2021 (2) TMI 604 - AT - Income Tax

Validity of reopening of assessment - AO has not furnished copy of reasons recorded before completing the assessment u/s 143(3) r.w.s. 147 - HELD THAT - As fairly well settled that once the assessee complies with the notice issued under section 148 of the Act and seeks reasons for reopening of assessment, the Assessing Officer is duty bound to furnish the reasons of reopening before proceeding further with the assessment. This is for the simple reason of enabling the assessee to raise objections against the validity of reopening of assessment under section 147 - Unless, the aforesaid basic requirement is complied, the assessment has to be declared as invalid. In the facts of the present case, it is patent and obvious that the Assessing Officer has not supplied the reasons for reopening the assessment of the assessee prior to completion of re-assessment - the impugned assessment order having been passed in gross violation of rules of natural justice, has to be declared as invalid and deserves to be set aside. We direct the Assessing Officer to supply the reasons recorded to the assessee for enabling her to raise objection, if any, on the issue of reopening of assessment. Only after meeting the objections of the assessee, the Assessing Officer may proceed to complete the assessment after due opportunity of being heard to the assessee.

Summary

Issues:
Validity of reopening of assessment due to non-furnishing of reasons recorded before completing the assessment under section 143(3) r.w.s. 147 of the Act.

Analysis:

Issue 1: Validity of Reopening of Assessment
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The assessee challenged the validity of the reopening of assessment, claiming that the Assessing Officer did not provide a copy of the reasons recorded before completing the assessment under section 143(3) r.w.s. 147 of the Act. The assessee, an individual, initially filed a return of income declaring total income. The Assessing Officer, based on information received, reopened the assessment under section 147 by issuing a notice. The Assessing Officer alleged the assessee was a beneficiary of fictitious profit/loss due to client code modification through a broker. Despite the assessee denying the allegations, the Assessing Officer proceeded to make additions to the income. The assessee contended that the reopening of assessment was invalid due to non-furnishing of reasons recorded. The Commissioner (Appeals) rejected this contention but granted partial relief on the merits of the additions made.

Issue 1 Analysis:
During the appeal hearing, no one represented the assessee. The Departmental Representative justified the validity of the assessment order, stating that the basis for reopening was provided during the assessment proceedings through a show cause notice. The Departmental Representative argued that the assessee was aware of the reasons for reopening based on the response to the notice. The reasons for reopening were also reproduced in the assessment order. However, the Tribunal found that the Assessing Officer did not furnish the reasons for reopening before completing the assessment, as requested by the assessee. The Tribunal held that failure to provide reasons violated the rules of natural justice, rendering the assessment order invalid. The Tribunal directed the Assessing Officer to provide the reasons to the assessee for raising objections before proceeding with the assessment. The matter was remanded for de novo adjudication.

Conclusion:
The Tribunal set aside the orders of the Commissioner (Appeals) and the Assessing Officer, declaring the assessment order invalid due to non-furnishing of reasons for reopening. The Tribunal directed the Assessing Officer to provide the reasons to the assessee and allowed the appeal for statistical purposes.