2023 (9) TMI 1696 - AT - Income Tax

Validity of reopening of assessment - mandation of disposal of objections raised by the assessee - whether passing a speaking order before proceeding with the assessment must be construed to be passing a separate speaking order? - HELD THAT - AO is under obligation to dispose of the objections to reopening the assessment filed by the assessee by way of a separate speaking order before passing the reassessment order provided the assessee acts in accordance with the judgment of the Hon ble Supreme Court in the case of GKN Driveshaft (India) Limited 2002 (11) TMI 7 - SUPREME COURT In our view the procedure laid down by the Hon ble Supreme Court in the case of GKN Driveshaft (India) Limited granted opportunity to an assessee to access and understand the reasons for reopening of his assessment and to file objections against the same. At the same time the Revenue was granted opportunity to examine the set up by the assessee after taking into consideration the objections/reply filed by the assessee and pass a speaking order disposing off objections clearly stating therein the position taken by the Revenue so that the same could meet the test of judicial scrutiny in a subsequent challenge to initiation of reassessment proceedings on the ground of lack of jurisdiction. In absence of any justifiable reasons AO is obliged to dispose of the objections by way of separate speaking order. However in a case where the assessee does not file the return of income in response to notice issued u/s 148 of the Act and/or delays filing of the objections to reopening of assessment even after receiving the reasons recorded with the object of delaying or frustrating the reassessment proceedings in our view the benefit of above judgments cannot be extended to such assessee. We note that in the present case the Appellant has acted in accordance with the judgment of the Hon ble Supreme Court in the case of GKN Driveshaft (India) Limited (supra). In response to notice dated 26/11/2018 issued under Section 148 of the Act return of income was filed by the Appellant on 24/12/2018 which was followed by a request for providing reasons recorded. On receiving the reasons recorded on 07/11/2019 the objections to reopening of assessment were filed on 09/12/2019. AO did not dispose of the objections by way of a separate speaking order and passed the reassessment order under Section 143(3) read with Section 147 on 25/12/2019 and in paragraph 10 therein the AO rejected the objections to reasons recorded filed by the Appellant. While in paragraph 10 of the reassessment order dated 25/12/2019 the Assessing Officer has dealt with the objections filed by the Assessing Officer the same does not meet the mandate laid down by the Hon ble Supreme Court in the case of GKN Driveshaft (India) Limited 2002 (11) TMI 7 - SUPREME COURT in the facts and circumstances of the present case. Therefore reassessment order passed under Section 143(3) read with Section 147 is quashed as having been passed without jurisdiction. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal in this batch of appeals for Assessment Years 2012-13, 2013-14, and 2014-15 are:

• Whether the reassessment orders passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (the Act) are valid when the Assessing Officer has not disposed of the objections raised by the assessee against the reasons recorded for issuance of notice under Section 148 by passing a separate speaking order prior to passing the reassessment order;
• Whether the Assessing Officer's assumption of jurisdiction under Section 147/148 of the Act without disposing of the objections to reopening is bad in law;
• Whether disposal of objections to reopening by dealing with them within the reassessment order itself, as opposed to by a separate speaking order, satisfies the procedural mandate laid down by the Hon'ble Supreme Court;
• Whether the findings and conclusions in respect of the Assessment Year 2012-13 are applicable mutatis mutandis to Assessment Years 2013-14 and 2014-15, given identical facts and circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of reassessment orders passed without disposing of objections to reopening by passing a separate speaking order

Relevant Legal Framework and Precedents:

The legal framework revolves around Sections 147, 148, and 143(3) of the Income Tax Act, 1961, which govern reopening of assessments and reassessment proceedings. The procedure for reopening assessment requires issuance of notice under Section 148, furnishing reasons for reopening, and disposal of objections to reopening before proceeding with reassessment.

The Hon'ble Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) lays down the procedure: upon issuance of notice under Section 148, the assessee files return and may seek reasons for reopening; the Assessing Officer must furnish reasons within reasonable time; the assessee may file objections; and the Assessing Officer must dispose of these objections by passing a speaking order before proceeding with reassessment.

Subsequent rulings by the Hon'ble Bombay High Court in KSS Petron Pvt. Ltd. v. ACIT, Bayer Material Sciences Pvt. Ltd. v. DCIT, and Fomento Resorts & Hotels Ltd. v. ACIT have interpreted and applied the GKN Driveshafts principles, emphasizing that disposal of objections must be by a separate speaking order prior to reassessment, and disposal within the reassessment order itself is insufficient and renders the reassessment order without jurisdiction.

