

“6. The order made under section 143(3) r.w.s.147 of the Act is bad in law in as much reasons recorded by the AO before issuing notice under section 148 of the Act has not been provided to the appellant before making said order u/s.143(3) r.w.s147 of the Act.

7. The order made under section 250 of the Act by Commissioner of Income tax (Appeals) confirming order made under section 143(3) rws 147 of the Act is illegal, bad in law, ultra virus and without allowing reasonable opportunity of the hearing, and without appreciating the facts, submission and evidences in their proper perspective and without passing said order within reasonable time after the last date of hearing is liable to be annulled.”-

3. Since these grounds go to the root of the validity of the assessment order, we heard ld representatives of both parties at length, besides hearing them in respect of other grounds disputing the confirmation of additions made by the Assessing Officer. It is relevant to state that on a stay application filed by the assessee being S.A. No.65/Mum/2013, the Tribunal by its order dated 1.3.2013 granted stay for a period of six months or till disposal of the appeal, whichever comes earlier, for recovery of demand and directed the Registry to fix the appeal for out of turn hearing on 20.3.2013.

Accordingly, said appeal was heard on 20.3.2013.

4. In respect of Ground Nos.6 & 7 of appeal, relevant facts are that assessee is a partnership firm engaged in the business of reseller of computer parts and computer accessories and hiring the same. Assessee filed the return of income for assessment year under consideration on 29.9.2008 declaring total income at Rs. 7,67,171/-. The return of income was processed under section 143(1) of the Act accepting the income returned. It is observed that the Assessing Officer initiated reassessment proceedings by issuing notice u/s.148 of the Act dated 26.3.2010, which was served on the assessee on 29.3.2010 on the ground that during the course of survey action u/s.133A of the Act carried out on the assessee’s premises, the partner Shri Shri Shrenik Bhanwarlal Jain and Shri Shripal Bhanwaralal Jain confessed that purchase from M/s. Sonotron Trading Co. Pvt Ltd., and M/s. Global Technology of Rs. 66,79,920/- and Rs. 39,59,332/-, respectively are not genuine. That payments were made by cheques without receiving material through a broker who used to collect the cheques and pay back cash and vice verse. It is observed that assessee vide letter dated 28.4.2010, copy placed at page 33 of paper book requested the AO to furnish reasons for reopening the assessment by issuing notie u/s.148 of the Act. AO vide letter dated 29.4.2010, copy placed at page 34 of PB asked the assessee to file return of income within three days from receipt of this letter and failure to comply will result in commencement of assessment proceedings based on information available on record. It is further stated in the said letter that the request of the assessee for providing reasons for reopening the assessment will be communicated only after filing of return of income, inter alia, for the assessment year under consideration. It is observed that assessee vide letter dated 7.5.2010, copy placed at page 35 of PB, stated that return of income filed u/s.139 of the Act be treated as filed u/s.148 of the Act. Thus, assessee vide its letter dated 7.5.2010 stated to the AO that return of income filed originally be treated as return filed in response to notice issued u/s.148 of the Act. It is observed that the AO completed the assessment u/s.143(3) r.w.s147 of the Act vide order dated 30.12.2010 without giving copy of the reasons recorded by the AO u/s.148(2) r.w.s 147 of the Act. Assessee filed appeal before ld CIT (A). It is also observed that assessee had taken an additional ground before ld CIT(A) in view of non-furnishing of reasons recorded by the AO, the order passed u/s.143(3) r.w.s 147 is bad in law. However, Ld CIT(A) rejected the said ground and confirmed the action of the AO. Hence, assessee is in further appeal before the Tribunal and as mentioned hereinabove, assessee has disputed the validity of the assessment order, inter alia, on the ground that no reasons recorded by the AO before issuing notice u/s.148 of the Act has been provided to the assessee before making the said assessment order u/s.143(3) r.w.s 147 of the Act.

