2020 (10) TMI 1171 - HC - Income Tax

Validity of reopening of assessment u/s 147 - AO refusal to furnish of reasons for issuing notice under Section 148 - HELD THAT - In GKN Driveshafts (India) Ltd 2002 (11) TMI 7 - SUPREME COURT has held that when a notice under Section 148 of the IT Act is issued, the proper course of action for the noticee is to file return and if he desires to seek reasons for issuing notice, the AO is bound to furnish reasons within a reasonable time - On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. Considering the law laid down by the Hon'ble Supreme Court, it was really not open to the AO to refuse furnish of reasons for issuing notice under Section 148 of the IT Act. As a result of such refusal, the Appellant was deprived of the valuable opportunity of filing objections to the reopening of the assessment. The approach of the AO in this case was contrary to the law laid down by the Hon'ble Apex Court in GKN Driveshafts (India) Ltd. supra - Decided in favour of the Assessee

Summary

Issues:
1. Justification of Tribunal's remand decision due to lack of reasons for reopening assessment.
2. Compliance with legal requirements for furnishing reasons for reopening assessment.
3. Impact of failure to furnish reasons on assessment validity.
4. Effect of furnishing reasons during ITAT proceedings on assessment validity.
5. Consequential orders based on remand by ITAT.

Detailed Analysis:

1. The Tribunal's decision to remand the matter to the Assessing Officer was challenged based on the lack of reasons for reopening the assessment. The substantial question of law revolved around whether such remand was justified in the absence of reasons, as highlighted in the case "Commissioner of Income - Tax v/s. Videsh Sanchar Nigam Ltd."

2. The Appellant objected to the reopening of the assessment and requested reasons, which were not provided by the Assessing Officer. This failure to furnish reasons before proceeding with the reassessment was contested as a violation of legal principles established by the Supreme Court in GKN Driveshafts (India) Ltd. vs. Income Tax Officer, emphasizing the importance of providing reasons upon notice under Section 148 of the IT Act.

3. The High Court emphasized that the failure to furnish reasons deprived the Appellant of the opportunity to file objections to the reopening of the assessment, contrary to the legal requirement laid down by the Supreme Court. The approach of the Assessing Officer was deemed inconsistent with the law and prejudicial to the Appellant's rights.

4. Furnishing reasons during the ITAT proceedings was deemed insufficient to rectify the initial failure to provide reasons before the assessment process commenced. The Court held that such belated furnishing of reasons could not cure the procedural irregularity that occurred at the outset of the assessment process.

5. In light of the legal precedents and the Appellant's contentions, the Court ruled in favor of the Assessee, setting aside the impugned orders and any consequential orders based on the flawed assessment process. The Court also directed the annulment of any demand notice issued in connection with the invalidated assessment.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, relevant legal principles, and the Court's decision based on established legal precedents and procedural irregularities in the assessment process.