2015 (9) TMI 1119 - HC - Income Tax

Reopening of assessment - Held that - In the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. We also do not appreciate the stand of the revenue, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to justify non-furnishing of reasons. We expect the state to act more responsibly.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal for Assessment Year 2008-09 regarding the correctness of applying a specific legal ratio and the failure to furnish reasons for reopening notice under Section 148 of the Income Tax Act.

Analysis:
1. The appeal challenges the order of the Income Tax Appellate Tribunal concerning Assessment Year 2008-09. The revenue raised questions on the correctness of applying the legal ratio of a Supreme Court decision and the failure to furnish reasons for reopening the assessment.

2. The respondent-assessee filed its income return for the mentioned assessment year, which was initially accepted. However, the Assessing Officer initiated reassessment proceedings by issuing a notice under Section 148 to reopen the assessment. Despite the assessee's request for reasons, they were not provided before the reassessment was completed.

3. The assessee's appeal to the Commissioner of Income Tax (Appeals) was not entertained, leading to a further appeal to the Tribunal. The Tribunal allowed the appeal, citing the necessity for the Assessing Officer to furnish reasons upon request, as established by legal precedents.

4. The High Court upheld the Tribunal's decision, emphasizing the importance of providing reasons for reopening notices to the assessee as a jurisdictional issue. Failure to furnish reasons renders the reassessment order legally invalid. The Court reiterated that the power to reopen assessments is exceptional and must comply strictly with legal requirements.

5. The Court dismissed the revenue's argument that the assessee's participation in proceedings implied the reasons were furnished. It stressed that the assessee's right to receive and object to the reasons is crucial, and the authority must comply strictly with these procedures. The Court found no substantial question of law, leading to the dismissal of the appeal.