2022 (1) TMI 183 - HC - Income Tax

Reopening of assessment u/s 147 - Non dealing with objections - HELD THAT - Admittedly, the objections were not separately dealt with by the AO as mandatorily required by the judgment of Supreme Court in GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT On that short ground, the reopening of the assessment is rendered bad in law and the impugned reassessment order deserves to be set aside. As seen that the reasons for reopening of the assessment merely repeats the language of the report of the DDIT (Inv.) without any independent application of mind by the AO. In Sabh Infrastructure Ltd. 2017 (9) TMI 1589 - DELHI HIGH COURT in similar circumstances set aside the re-assessment order. In paragraph-15 of the said decision, it has been observed that assessment proceedings, especially those under Section 143 (3) of the Act have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. It was further emphasized that there have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. In the present case, apart from the fact that the reopening of the assessment being bad in law for non-supplying of the vital documents on the basis of which the reasons to believe were formed, the Court finds that the reasons for reopening merely reproduces the language of the report of the DDIT (Inv.) without the AO independently applying his mind to the material on record. For all of the aforementioned reasons, the Court finds the impugned re-assessment order to be unsustainable in law and the same as well as the consequential demand notices are hereby set aside.

Summary

Issues Involved:
Challenge to re-assessment order under Income Tax Act, 1961 for AY 2011-12 based on failure to address objections, non-supply of documents forming basis for reopening, and denial of cross-examination opportunity.

Analysis:
1. Failure to Address Objections:
The petitioner challenged the re-assessment order citing non-compliance with the mandatory requirement to address objections raised by the Assessee for reopening the assessment, as established by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer. The Court noted that the Assessing Officer failed to separately deal with the objections submitted by the Assessee, rendering the reopening of the assessment legally flawed.

2. Non-Supply of Documents:
Another ground of challenge was the non-supply of documents forming the basis for the Income Tax Officer's belief that income had escaped assessment. The Court highlighted that vital documents, including the report of the Deputy Director of Income Tax (Investigation), were not provided to the Petitioner, which undermined the fairness of the re-assessment process.

3. Denial of Cross-Examination Opportunity:
During the re-assessment proceedings, the Petitioner requested an opportunity for cross-examination of individuals whose statements led to the reopening of the assessment. However, this request was not granted, depriving the Petitioner of a fundamental procedural right. The Court recognized the denial of this opportunity as a further flaw in the re-assessment process.

4. Independent Application of Mind:
The Court observed that the reasons for reopening the assessment merely replicated the language of the report of the Deputy Director of Income Tax (Investigation) without the Assessing Officer independently applying their mind to the material on record. Citing the Delhi High Court's decision in Sabh Infrastructure Ltd. v. Asst. Commissioner of Income Tax, the Court emphasized the necessity of strong legal grounds for reopening assessments and the importance of reasons to believe, not merely suspect, that income had escaped assessment.

5. Judgment and Relief:
Based on the above grounds, the Court declared the impugned re-assessment order unsustainable in law and set it aside, along with the consequential demand notices. The writ petition was allowed with no order as to costs, emphasizing the importance of adherence to procedural fairness and legal requirements in income tax assessments.

6. Guidelines for Reopening Assessments:
The Court referenced the guidelines set out by the Delhi High Court, stressing the need for transparency and thoroughness in communicating reasons for reopening assessments, including providing copies of relevant documents, paraphrasing investigation reports, and addressing objections in a quasi-judicial manner. These guidelines underscored the significance of procedural integrity in the assessment process.