5. At the time of hearing, ld A.R. submitted that assessee has come to know the reasons recorded by the Assessing Officer for the first time when assessee received the order of ld CIT(A), that ld CIT(A) in para 6.2 of the impugned order has reproduced the reasons recorded by the AO. Ld A.R. relying on the decision of Hon’ble Jurisdictional High Court in the case of Commissioner of Income-tax v. Videsh Sanchar Nigam Ltd.,340 ITR 66(Bom) submitted that Their Lordships in the said case relying on earlier decision in the case of CIT v. Fomento Resorts and Hotels Ltd., Income-tax Appeal No. 71 of 2006 decided on November 27, 2006, has held that if the reasons recorded for reopening of the assessment were not furnished to the assessee till the completion of assessment, the reassessment order cannot be upheld. Ld A.R. submitted that the SLP filed by the department against the said decision of Hon’ble Jurisdictional High Court in the case of Fomento Resorts and Hotels Ltd (supra) has been dismissed by the Hon’ble Supreme Court vide order dated 16.7.2007. Ld A.R. submitted that similar issue was also considered by ITAT Mumbai in I.T.A. No.4613/M/2005 in the case of Telco Dadajee Dhackjee Limited vs DCIT and in the said case, Hon’ble Third Member by following the decision of Hon’ble Bombay High Court in the case of Fomento Resorts and Hotels Ltd (supra) and also the order of the Tribunal in the case of Videsh Sanchar Nigam Ltd vs. JCIT in I.T.A. No.7626/M/2004 dated 30.10.2009 has held that since the AO did not furnish the reasons recorded for reopening of assessment to the assessee despite specific request, reassessment order is liable to be quashed as null and void. Ld A.R. submitted that in view of above decisions of the coordinate benches and also the decision of Hon’ble Jurisdictional High Court, the assessment order passed by the AO is liable to be quashed as null and void because no reasons recorded for reopening of assessment have been provided to the assessee till date in spite of making specific request by the assessee to the Assessing Officer on receipt of notice u/s.148 of the Act.

6. Ld D.R. in his reply submitted that assessee asked the copy of reasons recorded before filing of the return and after filing of the return, assessee did not ask for the reasons recorded by the AO and, accordingly, the decisions relied upon by ld A.R. are not applicable to the facts of the case. He submitted that the assessment order cannot be quashed on the ground that no reasons recorded by the AO before issuing notice u/s.148 were provided to the assessee.

7. We have carefully considered the submissions of ld representatives of parties and orders of authorities below. We have also gone through relevant pages of paper book to which our attention was drawn at the time of hearing of appeal, reference of which, we have mentioned hereinabove. We have also considered the cases cited before us at the time of hearing (supra).

8. There is no dispute to the fact that assessee filed its return of income u/s.139 of the Act on 29.9.2008 declaring total income of Rs. 7,67,171. The said return was processed u/s.143(1) of the Act accepting the income returned. It is observed that there was a survey action u/s.133A of the Act on the assessee’s premises and on that basis, the AO issued notice u/s.148 of the Act dt.26.3.2010, which was served on the assessee on 29.3.2010. On perusal of the order of ld CIT(A), we observe that the AO recorded the reasons u/s.148(2) r.w.s 147 of the Act before issuing notice to the assessee u/s.148 of the Act. We observe from page 33 of PB that assessee vide its letter dated 28.4.2010 asked the AO to furnish the reasons recorded for reopening of assessment. The AO vide its letter dated 29.4.2010, copy placed at page 34 of PB asked the assessee to file return of income and in respect of reasons stated as under:

“As regards to your request for providing reasons for reopening of assessments, the same will be communicated only after filing of returns of income for the aforesaid year.”

9. We observe that assessee vide its letter dated 7.5.2010 stated to the AO that the return filed u/s.139 on 29.9.2008 may pleased be treated as filed u/s.148 of the Act. Therefore, it is evident that assessee submitted that the return originally filed u/s.139 of the Act be treated as return filed in response to notice issued u/s.148 of the Act. There is no dispute to the fact that after filing the said letter dated 7.5.2010, it has to be considered as return filed by the assessee in response to issue of notice u/s.148 of the Act. However, the AO did not furnish copy of reasons recorded to the assessee.

10. The Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer,259 ITR 19(SC) has held as under:

“When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the noticee is to file the return and, if he so desires, to seek reasons for issuing the notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee 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.”

