2019 (3) TMI 1306 - HC - Income Tax

Reopening of assessment - mandatory requirement of disposing of the objections by the AO has not been complied with by passing speaking order - HELD THAT - AO has considered the query raised in the letter dated 10.04.2018 and the same was disposed of. But, by no stretch of imagination it can be held to be a speaking order passed by the Assessing Officer considering the objections raised by the assessee. Indeed it was a request made by the assessee to furnish the reasons recorded for initiating the proceedings under Section 147 read with Section 148. The objections raised by the petitioner on 20.12.2018 to the summary of reasons recorded provided by the AO has not been disposed of by a speaking order. However, AO proceeded to pass the reassessment order impugned herein, which clearly demonstrates that the mandatory requirement of disposing of the objections by the Assessing Officer has not been complied with and on this ground alone, the order impugned deserves to be set aside. See M/S. DEEPAK EXTRUSIONS PVT. LTD. VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 (4) , BANGALORE 2017 (3) TMI 1257 - KARNATAKA HIGH COURT - re-assessment order passed by the Assessing Officer as well as demand notice have been set aside.

Summary

Issues:
1. Challenge to proceedings under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Reassessment order dated 28.12.2018 for the Assessment Year 2011-2012.
3. Demand notice dated 28.12.2018 under Section 156 of the Act.
4. Payments made to associated enterprises outside India.
5. Order under Section 195(2) approving remittance without tax deduction.
6. Order under Section 201(1) treating petitioner as assessee-in-default.
7. Assessment under Section 143(3) and reference to Transfer Pricing Officer.
8. Notice under Section 148 proposing reassessment for 2011-2012.
9. Objections challenging jurisdiction and limitation.
10. Reassessment order under Section 143(3) read with Section 147.
11. Consideration of objections by Assessing Officer.
12. Compliance with mandatory requirements in passing reassessment order.

Analysis:
1. The petitioner contested the proceedings initiated under Section 147 read with Section 148 of the Income Tax Act, challenging the reassessment order dated 28.12.2018 for the Assessment Year 2011-2012 and the demand notice issued by respondent No.2 under Section 156 of the Act. The petitioner made payments to associated enterprises outside India for services rendered, which led to a dispute regarding tax deduction at source under Section 195 of the Act. The Assessing Officer treated the petitioner as an assessee-in-default and issued a reassessment order under Section 143(3) read with Section 147 after reference to the Transfer Pricing Officer.

2. The petitioner objected to the notice under Section 148 for reassessment, requesting reasons for reopening the assessment and the sanction accorded. The Assessing Officer passed the reassessment order negating the objections raised by the petitioner on jurisdiction, limitation, and income computation. The petitioner argued that the reassessment order lacked jurisdiction and was time-barred, emphasizing the need for the Assessing Officer to consider and dispose of objections before passing the order.

3. The petitioner relied on a Division Bench judgment emphasizing the necessity for the Assessing Officer to furnish reasons for the notice, allow objections, and pass a speaking order. The Assessing Officer's response to the petitioner's query did not constitute a proper speaking order addressing objections. The court held that the mandatory requirement of disposing of objections was not met before passing the reassessment order, leading to the order being set aside.

4. Citing precedents, the court emphasized the importance of following due process in reassessment proceedings. The judgment highlighted that failure to dispose of objections before proceeding with the assessment renders the assessment illegal. Consequently, the court allowed the writ petition, quashing the assessment order and demand notice while allowing the Assessing Officer to proceed lawfully, leaving all rights and contentions open for the parties.

This detailed analysis of the judgment covers the issues involved comprehensively, emphasizing the legal principles and procedural lapses that led to the court's decision to set aside the reassessment order and demand notice.