2021 (7) TMI 118 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Notice issued as assessee had received accommodation entries by entry provider Mr. Vipul Vidur Bhatt by using bogus paper company - assessee argued for non disposing of the objections properly - HELD THAT - We are of the considered view that, the preliminary objections filed by the writ applicants against the reasons recorded for reopening of assessment, have not been properly dealt with by the AO. We take the note of the fact that, while submitting the objections, the assessee had specifically taken a stand that, for A.Y. 2011-12, the transactions of purchase being entered with SCL company and in the next year, the outstanding amount had been cleared by the assessee. In support of such claim, the ledger account of the SCL maintained in the books of accounts of the assessee had been submitted for perusal and adjudication. However, the objections having not been properly dealt with the assessing officer. The preliminary objections raised by the writ applicant in both the cases having not been properly dealt with the by AO. The lapses is in clear violation - AO has passed the order disposing of the objections mechanically and without application of mind. The orders disposing of the objections are hereby set aside and the matters are remitted to the Assessing Officer. The Assessing officer shall take into consideration the objections raised by the writ applicants and pass a fresh speaking order in accordance with law

Summary

Issues Involved:
1. Legality and jurisdiction of the impugned notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the order disposing of the objections against the reasons recorded for reopening the assessment.

Detailed Analysis:

1. Legality and Jurisdiction of the Impugned Notice:

The primary issue is whether the impugned notice dated 15.03.2018, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for A.Y. 2013-14 and A.Y. 2015-16, is valid. The assessee, a private limited company engaged in manufacturing starch and its derivatives, contended that the reopening was based on the assertion that the company had taken bogus accommodation entries from Sampada Chemicals Ltd. (SCL), a bogus company managed by Shri Vipul Bhatt.

The assessee argued that during the F.Y. 2011-12, it purchased maize from SCL and made part payment, with the remaining amount paid in F.Y. 2012-13. No transactions were entered with SCL during A.Y. 2013-14 and A.Y. 2015-16. The assessee claimed that the notice was illegal and based on borrowed satisfaction without independent inquiry or application of mind by the Assessing Officer (AO).

2. Validity of the Order Disposing of the Objections:

The assessee raised objections against the reasons recorded for reopening the assessment, arguing that the AO had not properly dealt with these objections. The objections included that the transactions with SCL were completed in F.Y. 2012-13 and no transactions occurred in the subsequent years. The AO's order disposing of the objections did not extensively address these points and was deemed mechanical and without proper application of mind.

The AO justified the reopening based on information received from the search and seizure action against Mr. Vipul Bhatt, who admitted to managing bogus entities, including SCL, for providing accommodation entries. The AO believed that the assessee was a beneficiary of these entries.

Court's Findings:

The court found that the AO did not properly address the preliminary objections raised by the assessee. The objections were not dealt with in a meaningful manner, violating the principles set by the Supreme Court in GKN Driveshaft (India) Ltd. v. Income Tax Officer, which mandates a speaking order when disposing of objections against a notice under Section 148.

The court highlighted that the process of filing objections and passing a speaking order is not an empty formality but ensures that the AO considers whether there is a reasonable ground for reopening the assessment. The AO's failure to properly address the objections and pass a speaking order was a clear lapse.

Conclusion:

The court set aside the orders disposing of the objections dated 13.07.2018 and remitted the matters to the AO to reconsider the objections and pass a fresh speaking order in accordance with the law. The AO was directed to complete this exercise within eight weeks from the date of receipt of the court's order. If the fresh order is adverse to the assessee, the assessee should be given at least four weeks to challenge the order before the appropriate forum.