2011 (2) TMI 190 - HC - Income Tax

Reopening of the assessment - reason to believe - supply of reasons to assessee - the assessee did not ask for these reasons to believe - The assessee rather participated in the reassessment proceedings. When the reassessment orders were passed and the assessee felt aggrieved thereagainst - Held that - It is trite that what cannot be done directly it is not allowed indirectly as well - This novel and ingenious method adopted by the Tribunal in setting aside the reassessment orders on the merits cannot be accepted - Even the assessee had not supplied any purchase inasmuch as it was still open to the assessee to challenge the validity of reassessment notice before the Commissioner of Income-tax (Appeals) and in fact the assessee did so for availing of that opportunity The assessee could have been provided with the reasons to believe recorded by the Assessing Officer to expect the assessee to make his submission before the Commissioner of Income-tax (Appeals) predicated on the said reasons to believe - On the supply of these reasons to believe it would be open to the assessee to make submissions before the Commissioner of Income-tax (Appeals) based on those reasons challenging the validity of reassessment proceedings and the Commissioner of Income-tax (Appeals) shall decide this issue on the merits after hearing both parties - Appeal is allowed by way of remand

Summary

Issues:
1. Validity of reassessment proceedings under section 148/143(3) of the Income-tax Act.
2. Challenge to the reopening of assessment under section 147 of the Act.
3. Rejection of books of account and withdrawal of deduction under section 80HHC of the Act.
4. Applicability of the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19.

Issue 1: Validity of reassessment proceedings under section 148/143(3) of the Income-tax Act:
The Assessing Officer (AO) issued a notice for reopening the assessment based on information from the Directorate of Revenue, Intelligence (DRI) regarding fraudulent exports. The DRI found incriminating material during a search at the office of the handling agent, indicating fraudulent activities by the assessee. The reassessment resulted in additional income being calculated for the assessee, with certain deductions disallowed. The Tribunal, without addressing the validity of the reassessment proceedings, directed the AO to provide the reasons to believe to the assessee and allow objections. The High Court held that the Tribunal's action was unsustainable as the law does not require the AO to provide reasons to believe unless objections are raised by the assessee. The Court emphasized the need for the assessee to challenge the reassessment validity before the Commissioner of Income-tax (Appeals) and rejected the Tribunal's approach of remitting the case back to the AO.

Issue 2: Challenge to the reopening of assessment under section 147 of the Act:
The assessee challenged the reopening of the assessment before the Commissioner of Income-tax (Appeals) on grounds of jurisdiction and rejection of deductions under section 80HHC. The Commissioner upheld the reassessment, leading to an appeal before the Tribunal. The Tribunal's decision to remit the case back to the AO for objections to the reasons to believe was deemed inappropriate by the High Court. The Court emphasized that the assessee had the opportunity to challenge the reassessment validity at earlier stages and should have done so instead of seeking further opportunities at the Tribunal level.

Issue 3: Rejection of books of account and withdrawal of deduction under section 80HHC of the Act:
The AO rejected the books of account and disallowed a deduction claimed under section 80HHC, resulting in additional income for the assessee. The assessee contested these decisions before the Commissioner of Income-tax (Appeals) and subsequently before the Tribunal. The High Court noted that the assessee's failure to request the reasons to believe or object to them during the reassessment proceedings did not justify the Tribunal's decision to remit the case back to the AO. The Court upheld the reassessment orders and rejected the assessee's plea for further opportunities to challenge the reassessment validity.

Issue 4: Applicability of the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19:
The High Court referred to the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO regarding the requirement for the AO to provide reasons to believe only if objections are raised by the assessee. The Court emphasized that the assessee's lack of awareness of this right did not warrant the Tribunal's decision to grant additional opportunities to object to the reasons to believe at the Tribunal level. The High Court ruled in favor of the Revenue, setting aside the Tribunal's order and directing the matter to be remitted back to the Commissioner of Income-tax (Appeals) for further proceedings based on the reasons to believe provided by the Revenue.