11. Following the said decision of Hon’ble apex Court in the case of GKN Driveshafts (India) Ltd. (supra), ITAT Hyderabad Bench in the case of S.Prasad Raju vs DCIT, 96 TTJ 832 has held as under:

“reasons for reopening of assessment having been not disclosed by the department despite specific request by the assessee, reopening was invalid”

12. The Hon’ble Jurisdictional High Court (Panaji Bench) in the case of Fomento Resorts and Hotels Ltd (supra) vide its order dated 27.11.2006 has held that giving reasons in support of an order is part of complying with the principles of natural justice. Since the reasons were not given before making the assessment order, the Hon’ble High Court confirmed the order of ITAT and dismissed the appeal filed by the department. We observe that similar issue came before the ITAT in the case of Videsh Sanchar Nigam Ltd (supra) and the Tribunal considered the following issue before it:

“Whether the supply of the reasons to the assessee by the Assessing Officer after the completion of the assessment makes the assessment bad in law, as the reassessment is to be held as invalid.”

12.1 The Tribunal after considering the decision of Hon’ble apex Court in the case of GKN Driveshafts (India) Ltd (supra) and various other decisions of Hon’ble High Courts and ITAT has held vide paras 16 & 17 as under:

“16. Thus in view of the above discussion and in view of the binding precedents, respectfully applying these propositions to the facts of the case and as the Assessing Officer has not furnished the reasons to the assessee before concluding the assessment proceedings, much less within the reasonable period of time as mandated by the Hon’ble Supreme Court we have no other alternative but to hold that the proceedings are null and void.

17. As we have held that the reopening is bad in law for the reason of nonfurnishing of reasons recorded, we do not go into all other arguments raised in this case on the issue of reopening as they would be academic in nature.”

13. We observe that the department filed appeal against the said order of the Tribunal before the Hon’ble High Court and Hon’ble High Court vide its order dated 20.7.2011 reported at 340 ITR 66 (Bom) has confirmed the order of the Tribunal and dismissed the appeal of the department on the ground that reasons recorded for reopening of assessment were not furnished to the assessee till the completion of assessment, the reassessment order cannot be upheld.

14. Similar issue again came up for consideration before the Tribunal in the case of Telco Dadajee Dhackjee Limited (supra) and on account of difference of opinion between the Members of Division Bench, one of the questions referred to the Third Member was as under:

“Whether on the facts and in the circumstances of the case, the order of the AO is liable to be quashed or to be set aside where copy of the reasons recorded for taking action u/s.147 were not provided to the assessee in spite of specific requests?

15. The Hon’ble Third Member vide paras 2 to 6 has held that since the AO did not furnish the reasons recorded for reopening of assessment to the assessee despite specific requests, the reassessment order is liable to be quashed as null and void. We consider it prudent to reproduce paras 2 to 6 of the said order of the Third Member which are as under:

“2. The facts have been narrated in considerable detail in the orders of the ld Members and I do not propose to repeat them except where it is absolutely essential. In my opinion, Question No.(ii) is more fundamental to the dispute before me and requires to be resolved first. There is no dispute that the copy of the reasons recorded for issuing notice under section 148 were not provided to the assessee despite specific request. In this situation, it seems to me that the only course open to is to quash the reassessment proceedings. The contention of the learned Senior Departmental Representative was that the judgment of the Supreme Court in the case of G.K.Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 (SC) only lays down a procedure or a course of action to be adopted by the Assessing Officer and if the reasons for reopening the assessment are not supplied to the assessee despite the assessee’s request, the assessment itself cannot be quashed or held ab initio void. He invited my attention to the following orders / judgments where this point arose but despite the same the reassessments orders were merely set aside for being redone after supplying the reasons to the assessee:

(1) Datamatics Ltd. vs. ACIT (2008) 110 ITD 24 (Mum)

(2) Smt Kamlesh Sharma vs. ITO (2006) 287 ITR 337 (Del)

(3) Areva T&D India Ltd. vs. ACIT (2007) 294 ITR 233 (Mad)

(4) CIT vs. Jai Prakash Singh (1996) 219 ITR 737 (SC)

