2019 (9) TMI 352 - AT - Income Tax

Rectification of mistake u/s 254 - non consideration of case law relied upon by the department - Validity of reopening of assessment u/s 147 - whether non communication of reasons for reopening the assessment renders the assessment invalid or not? - HELD THAT - ITAT after considering the facts of the case and as per the material available on record, given a finding that the AO did not communicate the reasons recorded for reopening the assessment. On finding the fact that the reasons recorded were not communicated, the ITAT decided the appeal on the basis of the arguments advanced by both the Counsels at the time of appeal bearing. We have gone through our record and observed that the department has not argued the case law mentioned in the Miscellaneous Application i.e. S.Narayanappa Vs. CIT 1966 (9) TMI 36 - SUPREME COURT during the appeal hearing. Therefore, the ITAT has no occasion to consider the decision relied upon by the department. Decision of Hon ble Supreme Court in S.Narayanappa vs.CIT 1966 (9) TMI 36 - SUPREME COURT was delivered much earlier than the decision of Hon ble Supreme Court in GKN Drive Shafts (India) Ltd 2002 (11) TMI 7 - SUPREME COURT and related to validity issue of notice under section 34(1) of 1922 Act. Subsequently Hon ble Supreme Court considered the issue in G.K.N.Drive Shafts(India) Ltd vs CIT in 2002 (11) TMI 7 - SUPREME COURT with particular reference to the provision of section 147 of 1961 Act and held that the AO is bound to communicate the reasons. While deciding the appeals of the Revenue, this Tribunal has relied on the decision of the Apex Court in GKN Drive Shafts and various other decisions of Hon ble Courts and the decision of this Tribunal and decided the appeals. Therefore, there is no mistake in the order passed by the ITAT, hence, the Miscellaneous Application filed by the revenue are dismissed.

Issues involved:
Validity of assessment made u/s 147 r.w.s. 143(3) for assessment years 2008-09 to 2011-12; Consideration of non-communication of reasons for reopening the assessment; Interpretation of the decision in the case of M/s GKN Drive Shafts (India) Ltd. Vs. ITO; Review of the order by the ITAT based on the decision of S.Narayanappa Vs. CIT; Application of Section 254(2) for rectification of mistakes apparent from the record.

Validity of assessment made u/s 147 r.w.s. 143(3):
The ITAT adjudicated the validity of assessments for the mentioned assessment years and held them invalid due to non-communication of reasons for issuing notice u/s 148. The ITAT referred to the case of M/s GKN Drive Shafts (India) Ltd. Vs. ITO, emphasizing the obligation of the AO to communicate reasons upon request by the assessee. The ITAT cited the decision of Hon'ble High Court of Calcutta in the case of Berger Paints India Ltd. Vs. ACIT, stating that jurisdiction depends on the existence and communication of reasons. The ITAT concluded that assessments made without communicating reasons are bad in law, quashing the orders u/s 147 r.w.s. 143(3) and allowing the assessee's appeal.

Non-communication of reasons for reopening the assessment:
The ITAT considered the issue of non-communication of reasons for reopening the assessment, finding that the AO failed to communicate the reasons recorded despite the assessee's request. The ITAT highlighted the importance of communicating reasons as per legal precedents, including the decision of Hon'ble Supreme Court in GKN Drive Shafts (India) Ltd. Vs. ITO. The ITAT rejected the argument that non-communication was not fatal to assessment proceedings, relying on the decision of Hon'ble Bombay High Court and holding that assessments made without communicating reasons are invalid.

Interpretation of the decision in the case of M/s GKN Drive Shafts (India) Ltd. Vs. ITO:
The ITAT referenced the decision in the case of M/s GKN Drive Shafts (India) Ltd. Vs. ITO to emphasize the requirement for the AO to communicate reasons upon request. The ITAT considered various other decisions, including the case of Sarvaraya Sugars Ltd, and concluded that non-communication of reasons renders assessments invalid, aligning with the principles established in the GKN Drive Shafts case.

Review of the order by the ITAT based on the decision of S.Narayanappa Vs. CIT:
The revenue filed Miscellaneous Applications citing the decision in S.Narayanappa Vs. CIT, arguing that non-communication of reasons is not fatal to assessment proceedings. The ITAT, however, noted that the department did not argue this case law during the appeal hearing, thus not considered during the decision-making process. The ITAT highlighted the scope of Section 254(2) and referenced a decision by the Hon'ble Karnataka High Court, stating that the power under Section 254(2) cannot be used for reviewing orders based on reconsidering legal principles or findings. The ITAT dismissed the Miscellaneous Application, emphasizing that the earlier order was in line with established legal principles.

Application of Section 254(2) for rectification of mistakes apparent from the record:
The ITAT dismissed the revenue's Miscellaneous Applications, stating that there was no mistake in the earlier order. The ITAT clarified that the decision in S.Narayanappa Vs. CIT, delivered before the GKN Drive Shafts case, was not applicable to the current scenario. The ITAT upheld its reliance on legal precedents and decisions in deciding the appeals, concluding that the Miscellaneous Applications were rightfully dismissed.

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