2017 (1) TMI 727 - HC - Income Tax

Validity of reopening of assessment - passing a composite order - Held that - As far as the department is concerned when they have given the reason to believe for which an objection is filed and they confirm that there is valid reason to believe definitely they can proceed with the assessment order. As far as the assessee is concerned the right to challenge the reason to believe is not lost merely for the reason that a composite order had been passed. Therefore the assessee s right to appeal against the reopening of the assessment as well as the assessment proceedings can as well be taken up in a regular appeal. In other words no prejudice will be caused to the assessee on account of a composite order being passed and therefore do not think such a ground can be sustained. The revenue had proceeded on the basis that there is non disclosure by which the petitioner have derived a benefit which they were not entitled to. They claimed deduction which they were not entitled which fact came to the notice of the department only in 2010-11 when it was verified whether the petitioner had rural branches. This according to us is a valid reason for reopening the assessment. Whether the assessment proceedings are valid and justifiable? - Held that - This question do not think this Court should be keen to answer especially when the petitioner has an appellate remedy available under the statute. In the said circumstances this writ petition is dismissed with liberty to the petitioner to file appeal before the competent appellate authority. However it is made clear that the period during which this writ petition was pending shall be excluded from the period of limitation prescribed for filing an appeal as per the statutory provision.

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act.
2. Requirement to pass a separate order on objections before proceeding with reassessment.
3. Justification for reopening assessment based on non-disclosure of material facts.
4. Validity of the assessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of reopening assessment under Section 147 of the Income Tax Act:
The petitioner, a Co-operative Bank, challenged the reopening of assessments for the years 2007-08 and 2008-09 under Section 147 of the Income Tax Act. The department issued notices under Section 148, alleging that the bank claimed deductions for bad debts under Section 36(1)(viia) without having qualifying rural branches. The petitioner argued that all material facts were disclosed during the original assessment, and hence, the reopening was not justified. The court examined the scope of Section 147, which allows reopening if the Assessing Officer has "reason to believe" that income has escaped assessment. The court held that the department's discovery in 2010-11 that the petitioner had no rural branches constituted a valid reason for reopening the assessment.

2. Requirement to pass a separate order on objections before proceeding with reassessment:
The petitioner contended that the assessment orders (Exts.P19 and P20) were passed without adjudicating on the objections to the reasons for reopening, violating the principles laid down in GKN Driveshafts (India) Ltd. v. Income Tax Officer. The court acknowledged that the proper procedure involves the Assessing Officer furnishing reasons for reopening, allowing the assessee to file objections, and then passing a speaking order on those objections before proceeding with the reassessment. However, the court found that passing a composite order (combining reasons for reopening and the reassessment) does not inherently prejudice the assessee's rights, as the assessee can still challenge both aspects in an appeal.

3. Justification for reopening assessment based on non-disclosure of material facts:
The department argued that the petitioner wrongfully claimed deductions under Section 36(1)(viia) by not disclosing that it had no rural branches. The court referred to various judgments, including Phool Chand Bajrang Lal v. Income Tax Officer, which held that reopening is justified if there is specific, reliable information indicating non-disclosure of material facts. The court concluded that the department's discovery of the petitioner's lack of rural branches was a valid reason for reopening the assessment, as it indicated that the petitioner had not fully and truly disclosed all material facts necessary for assessment.

4. Validity of the assessment proceedings:
The petitioner argued that the assessment proceedings were invalid as they were based on an improper reopening of the assessment. The court held that since the reopening was justified, the subsequent assessment proceedings were also valid. However, the court did not delve deeply into the merits of the assessment itself, noting that the petitioner has the right to appeal the assessment orders. The court dismissed the writ petition, granting the petitioner liberty to file an appeal before the competent appellate authority and ensuring that the period during which the writ petition was pending would be excluded from the limitation period for filing the appeal.

Conclusion:
The court upheld the validity of the reopening of assessments under Section 147, stating that the department had valid reasons to believe that income had escaped assessment due to the petitioner's non-disclosure of material facts. The court also found no inherent illegality in passing a composite order and dismissed the writ petition, allowing the petitioner to pursue appellate remedies.

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