(5) ITO vs. Smt Gurinder Kaur (2006) 102 ITD 189 (Del)

(6) S Narayanappa & Ors vs. CIT (1967) 63 ITR 219 (SC)

3. The learned counsel for the assessee strongly relied on the judgment of the Hon’ble Bombay High Court in CIT vs. Fomento Resorts and Hotels Ltd. in Tax Appeal No.71 of 2006 dated 27.11.2006 (copy filed), in which it was held that giving of reasons must be considered as implicit in section 11 of the Expenditure Tax Act, 1987 and if it is not done and the rules of natural justice are violated, the assessment must be quashed, My attention was also drawn to the order of the Tribunal in the aforesaid case in ETA No: 1 & 5/PN/2001 dated 04.04.2006. It was also submitted that the judgment of the Hon’ble Bombay High Court (Panaji Bench) has been confirmed by the Supreme Court by dismissing the Special Leave Petition filed by the CIT by order dated 16.07.2007. The copy of the order of the Supreme Court has also been filed. The judgment of the Hon’ble Bombay High Court (supra) was sought to be distinguished by the learned Senior DR by submitting that it was rendered under a different enactment which did not provide for furnishing of reasons for reopening the assessment to the assessee and since the Bombay High Court has referred to furnishing of reasons for passing an order, it is distinguishable also on the ground that section 148 notice is not an order and failure to furnish reasons recorded for issue of a notice under section 148 of the Income Tax Act is not fatal to the validity of the reopening.

4. I have carefully considered the above submissions. It is true that in the case of GKN Driveshafts (India) Ltd (supra) the Supreme Court has not held that that non-furnishing of the reasons for reopening the assessment affects the validity of the notice under section 148 and what has been held therein is that in such a case the reassessment order should be set aside and the proceedings should be restored to the Assessing Officer with a direction to him to furnish the reasons to the assessee, hear the assessee’s objections and pass an order on the objections and then proceed to complete the reassessment order. However, in the case of Fomento Resorts and Hotels Ltd., which arose under the Expenditure Tax Act, the Tribunal held that if the reasons for reopening the expenditure tax assessment under section 11 of the Expenditure Tax Act are not furnished, the reassessment is without jurisdiction and is liable to be quashed. In this order the Tribunal has referred to the judgment of the Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and also to the judgment of the Hon’ble Bombay High Court in the case of Devji Ravji Patel vs. Balasubramaniam and Others (1994) 210 1TR 925 (Bom). Section 11 of the Expenditure Tax Act provides for chargeable expenditure escaping assessment. It does not expressly provide for recording of reasons before issuing the notice of reassessment. Section 148(2) of the Income Tax Act expressly states that before issuing a notice of reassessment the Assessing Officer shall record his reasons for doing so. I do not think that there is any material difference between the two provisions because it has been held by the Panaji Bench of the Hon’ble Bombay High Court in the judgment cited supra that giving of reasons in support of an order is part of complying with the rules of natural justice and, therefore, no fault can be found with the order of the Tribunal holding that the notice issued under section 11 of the Expenditure Tax Act without recording reasons is invalid. Section 148(2) of the Income Tax Act only makes it explicit what was already implicit in the section. The judgment of the Hon’ble Bombay High Court has become final, the Supreme Court having dismissed the Special Leave Petition filed by the Department against the same. In addition to the above, a Division Bench of the Tribunal in Mumbai has held in its order dated 30.10.2009 in ITA No: 7626/Mum/2004 in the case of Videsh Sanchar Nigam Ltd. vs. JCIT, that if the Assessing Officer has not furnished the reasons for reopening the assessment under section 148, the entire proceedings are null and void. In coming to this conclusion the Tribunal has referred to the judgment of the Panaji Bench of the Bombay High Court in CIT vs. Fomento Resorts and Hotels Ltd. (supra) in paragraph 14.9 of its order. In this order the Tribunal has also referred to the order of the Delhi Bench of the Tribunal in the case of ITO vs. Smt Gurinder Kaur (supra) cited by the learned Senior DR before me and has pointed out that the order of the Delhi Bench of the Tribunal is not in consonance with the view taken by the Delhi High Court in the case of New Bank of India Ltd. vs. ITO (1982) 136 ITR 679 (Del). There is thus an order of a Division Bench of the Tribunal in Mumbai which supports the assessee’s contention that if the reasons for reopening the assessment are not furnished to the assessee, that is fatal to the validity of notice of reopening issued under section 148 of the Income Tax Act.

