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2012 (12) TMI 1027 - AT - Income TaxValidity of the reassessment - Held that - The consequences of failure to supply the reasons recorded u/s 148 of the Act to the assessee when asked for, the reassessment is required to the quashed. Considering the undisputed facts of repeated requests for supply of reasons by the assessee and the AO s blanket failure to supply the reasons recorded u/s 148 the impugned reassessment is bad in law and the same is required to be quashed. Ground no.1 raised by the assessee is allowed.
Issues Involved:
1. Validity of the reassessment under Section 147 of the Income Tax Act. 2. Disallowance of depreciation claimed by the assessee under Section 32 of the Income Tax Act on leased assets. Issue-wise Detailed Analysis: 1. Validity of the Reassessment: Facts: The assessee, a public sector financial institution, filed a return of income declaring Rs. 248.49 Cr, later revised to Rs. 259.71 Cr. A scrutiny assessment determined the taxable income at Rs. 267.28 Cr. Due to irregularities found in a search action under Section 132 and survey action under Section 133(A) related to depreciation claims on leased assets, the Assessing Officer (AO) initiated reassessment proceedings under Section 147 read with Section 148, issuing a notice on 9.12.1996. The reassessment concluded with a total income of Rs. 272.48 Cr. The assessee appealed, contesting the validity of the reassessment, particularly the non-supply of reasons for reopening the assessment despite repeated requests. Arguments: The assessee argued that the AO failed to provide the reasons for reopening the assessment, despite multiple requests, violating the principles of natural justice. The AO's failure to supply these reasons, even before the completion of reassessment and appellate proceedings, rendered the reassessment invalid. Legal Precedents: The assessee relied on several judgments, including: - G.K.N. Driveshafts (India) Ltd. vs. ITO: The Supreme Court held that the AO must supply reasons for issuing a notice under Section 148 on demand and dispose of objections with a speaking order. - CIT vs. Fomento Resorts and Hotels Ltd.: The Bombay High Court ruled that failure to provide reasons invalidates the reassessment. - CIT vs. Videsh Sanchar Nigam Ltd.: The Bombay High Court held that reassessment orders could not be upheld if reasons were not furnished before assessment completion. - Siesta Steel Construction P. Ltd. vs. Shikare (K.K): The Bombay High Court quashed reassessment proceedings where reasons were not furnished despite requests. Tribunal's Decision: The Tribunal concluded that the AO's failure to supply the reasons for reopening the assessment, despite repeated requests, invalidated the reassessment. The reassessment was quashed as null and void, allowing the assessee's ground. 2. Disallowance of Depreciation: Facts: The assessee claimed depreciation of Rs. 18.75 Cr on leased assets under Section 32. The AO disallowed this, treating the transactions as pure finance transactions. The CIT(A) partially allowed the assessee's appeal but upheld the disallowance of depreciation. Arguments: The assessee contended that it was entitled to depreciation on leased assets as claimed under Section 32. However, due to the Tribunal's decision on the validity of the reassessment, this issue became academic. Tribunal's Decision: Given the quashing of the reassessment, the Tribunal dismissed the ground on disallowance of depreciation as academic. Revenue's Appeal: Facts: The Revenue contested the CIT(A)'s decision to allow depreciation of Rs. 16.95 lakhs on leased assets to M/s. Reliance Silicons Ltd., arguing that the transaction was similar to others where depreciation was disallowed. Arguments: Both parties agreed that the adjudication of these grounds was academic, considering the Tribunal's decision on the reassessment's validity. Tribunal's Decision: The Tribunal dismissed the Revenue's appeal as academic, given the quashing of the reassessment. Conclusion: The Tribunal allowed the assessee's appeal, quashing the reassessment due to the AO's failure to supply reasons for reopening the assessment. Consequently, the issue of depreciation disallowance became academic, and the Revenue's appeal was dismissed. The order was pronounced on 12th December 2012.
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