2015 (1) TMI 1413 - AT - Income Tax

Validity of reopening of assessment - non-supply of reasons for re-opening - Held that - The Hon ble Supreme Court, in the case of GKN Driveshafts (India) Pvt. Ltd. (2002 (11) TMI 7 - SUPREME COURT) has clearly held that where the AO issues notice u/s 148 and the assessee seeks the supply of reasons for reopening of assessment after filing a return of income in response to notice u/s 148, then, the AO must supply the same and if the assessee files any objections thereto, the AO has to first dispose of the objections before proceeding with the re-assessment of income. As relying on case of VSNL 2011 (7) TMI 715 - BOMBAY HIGH COURT and also Alana Cold Storage vs. ITO ( 2006 (9) TMI 123 - BOMBAY HIGH COURT ) holding that the re-assessment is bad in law for non-supply of reasons for re-opening. - Decided in favour of assessee

Summary

Issues:
Appeal by revenue and cross-objections by assessee against CIT(A)'s order for assessment year 2009-10.

Analysis:
The appeal was filed by the revenue against the order of the CIT(A) for the assessment year 2009-10. The assessee had filed a return of income claiming 'nil' income and refund of Rs. 8 lakhs as excess advance tax paid. The Assessing Officer (AO) noticed an exempt income claim of Rs. 41,50,000 without supporting evidence. The AO issued a notice u/s 148 in 2012 as there was no response from the assessee. The CIT(A) annulled the reopening of assessment due to non-supply of reasons, following the decision in GKN Driveshafts case. The revenue appealed, arguing that non-communication of reasons is not fatal to reassessment proceedings if the assessee is aware of the reasons. The assessee cited a Tribunal case holding non-furnishing of reasons renders reassessment a nullity. The ITAT held that failure to supply reasons before assessment completion makes reassessment invalid, following the Bombay High Court's decision in VSNL case.

The ITAT emphasized that the AO must provide reasons for reopening if requested by the assessee. The Tribunal referred to the Abdul Khalique case, stating that non-supply of reasons before assessment completion renders reassessment invalid. The ITAT rejected the revenue's argument that awareness of reopening reasons negates the need for reasons supply. The ITAT upheld the CIT(A)'s decision based on the VSNL case, holding that reassessment becomes void if reasons are not furnished before assessment completion. The ITAT dismissed the revenue's appeal.

The assessee's cross-objection challenged the CIT(A)'s non-disposal of grounds against the AO's addition. However, since the foundation for reopening was annulled, the ITAT dismissed the cross-objections. The ITAT allowed the assessee to re-agitate the issue if the assessment reopening is deemed valid in subsequent proceedings. Consequently, both the revenue's appeal and the assessee's cross-objections were dismissed by the ITAT.