2019 (5) TMI 1768 - AT - Income Tax

Reopening of assessment u/s 147 - non dealing with the objections of the assessee as argued by assessee - Disallowance of expenditure claimed for issuance of FCCBs - HELD THAT - In the course of re assessment proceedings, though, the assessee had raised objections challenging the validity of re opening of assessments under section 147 of the Act, however, the Assessing Officer has not disposed of the objections independently by way of separate orders before completion of assessment proceedings under section 143(3) r/w 147 of the Act. The Hon'ble Supreme Court in GKN Driveshafts India Ltd. 2002 (11) TMI 7 - SUPREME COURT has held that before completion of the assessment, the Assessing Officer is duty bound to dispose of the objections of the assessee separately. Therefore, the Assessing Officer in the instant appeal has not followed the due judicial process while dealing with the objections of the assessee. For that reason, the impugned assessment orders are legally unsustainable. Whether in such circumstances, the re assessment orders passed have to be quashed as void ab initio or they are to be restored back to the Assessing Officer for enabling him to dispose of the objections of the assessee and pass fresh assessment orders ? - In our view, the issue is no more res integra in view of the decision of the Hon'ble Jurisdictional High Court in KSS Petron Pvt. Ltd. 2016 (10) TMI 1112 - BOMBAY HIGH COURT High Court has held that if the re assessment order is passed without disposing of the objections raised by the assessee, they have to be quashed and no second opportunity can be given to the Assessing Officer to pass fresh assessment orders after disposing of the objections of the assessee. No infirmity in the orders passed by learned Commissioner (Appeals) in holding the assessment orders passed to be legally unsustainable. -Decided against revenue.

Summary

Issues:
Validity of re-assessment proceedings under section 147 of the Income Tax Act for assessment years 2007-08 and 2008-09.

Analysis:

1. Background: The appeals by the Revenue and cross objections by the assessee stem from orders dated 29th March 2016 by the Commissioner of Income Tax (Appeals) regarding assessment years 2007-08 and 2008-09.

2. Common Ground Raised by Revenue: The primary issue raised by the Revenue in both appeals was the quashing of re-assessment proceedings by the Commissioner (Appeals) due to the Assessing Officer's failure to properly reject the assessee's objection to the re-opening, citing legal precedents.

3. Factual Overview: The Assessing Officer re-opened the assessments after finding discrepancies in the utilization of funds raised through foreign currency convertible bonds (FCCB) by the assessee, leading to the disallowance of bond issue expenditures for both years.

4. Commissioner's Decision: The Commissioner (Appeals) held that the assessment orders were legally unsustainable as the Assessing Officer did not independently address the objections raised by the assessee against the re-opening of assessments under section 147 of the Act.

5. Arguments: The Departmental Representative argued that the non-disposal of objections was a procedural irregularity, suggesting the issue be restored to the Assessing Officer. The assessee's counsel contended that such a defect affects the jurisdiction of the Assessing Officer and cannot be rectified by a mere restoration.

6. Judicial Analysis: The Tribunal found that the Assessing Officer's failure to dispose of objections independently before completing the assessments violated due process, citing the Supreme Court's precedent in GKN Driveshafts India Ltd. The Tribunal relied on the decision in KSS Petron Pvt. Ltd., emphasizing that re-assessment orders passed without addressing objections must be quashed without a chance for fresh assessments.

7. Legal Precedents: The Tribunal distinguished the cited cases and upheld the Commissioner's decision, emphasizing the importance of addressing objections before completing assessments.

8. Final Decision: The Tribunal dismissed the Revenue's appeals and the assessee's cross objections, affirming the quashing of re-assessment orders due to the Assessing Officer's failure to address objections, thereby upholding the legal unsustainability of the assessment orders.

9. Conclusion: The Tribunal's detailed analysis highlighted the significance of due process in re-assessment proceedings and the necessity of addressing objections raised by the assessee before finalizing assessments under section 147 of the Income Tax Act.