2024 (8) TMI 1186 - HC - Income Tax

Validity of Reopening of assessment - validity of approval granted by the Joint Commissioner u/s 151 - HELD THAT - As the facts stand, leading to the impugned reassessment order, it is quite clear that such order was passed on the basis of reasons which were furnished to the Petitioner under a notice issued u/s 143 (2) r.w.s. 147, and to which objections were raised by the Petitioner vide reply dated 15 October, 2021 which were not disposed of by passing a speaking order. Thus, as observed hereinabove, the case is clearly hit by the principles of law as laid down in the case of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT and on this basic issue, the impugned order will be required to be quashed and set aside. We also cannot countenance an argument as urged on behalf of the department that sanctity should be attributed to the fresh reasons which form part of the approval granted by the Joint Commissioner u/s 151 and which now ought to be considered as the appropriate reasons. Such a plea cannot be taken after the assessment order is already passed. In our opinion, it is not permissible for the Respondents-Revenue to raise such contentions as this will be completely contrary to the well settled principles of law and the sanctity of the procedure u/s 148 as it stood applicable for the assessment year in question We therefore reject the case of the Respondents-Revenue in this regard that now the Petitioner needs to respond to the reasons which form part of the approval granted u/s 151 and that too without the same being issued to the petitioner in a manner known to the law by the AO This is a clear case where the AO in fact has adopted different approaches, firstly, in furnishing different reasons to the assessee than what was placed before the Joint Commissioner. Things did not stop here, the AO thereafter decided to proceed in breach of the law, as if he was not aware about the rules which are required to be followed by him, namely, that once he had furnished reasons and to which objections were raised by the Petitioner, as a mandate of law, he was required to pass a speaking order disposing of the objections. He failed to pass such order and nonetheless he proceeded to pass the impugned assessment order. It appears to us that the AO was quite aware that the assessment order when looked from any angle, was illegal and could be set aside by the Court. AO permitting this to happen, as an eye wash the AO purports to take a plea that the reasons as set out before the Joint Commissioner be now set up as a defence to the present proceedings knowing well that referring to such reasons would be an untenable argument. AO in the present case has acted against the interest of the Revenue, and all of his actions has in fact helped the assessee in the present proceedings. This inasmuch as if the AO was to follow the correct path as per the record and if he was to be right, income of such large amount would not have escaped assessment. AO however, maintained technical defects which appears to be quite a conscious attempt. He has failed to diligently discharge his official duties, expected from him in law. We don t know what happens to such officers and whether any action is taken against such Officers in such cases questioning their performance and more particularly when they are responsible to deal with such large amounts of revenue, being not brought to tax, and as to whether any performance audit, vigilance or enquiry is conducted against such Officers and their actions in respect of several assessees is subjected to any scrutiny by the concerned Principal Commissioner of Income-tax under whose jurisdiction, such AO discharges their duties. The assessee in our opinion is correct in questioning the actions of the department that these are flawed, however, whether the AO ought to have been so reckless is the issue, which is an issue which the high officials of the department need to ponder on.

Issues Involved:
1. Legality of the Impugned Reopening Notice.
2. Validity of the Impugned Assessment Order.
3. Legitimacy of the Impugned Notice of Demand.
4. Justification for the Impugned Penalty Notice.
5. Procedural flaws in handling objections by the Assessing Officer (AO).
6. Use of incorrect reasons for reopening the assessment.

Detailed Analysis:

1. Legality of the Impugned Reopening Notice:
The petitioner challenged the reopening notice dated 30 March 2021 issued under Section 148 of the Income-tax Act, 1961, arguing that it was not taken to its logical conclusion in accordance with law. The notice erroneously referred to the assessment year 2016-17 instead of 2017-18. The petitioner had filed objections to the reopening notice, which were not disposed of by the AO, violating the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income-tax Officer.

2. Validity of the Impugned Assessment Order:
The impugned assessment order dated 31 March 2022 was based on flawed procedural steps. The petitioner pointed out that the AO used an erroneous email ID and issued a show-cause notice for transactions with M/s. Kushal Group, which were not part of the initial reasons for reopening. The AO finalized the assessment without addressing the petitioner's objections, contrary to legal requirements.

3. Legitimacy of the Impugned Notice of Demand:
The impugned notice of demand dated 31 March 2022 was issued based on the flawed assessment order. The petitioner argued that the demand notice was illegal as it stemmed from an assessment process that did not follow due procedure, including the non-disposal of objections.

4. Justification for the Impugned Penalty Notice:
The impugned penalty notice dated 31 March 2022 was also contested on the grounds that it was issued following an invalid assessment order. The petitioner sought the quashing of the penalty notice as it was based on an assessment process fraught with procedural errors.

5. Procedural Flaws in Handling Objections by the AO:
The petitioner's objections to the reopening notice were not addressed by the AO, which is against the principles established by the Supreme Court in GKN Driveshafts (India) Ltd. The AO's failure to pass a speaking order on the objections rendered the assessment process illegal. The court noted that the AO acted recklessly and irresponsibly by not following the mandated procedure.

6. Use of Incorrect Reasons for Reopening the Assessment:
The court found that the reasons furnished to the petitioner for reopening the assessment were different from those presented for approval under Section 151 of the Act. This discrepancy was discovered only in the reply affidavit filed by the Revenue, which introduced fresh reasons not previously communicated to the petitioner. The court rejected the Revenue's argument that these fresh reasons should now be considered, emphasizing that such a plea is contrary to well-settled legal principles and the sanctity of the procedure under Section 148.

Conclusion:
The court quashed the impugned reopening notice, assessment order, notice of demand, and penalty notice, agreeing with the petitioner that the entire procedure adopted by the AO was flawed. The AO's actions were deemed reckless and against the interest of the Revenue, necessitating scrutiny by higher officials. The petition was allowed in terms of prayer clause (b), quashing all the impugned notices and orders.

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