2023 (12) TMI 1131 - HC - Income Tax

Validity of reopening of assessment - denial of natural justice - order passed on last date for exercising power of reassessment without supplying the reasons pursuant to notice u/s 148 despite request by the petitioner to furnish reasons for reopening - HELD THAT - Division Bench of this Court in SHRI JANAK SHANTILAL MEHTA 2020 (12) TMI 991 - MADRAS HIGH COURT wherein while examining as to whether failure to furnish the reasons for reopening on a request made would vitiate the assessment proceedings, it was held that it was mandatory for the Assessing Authority to furnish reasons and if the Assessing Authority fails to do so, the re-assessment proceedings is liable to be set aside. Further, after referring to the judgment of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT it was held that non-furnishing of reasons would cause serious prejudice and would vitiate the proceedings, resultantly the impugned proceeding was quashed The impugned order under Section 147 of the Act is made contrary to and in gross disregard/ non-compliance with the procedure laid down for reassessment by the Hon'ble Supreme Court inasmuch as the assessment order is passed without furnishing the reason for reassessment despite a specific request. The impugned order stands vitiated and is thus set aside. Decided in favour of assessee.

Summary

Issues:
The judgment involves a challenge to an assessment order under Section 147 of the Income Tax Act, 1961 based on the grounds of failure to furnish reasons for reassessment, inadequate time for response, and non-compliance with the principles of natural justice.

Assessment Proceedings:
The petitioner, engaged in preparing engineering drawings for overseas companies, filed its original return for the assessment year 2016-17. Following scrutiny, a deduction under Section 35(1) was disallowed, resulting in a revised total income. Subsequently, a notice was received to reopen the assessment, but despite requests, reasons for reopening were not provided, leading the petitioner to believe the reassessment proceedings were dropped.

Show Cause Notices and Time Constraints:
The petitioner was served with show cause notices adding donations to total income and requesting documents under Section 142(1) of the Act. The notices were sent with short notice periods, causing difficulties in responding adequately. The assessment order under Section 147 was passed while the petitioner was gathering documents to respond to the notices.

Legal Precedents and Compliance:
The judgment refers to the decision in GKN Driveshafts Ltd. vs. Income Tax Officer, emphasizing the mandatory nature of furnishing reasons for reassessment upon request by the assessee. Failure to provide reasons was held to vitiate the proceedings, as seen in previous cases like Bayer Material Science Pvt. Ltd. and KSS Petron Pvt Ltd. The impugned order in this case was found to be in gross disregard of the procedure laid down by the Supreme Court, leading to its quashing.

Conclusion:
The High Court quashed the impugned order, citing non-compliance with the requirement to furnish reasons for reassessment and the violation of procedural fairness. The respondent was allowed to reassess within the limits of the law. No costs were awarded, and the writ petition was allowed, with the connected miscellaneous petition closed.