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2020 (5) TMI 441 - HC - Income TaxValidity of the reassessment proceedings undertaken by the revenue u/s 153C - raising additional grounds u/s 27 of the ITAT Rules - assessee made an oral application under Rule 27 of ITAT Rules and urged additional grounds against the findings of the CIT(A) pertaining to the issue of recording of satisfaction note, and the necessary condition of existence of nexus between assessment and incriminating material by contending that these findings were in the teeth of the law as settled by various courts in respect of the said issues - HELD THAT - Rule 27 embodies a fundamental principal that a Respondent who may not have been aggrieved by the final order of the Lower Authority or the Court, and therefore, has not filed an appeal against the same, is entitled to defend such an order before the Appellate forum on all grounds, including the ground which has been held against him by the Lower Authority, though the final order is in its favour. In the instant case, the Assessee was not an aggrieved party, as he had succeeded before the CIT (A) in the ultimate analysis. Not having filed a cross objection, even when the appeal was preferred by the Revenue, it does not mean that an inference can be drawn that the Respondent assessee had accepted the findings in part of the final order, that was decided against him. When the Revenue filed an appeal before the ITAT, the Appellant herein (Respondent before the Tribunal) was entitled under law to defend the same and support the order in appeal on any of the grounds decided against it. Assessee had taken the ground of maintainability before Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. ITAT, therefore, committed a mistake by not permitting the assessee to support the final order of CIT (A), by assailing the findings of the CIT(A) on the issues that had been decided against him. The Appellant - assessee, as a Respondent before the ITAT was entitled to agitate the jurisdictional issue relating to the validity of the reassessment proceedings. We are, therefore, of the considered opinion that the impugned order passed by the ITAT suffers from perversity in so far as it refused to allow the Appellant assessee (Respondent before the Tribunal) to urge the grounds by way of an oral application under Rule 27. Decided in favour of the Appellant assessee and resultantly the impugned order is set aside. The matter is remanded back before the ITAT with a direction to hear the matter afresh by allowing the Appellant- assessee to raise the additional grounds, under Rule 27 of the ITAT Rules, pertaining to issues relating to the assumption of jurisdiction and the validity of the reassessment proceedings under Section 153C of the Act. - Decided against revenue.
Issues Involved:
1. Validity of reassessment proceedings under Section 153C of the Income Tax Act, 1961. 2. Requirement of recording a satisfaction note by the Assessing Officer (AO). 3. Existence of a nexus between the assessment proceedings and the incriminating material seized during the search. 4. Scope of Rule 27 of the Income Tax Appellate Tribunal (ITAT) Rules, 1963 in the context of Section 253(4) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 153C: The appeal challenges the validity of reassessment proceedings initiated by the revenue under Section 153C of the Act. The appellant contended that the AO failed to record a satisfaction note and there was no nexus between the issues in the assessment proceedings and the incriminating material seized during the search. The CIT(A) had rejected these pleas, holding that there was no need for recording satisfaction and no requirement for a nexus between the assessment and the incriminating material. The ITAT did not consider these jurisdictional issues, leading to the appellant's challenge before the High Court. 2. Requirement of Recording a Satisfaction Note by the AO: The appellant argued that the AO did not record a satisfaction note for initiating proceedings under Section 153C of the Act. The CIT(A) had held that recording a satisfaction note was not necessary. The ITAT did not admit this ground for consideration, which was a point of contention in the appeal before the High Court. 3. Existence of a Nexus Between the Assessment Proceedings and the Incriminating Material: The appellant contended that there was no nexus between the assessment proceedings and the incriminating material seized during the search. The CIT(A) had held that the law did not require a nexus as a precondition for reassessment proceedings. The ITAT did not consider this ground, leading to the appellant's challenge. 4. Scope of Rule 27 of the ITAT Rules in the Context of Section 253(4): The High Court examined whether the ITAT correctly interpreted Rule 27 of the ITAT Rules, which allows a respondent to support the order appealed against on any grounds decided against them. The appellant argued that Rule 27 does not require a written application, contrary to the ITAT's interpretation. The High Court agreed, stating that Rule 27 does not mandate a written application and the ITAT erred in its interpretation. Analysis: Validity of Reassessment Proceedings: The High Court noted that the ITAT had taken a narrow view by requiring a written application under Rule 27, which was not mandated by the rules. The court emphasized that Rule 27 allows a respondent to support the order on any grounds decided against them, even without a written application. The High Court held that the ITAT's refusal to consider the appellant's jurisdictional challenges was incorrect and remanded the matter back to the ITAT for fresh consideration of these issues. Recording of Satisfaction Note: The High Court found that the ITAT erred by not considering the appellant's argument regarding the AO's failure to record a satisfaction note. The court emphasized that the appellant should be allowed to raise this issue under Rule 27 to support the order of the CIT(A). Nexus Between Assessment Proceedings and Incriminating Material: The High Court held that the appellant should be allowed to argue the lack of nexus between the assessment proceedings and the incriminating material under Rule 27. The court noted that this issue goes to the root of the matter and should be considered by the ITAT. Scope of Rule 27: The High Court clarified that Rule 27 allows a respondent to support the order appealed against on any grounds decided against them, without requiring a written application. The court noted that Rule 27 is an enabling provision that ensures a respondent can defend an order on all grounds, including those decided against them by the lower authority. The High Court emphasized that the ITAT's interpretation was incorrect and remanded the matter for fresh consideration. Conclusion: The High Court allowed the appeal, setting aside the ITAT's order and remanding the matter back to the ITAT for fresh consideration of the appellant's jurisdictional challenges under Rule 27. The court emphasized that the appellant should be allowed to argue the validity of the reassessment proceedings, the requirement of recording a satisfaction note, and the nexus between the assessment proceedings and the incriminating material. The ITAT was directed to hear the matter afresh, allowing the appellant to raise additional grounds under Rule 27.
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