2016 (10) TMI 166 - HC - Income Tax

Reopening of assessment - Assessee was unaware of the reasons for reassessment - Held that - The only basis for the submission made by the Revenue before the Tribunal that the Respondent Assessee is a public sector institution who was aware that search action has been initiated on certain lessees in respect of transactions with IDBI i.e. RespondentAssessee. On the basis of the above, it is to be inferred that the reason for reassessment was known to the Respondent Assessee. The supply of reason in support of the notice for reopening of an assessment is a jurisdictional requirement. The reasons recorded form the basis to examine whether the Assessing Officer had at all applied his mind to the facts and had reasons to believe that taxable income has escaped reassessment. It is these reasons, which have to be made available to the Assessee and it could give rise to a challenge to the reopening notice. It is undisputed that the reasons recorded for issuing reopening notice were never communicated to the Respondent Assessee in spite of its repeated requests. Thus, the grievance of the Revenue on the above count is unsustainable. - Decided in favour of assessee

Summary

Issues:
1. Validity of reassessment proceedings without supplying reasons for reopening notice.
2. Deletion of depreciation disallowed on leased assets.

Analysis:

Issue 1: Validity of reassessment proceedings without supplying reasons for reopening notice
The appeal challenges the order passed by the Income Tax Appellate Tribunal regarding the Assessment Year 1993-94. The primary contention raised by the Revenue is whether the Tribunal was correct in quashing the reassessment proceedings despite the assessee's awareness of the reasons for reopening and participation in the assessment proceedings. The Respondent Assessee had requested the reasons recorded for issuing the reopening notice but was not provided with the same. The Tribunal, relying on previous decisions, held that the failure to supply reasons for the reopening notice rendered the subsequent assessment order invalid. The Tribunal emphasized that the supply of reasons is a jurisdictional requirement, and the failure to provide them hampers the assessee's ability to challenge the reopening notice. The Court rejected the Revenue's argument that the assessee was aware of the reasons, stating that the reasons recorded form the basis for assessing whether the Assessing Officer had valid grounds to believe income had escaped assessment. The Court upheld the Tribunal's decision, emphasizing the importance of providing reasons to the assessee for a fair assessment process.

Issue 2: Deletion of depreciation disallowed on leased assets
The second issue raised pertains to the deletion of depreciation disallowed by the Assessing Officer on leased assets. The Revenue contended that this question would only be relevant if the reopening notice was deemed valid. However, since the validity of the reopening notice was challenged and ultimately held to be invalid, the question regarding depreciation on leased assets was not pursued further. Consequently, the Court dismissed the appeal based on the findings related to the first issue and declined to entertain the second question. The appeal was ultimately dismissed with no order as to costs.

In conclusion, the judgment highlights the significance of providing reasons for reopening notices to ensure a fair and transparent assessment process. The decision underscores the jurisdictional requirement of supplying reasons to the assessee and the consequences of failing to do so. Additionally, the judgment demonstrates how the validity of reassessment proceedings can impact subsequent issues raised in an appeal, emphasizing the interdependence of procedural requirements in tax assessments.