5 The learned Senior DR drew my attention to two judgments of the Hon’ble Bombay High Court being (a) Allana Cold Storage Ltd. vs. ITO (2006) 287 ITR 1 (Bom); and (b) Ajanta Pharma Ltd. vs. ACIT (2007) 295 ITR 218 (Bom). l have respectfully gone through these two judgments. In the case of Ajanta Pharma Ltd. (supra), the facts show that the reasons for reopening the assessment were supplied to the assessee but the assessee’s objections were not properly considered by the Assessing Officer. The Hon’ble High Court, therefore, set aside the reassessment proceedings and directed the Assessing Officer to dispose off the objections of the assessee by following the due procedure of law in conformity with the judgment of the Supreme Court in the case of GKN Driveshafts (India Ltd (supra). In the case of Allana Cold Storage ltd (supra) also, as paragraph 3 of the judgment would show, the reasons for reopening the the assessment were supplied to the assessee but only on 21.03.2006 when the assessment was about to get barred by time. The assessee filed their objections to the reasons on 23.03.2006 and requested for personal hearing. But the Assessing Officer straightaway passed the reassessment order including the decision on the objections filed by the assessee. Thus both the cases cited by the learned Senior DR are cases where the Assessing Officer did supply the reasons recorded for reopening assessment. In the present case, however, there is no dispute that reasons recorded for reopening the assessment were never supplied to the assessee. The facts being different, the cited judgments are not. applicable.

6. In the light of the binding judgment of the Panaji Bench of the Hon’ble Bombay High Court (supra) and the order of the Tribunal in the case of Videsh Sanchar Nigam Ltd. (supra) and respectfully following the same, I hold that since the Assessing Officer did not furnish the reasons recorded for reopening the assessment to the assessee despite specific request, the reassessment order is liable to be quashed as null and void. The point of difference No: ii) is answered accordingly.”

16. We observe that the Tribunal by its order dated 29.6.2010 gave effect to the order of Third Member and in accordance with the majority view, held that assessment order passed by the AO is illegal and void ab nitio. Therefore, the assessment was quashed.

17. In the case before us, as mentioned hereinabove, we observe that assessee vide its letter dated 28.4.2010 made a specific request to the AO to furnish reasons recorded for reopening of assessment. We observe that AO vide his letter dated 29.4.2010 asked the assessee to furnish return of income and thereafter reasons for reopening of assessment will be communicated to the assessee. We observe that the AO did not furnish the copy of the reasons recorded till completion of assessment made on 30.12.2010. We observe that assessee also took a ground before ld CIT(A) disputing the validity of assessment order on the ground of non-furnishing of reasons recorded by the AO, but ld CIT(A) in the impugned order stated the reasons recorded by the AO. He has not disputed the fact that no copy of the reasons recorded were furnished to the assessee, which is necessary before the assessment is completed. We hold that in view of the decision of the Tribunal in the case of Telco Dadajee Dhackjee Limited (supra) and the decisions of Hon’ble Jurisdictional High Court in the case of Fomento Resorts and Hotels Ltd (supra) and followed in the case of Videsh Sanchar Nigam Ltd., (supra), the reassessment order passed by the AO u/s.143(3) r.w.s 147 of the Act dated 30.12.2010 is bad in law as the AO had not furnished copy of the reasons recorded despite specific request made by the assessee before he completed the assessment. Hence, the assessment order is quashed as null and void by allowing ground Nos.6 & 7 of appeal taken by assessee.

18. Since we have quashed the assessment order, there is no need to go into other grounds of appeal taken by the assessee disputing the confirmation of additions.

19. In the result, appeal filed by assessee is allowed.

Order pronounced in the open court on 25th March, 2013.

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.