2021 (8) TMI 177 - HC - Income Tax

Reopening of assessment u/s 147 - Non considering of objections by AO - HELD THAT - No reasons having been assigned so far as the issues raised by the writ applicant with regard to the alleged transaction is concerned. We are of the view that, the AO failed to take note of the various objections filed against the reasons recorded - order of disposing off the objections does not reflect proper application of mind to the objections raised by the writ applicant and it could not be said that the objections having been disposed off by passing a reasoned order. In view of the judgment of the Apex Court in the case of GKN Divershaft (India) Ltd. Vs. Income tax Officer Ors. 2002 (11) TMI 7 - SUPREME COURT while disposing off the objections against the notice issued under Section 148 of the Act, it is an obligatory on the part of the Assessing Officer to deal with the issues raised therein and pass speaking order. We are conscious that, disposing off the objections raised by the assessee against the reasons recorded before issuance of notice under Section 148 of the Act, though not part of the statutory requirement, as prescribed under the Act, however, same is guided by the directions issued by the Apex Court.

Summary

Issues Involved:
1. Escapement of income chargeable to tax.
2. Difference between 'interest income' reflected in Form 26AS and 'interest income' disclosed by the writ applicant.
3. Validity of the reasons for reopening the assessment.
4. Proper sanction under Section 151 of the Income Tax Act.
5. Reopening based on borrowed satisfaction.

Detailed Analysis:

1. Escapement of Income Chargeable to Tax:
The writ applicant contested the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the A.Y. 2012-13. The Revenue's primary reason for reopening was the receipt of ?1,23,89,040/- from M/s. Chetan Enterprises, which was not a filer of income tax returns and was untraceable. The writ applicant argued that this amount was received on behalf of M/s. Harsh Enterprises, from whom they were to recover an outstanding amount due to sales made in the previous year. The court noted that the writ applicant had provided sufficient documentation, including ledger accounts and bank statements, to support this claim, indicating no independent transaction with M/s. Chetan Enterprises. The court found that the Assessing Officer did not properly consider these objections, which were crucial for determining whether there was an actual escapement of income.

2. Difference Between 'Interest Income' Reflected in Form 26AS and 'Interest Income' Disclosed:
The Revenue noted a discrepancy in the interest income, where the Form 26AS reflected ?11,17,084/-, but the writ applicant disclosed only ?5,58,542/-. The writ applicant countered that the amount in Form 26AS was incorrect and that there was no difference between the interest income reflected in Form 26AS and what was disclosed. The court found that the Assessing Officer did not adequately address this specific objection raised by the writ applicant, thus failing to provide a reasoned order on this point.

3. Validity of the Reasons for Reopening the Assessment:
The writ applicant argued that the reasons recorded for reopening the assessment lacked validity and were based on borrowed satisfaction from the information received from the DDIT (Inv.), Mumbai, without independent inquiry by the Assessing Officer. The court observed that the Assessing Officer must have an independent reason to believe that income has escaped assessment, which was not evident in this case as the reasons recorded seemed to be based solely on the information provided by the DDIT (Inv.).

4. Proper Sanction Under Section 151 of the Income Tax Act:
The writ applicant contended that the sanction for reopening the assessment under Section 151 of the Act was not obtained correctly. The court did not delve deeply into this issue but emphasized the need for the Assessing Officer to follow due process and ensure proper sanction when reopening assessments, especially when more than four years have lapsed since the end of the assessment year under consideration.

5. Reopening Based on Borrowed Satisfaction:
The writ applicant argued that the reopening was based on borrowed satisfaction from the DDIT (Inv.) without the Assessing Officer conducting independent inquiries. The court agreed that the Assessing Officer must not act on borrowed satisfaction and must independently verify the information before reopening an assessment. The court found that the Assessing Officer did not fulfill this requirement, leading to a lack of proper application of mind.

Conclusion:
The court concluded that the Assessing Officer failed to properly address the objections raised by the writ applicant and did not provide a reasoned order as required by the Supreme Court's judgment in GKN Driveshaft (India) Ltd. Vs. Income Tax Officer & Ors. The court set aside the order disposing of the objections and remitted the matter back to the Assessing Officer to consider the objections afresh and pass a speaking order within six weeks. The court clarified that it did not express any opinion on the merits of the case, leaving it open for the writ applicant to challenge any adverse order before the appropriate forum.