2021 (10) TMI 797 - HC - Income Tax

Reopening of assessment u/s 147 - Non speaking order disposing of objections against reopening - information received from ADIT, Kolkata is about one M/s.Shubhshree Barter Pvt. Ltd. where high value transactions have been noticed as assessee as one of the beneficiary - main emphasis is about the order of disposing of the objections - According to the petitioner, it is not a speaking order - HELD THAT - At Annexure-F what all the respondent Assessing Officer has opined that the case is reopened on the basis of tangible information and the conclusive evidence has been gathered that the assessee has escaped the income chargeable to tax during the Financial Year 2012-13 and the Assessment Year 2013-14. According to him, genuineness of the transaction will be found out only during the assessment or after the assessment is completed. There is a sufficient reason to believe that the income has escaped assessment and the reasons for reopening the assessment are correctly recorded. We could notice that this order lacks any reason, although there is no requirement for elaborate reasons, but a speaking order needs to really speak the mind of the officer exercising the quasi judicial function, this not being an empty formality even if he has a reason to believe that the income has escaped the assessment and, therefore, the objections are not to be accepted. It becomes the bounden duty to exercise this satisfaction in clear and specific words so as to also convey to the party concerned that in his exercise of discharge of his duty as a quasi judicial authority, he has arrived at a conclusion, so far as objections are reassessed. There may not be requirement of exhaustive elaborate essay, while discussing the reasons, but the same has to be clear in conclusion, satisfying the need of the same being a speaking order. Material, which has been placed before us is the inquiry report in the case of M/s. Shubhshree Barter Pvt. Ltd. to satisfy this Court as to why the scrutiny assessment for the Assessment Year 2013-14 has been necessitated. They are presently not to be entered into because of the absence of any reason and non-compliance of the directions in GKN Driveshafts (INDIA) Ltd. 2002 (11) TMI 7 - SUPREME COURT . Disposal of this matter is needed as dealing with the objections to the reasons recorded is not a static formality to be undergone to rush to the forming of assessment. Even while accepting the requirements of a focus on substantive justice in the process, it is a vital step towards that and hence mandate in GKN Driveshafts (INDIA) Ltd. (supra) must not be undermined, nor can that be diluted. Therefore, on quashing the order of assessment and without quashing the notice, we deem it appropriate to direct the Assessing Officer to pass a speaking order taking into consideration the objections raised by the petitioner. It is not the length of the order, which is the reason of our remand, it is the cryptic manner of dealing without any semblance of reasons which necessitated such remand. Let the said task be completed at the earliest. We have ascertained from the learned counsel that there is nothing further that needs to be added to the written objections to the reasons recorded. Order passed by the Assessing Officer disposes of objections of the petitioner dated 27th July, 2021 and the order of assessment dated 28th September, 2021 are quashed and set aside. On the strength of the objections raised by the petitioner, the respondent shall decide these objections in accordance with law as discussed hereinabove within two weeks.

Summary

Issues Involved:
1. Challenge to the notice under Section 148 of the Income Tax Act.
2. Validity of the order disposing of objections.
3. Requirement of a speaking order.
4. Compliance with judicial precedents.
5. Procedural requirements for reopening assessment.

Detailed Analysis:

1. Challenge to the Notice Under Section 148 of the Income Tax Act:
The petitioner challenged the notice dated 19.03.2021 issued under Section 148 of the Income Tax Act for the Assessment Year 2013-14, alleging it to be bad in law. The petitioner argued that the reasons for reopening the assessment were misconceived, baseless, and lacked independent application of mind by the Assessing Officer, referring to it as "borrowed satisfaction" from the ADIT (Investigation), Kolkata. The petitioner contended that no income had escaped assessment and that the transactions were genuine, with the identity and creditworthiness of the parties being known.

2. Validity of the Order Disposing of Objections:
The petitioner raised objections on 25.07.2020, requesting the respondent to drop the reassessment proceedings. The objections were disposed of by the respondent on 27.07.2021, which the petitioner alleged was done in a hurry without dealing with the contentions. The petitioner argued that the order was not a speaking order, as required by the precedent set in GKN Driveshafts (INDIA) Ltd. vs. ITO, and Ashish Bohra vs. ITO, which mandate that disposing of objections is not an empty formality and must be done with application of mind and a speaking order.

3. Requirement of a Speaking Order:
The court emphasized that the order disposing of objections must be a speaking order, reflecting the application of mind by the Assessing Officer. The court noted that the order lacked any reason and was cryptic, failing to satisfy the requirement of being a speaking order. The court referred to the decision in Divya Jyoti Diamonds (P.) Ltd. vs. Income Tax Officer, which held that the order should deal with each objection and provide proper reasoning.

4. Compliance with Judicial Precedents:
The court referred to several judicial precedents, including Dishman Pharmaceuticals & Chemicals Ltd. vs. Deputy Commissioner of Income-tax (OSD) (No.1), Phoolchand Bajranglal vs. ITO, and Rajesh Jhaveri Stock Brokers P. Ltd., which outline the requirements for reopening assessments and the need for the Assessing Officer to have a reason to believe that income chargeable to tax has escaped assessment. The court also referred to the decision in Banaskantha District Oilseeds Growers Co-op. Union Ltd. vs. Assistant Commissioner of Income-tax, which emphasized the necessity of disposing of objections by a speaking order before proceeding with the assessment.

5. Procedural Requirements for Reopening Assessment:
The court analyzed the procedural requirements under Sections 147 and 148 of the Income Tax Act, noting that the Assessing Officer must have a reason to believe that income has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts. The court highlighted that the reasons recorded by the Assessing Officer must reflect this satisfaction and be based on specific and reliable information.

Conclusion:
The court quashed the order disposing of the objections dated 27.07.2021 and the assessment order dated 28.09.2021, directing the Assessing Officer to pass a speaking order considering the objections raised by the petitioner within two weeks. The court emphasized that the disposal of objections is a substantive requirement and must be done with proper application of mind, reflecting clear and specific reasoning. The court did not enter into the merits of the matter, leaving the rights of both parties unaffected by the decision. The petition was disposed of with directions for compliance with the procedural requirements and judicial precedents.