Court's Interpretation and Reasoning:

The Tribunal examined whether the Assessing Officer's disposal of objections within the reassessment order (paragraph 10 of the order) complies with the procedural mandate. The Revenue contended that such disposal within the reassessment order suffices, while the Appellant relied on the cited High Court rulings to argue that a separate speaking order is mandatory.

The Tribunal analyzed the legal position as follows:

• The Supreme Court in GKN Driveshafts mandates disposal of objections by passing a speaking order before proceeding with reassessment, but does not explicitly state that the speaking order must be separate;
• However, the Bombay High Court in KSS Petron Pvt. Ltd. and Bayer Material Sciences clarified that disposal of objections within the reassessment order is insufficient as it deprives the assessee of an opportunity to challenge reopening jurisdiction before reassessment proceeds;
• The Court reasoned that disposing objections by a separate speaking order provides clarity, transparency, and allows judicial scrutiny of jurisdictional validity before reassessment proceeds, preventing unnecessary harassment of the assessee;
• The Tribunal further noted that if the assessee delays filing objections or return, the benefit of these procedural safeguards may not apply, but in the present case, the assessee complied timely with all procedural requirements.

Key Evidence and Findings:

• The Appellant filed return of income promptly after notice under Section 148;
• The Appellant requested and received reasons recorded for reopening;
• The Appellant filed objections to reopening within reasonable time;
• The Assessing Officer did not dispose of objections by a separate speaking order but dealt with them in paragraph 10 of the reassessment order;
• The reassessment order was passed shortly after objections were filed.

Application of Law to Facts:

Given the procedural compliance by the Appellant and the legal requirement for disposal of objections before reassessment, the Tribunal held that the Assessing Officer's failure to pass a separate speaking order disposing objections rendered the reassessment order without jurisdiction and bad in law.

Treatment of Competing Arguments:

The Revenue's argument that disposal within the reassessment order suffices was rejected based on binding High Court precedents emphasizing the necessity of a separate speaking order. The Tribunal also rejected the Revenue's contention that no separate order is required, as such practice deprives the assessee of timely judicial remedy and violates procedural fairness.

Conclusions:

The Tribunal concluded that the reassessment orders for Assessment Years 2012-13, 2013-14, and 2014-15 are invalid as the Assessing Officer assumed jurisdiction without disposing of objections by a separate speaking order, contrary to the procedural mandate established by the Supreme Court and High Court rulings.

Issue: Applicability of findings in AY 2012-13 to AYs 2013-14 and 2014-15

Relevant Legal Framework and Precedents:

The principle of consistency and mutatis mutandis application of findings in cases involving identical facts and legal issues is well-established in appellate practice.

Court's Interpretation and Reasoning:

Both parties agreed that the findings on the Additional Ground No. 1.1 for AY 2012-13 would apply mutatis mutandis to AYs 2013-14 and 2014-15. The Tribunal noted identical facts and procedural timelines for these years, including dates of furnishing reasons, filing objections, and passing reassessment orders.

Application of Law to Facts:

Since the procedural defect existed identically in the reassessment orders for AYs 2013-14 and 2014-15, the Tribunal applied the same legal reasoning and quashed the reassessment orders for these years as well.

Conclusions:

The reassessment orders for AYs 2013-14 and 2014-15 were quashed on the same grounds as AY 2012-13, and all other grounds raised were dismissed as infructuous.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The Assessing Officer is obliged to dispose of the objections to reopening the assessment filed by the assessee by way of a separate speaking order before passing the reassessment order provided the assessee acts in accordance with the judgment of the Hon'ble Supreme Court in the case of GKN Driveshaft (India) Limited."

"Disposal of the objections in the reassessment order (as opposed to disposal by way of a separate speaking order) takes away the option from the assessee to challenge initiation of reassessment proceedings by invoking writ jurisdiction before the court till passing of the reassessment order, thus, putting an assessee through the rigour of reassessment even though on subsequent judicial scrutiny it may ultimately turn out that the assumption of jurisdiction for reopening the assessment was bad in law."

"In absence of any justifiable reasons, the Assessing Officer is obliged to dispose of the objections by way of separate speaking order."

"Since, in the present case, the Assessing Officer has purported to assume the jurisdiction for reopening of the assessment, without having first disposed of the Assessee's objections to the reasons by passing a speaking order, following the law laid down in GKN Driveshafts (India) Ltd., Bayer Material Science (P) Ltd. and KSS Petron Private Ltd., we are constrained to hold that such assumption of jurisdiction by the Assessing Officer was ultra vires Section 11 of the said Act."

The Tribunal quashed the reassessment orders for all three assessment years on the ground of want of jurisdiction due to non-compliance with the procedural mandate regarding disposal of objections prior to reassessment.