2021 (5) TMI 925 - HC - Income Tax

Reopening of assessment u/s 147 - notice beyond the period of 4 years - HELD THAT - In the case of GKN Driveshaft 2002 (11) TMI 7 - SUPREME COURT the Supreme Court has laid down the procedure as to the manner of dealing with the objections raised against the notice under Section 148 of the Act. The Supreme Court has held that when a notice u/s 148 of the Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notice. AO is bound to furnish reasons within a reasonable time and upon receipt of reasons, the noticee is entitled to file an objection to issuance of notice and AO is bound to dispose of the same by speaking order. In the case of SABH Infrastructure Ltd 2017 (9) TMI 1589 - DELHI HIGH COURT has held that the exercise of considering the assessee s objections to the reopening of the assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objection should deal with each objection and give proper reason for conclusion. The order should reflect proper application of mind. Applying the dictum as laid down by the Supreme Court in the case of GVK Driveshaft (supra), we are of the view that disposing of the objections raised by the assessee against the reasons recorded before issuance of notice under Section 148 of the Act, though not part of the statutory requirement, as prescribed under the Act, however, same is guided by the directions issued by the Apex Court. The specific objections raised by the writ applicant, produced on record at page-44 to 56 to this writ application, have not been properly dealt with by the AO. The lapse is in clear violation of the decision of the Apex Court. We are of the view that the AO has passed the order mechanically and without application of his mind. In other words not in a meaningful manner.In view of the above, this writ application succeeds in part.

Issues Involved:
1. Legality and jurisdiction of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Adequacy of the reasons provided for reopening the assessment.
3. Whether the reopening of assessment constitutes a change of opinion.
4. Compliance with the procedural requirements for reopening an assessment after four years.
5. Proper disposal of objections raised by the assessee.

Detailed Analysis:

1. Legality and Jurisdiction of the Notice Issued Under Section 148:
The writ applicant, a private limited company, challenged the notice dated 31.03.2019 issued under Section 148 for the Assessment Year 2012-13, claiming it was illegal and without jurisdiction. The notice was issued for reopening the assessment based on information received from the DDIT (Investigation), Surat, which indicated suspicious transactions involving high-value credits and debits without economic rationale.

2. Adequacy of the Reasons Provided for Reopening the Assessment:
The reasons for reopening included high-value internal transfer credits and RTGS/NEFT receipts followed by direct import remittances, which lacked economic rationale. The AO noted unexplained credit entries in the bank account of the assessee amounting to ?255,69,58,651/-, and discrepancies in purchases shown from an individual who did not report business income. These reasons led the AO to believe that income had escaped assessment.

3. Whether the Reopening of Assessment Constitutes a Change of Opinion:
The writ applicant argued that all details were provided during the original assessment under Section 143(3) and that the reopening was based on the same material, constituting a change of opinion. However, the revenue contended that the information received post-assessment indicated failure to disclose material facts, justifying the reopening.

4. Compliance with the Procedural Requirements for Reopening an Assessment After Four Years:
The notice for reopening was issued beyond four years from the end of the relevant assessment year. The revenue argued that the reopening was justified due to the assessee's failure to fully and truly disclose all material facts. The necessary sanction from the Principal Commissioner of Income Tax was obtained as per Section 151 of the Act.

5. Proper Disposal of Objections Raised by the Assessee:
The writ applicant raised objections to the notice on both jurisdictional and merit grounds, which were rejected by the AO. The court found that the AO did not properly address the objections, failing to provide a detailed and reasoned order. The court emphasized that disposing of objections is a quasi-judicial function requiring proper application of mind and detailed reasoning, as established in GKN Driveshafts (India) Ltd and SABH Infrastructure Ltd.

Judgment:
The court concluded that the AO did not adequately deal with the objections raised by the assessee, resulting in a mechanical and non-meaningful order. The order disposing of the objections dated 26.08.2019 was set aside. The matter was remitted to the AO to reconsider the objections and pass a fresh speaking order within six weeks. The court did not express any opinion on the merits of the case, allowing the assessee to challenge any adverse order before the appropriate forum.

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