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2016 (8) TMI 230 - GUJARAT HIGH COURT

2016 (8) TMI 230 - GUJARAT HIGH COURT - TMI - Reopening of assessment - AO did not dispose of the objections before passing the order of assessment - Held that:- It is true that when the Assessing Officer proceeds to pass the final order of assessment without disposing of the objections raised by the assessee, he effectively deprives the assessee of an opportunity to question the notice for reopening itself. However, the assessee is not left without the remedy when the Assessing Officer proceeds .....

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of reassessment would stand failed on the merits of the order that the Assessing Officer has passed. Neither the action of the Assessing Officer of supplying reasons to the assessee nor his order disposing of the objections if raised by the assessee would per se have a direct relation to the legality of the notice of reopening or of the order of assessment. To declare the order of assessment illegal and to permanently prevent the Assessing Officer from passing any fresh order of assessment, mer .....

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27 of 2016 With TAX APPEAL NO. 392 of 2015 With TAX APPEAL NO. 395 of 2015 With TAX APPEAL NO. 396 of 2015 With TAX APPEAL NO. 212 of 2016 - Dated:- 21-7-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE APPELLANT : MR KM PARIKH, ADVOCATE FOR THE OPPONENT : MR S N SOPARKAR WITH MR B S SOPARKAR WITH MR JAIMIN DAVE, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These tax appeals involve one single central issue. We may record facts from Tax Appeal No. 797 of 2015. It .....

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he assessee in one of the books, which led to unaccounted business transactions of the searched person with the assessee. 2. On the basis of such materials, the Assessing Officer issued a notice for reopening of the assessment under Section 148 of the Act on 30.03.2009. The assessee raised objections to the notice of reopening under letter dated 11.11.2009. However, without disposing of such objections, the Assessing Officer continued with the assessment. He eventually passed an order of reasses .....

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Tribunal. Interestingly though the assessee had not challenged the order of the Commissioner (Appeals) and thus had indirectly accepted the validity of the re-opening of the assessment, Tribunal, referring to the judgement of this Court in case of General Motors India P. Ltd. vs. DCIT reported in 354 ITR 244, held that the order of assessment passed by the Assessing Officer without disposing of the objections is liable to be set aside. Resultantly, the Tribunal passed the following order: 8. The .....

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appeal raised by the Revenue on the merits of the addition in this appeal has become infructuous and hence dismissed. 10. In the result, the appeal of the Revenue is dismissed. 4. In view of such facts, the grievance of the Revenue is that the Tribunal committed a serious error in setting aside the order of assessment only on the ground that the Assessing Officer had, before passing the order of reassessment, not decided the objections of the assessee. The Revenue also contended that in this pa .....

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the Income Tax Appellate Tribunal was correct in law in setting aside the order of reassessment which was passed by the Assessing Officer on the ground that before passing such order, the Assessing Officer had not disposed of the objections of the assessee raised pursuant to the decision of Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and ors reported in 259 ITR 90 without placing the matter back before the Assessing Officer for passing a fresh order, if so needed .....

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High Court in case of Areva T and D Ltd vs. Assistant Commissioner of Income Tax reported in 294 ITR 233, in which, somewhat similar situation came up for consideration. 7. On the other hand, learned counsel Mr. Soparkar for the assessees opposed the appeals contending that by virtue of the judgement of the Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and ors (supra), once the assessee raises objections to the notice for reassessment, it is the duty of the Assessi .....

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assessment without disposing of the objections, he deprived the assessees of the valuable right flowing from the decision of Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and ors (supra) . 8. Counsel further submitted that the assessment proceedings have to be completed within a statutory time frame. If the Assessing Officer is now given an opportunity to rectify the error and proceed further with the assessments, gross injustice would be caused to the assessees who .....

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recall, in Tax Appeal No. 979 of 2015, the order of reassessment passed by the Assessing Officer was challenged by the assessee before the Commissioner (Appeals) who had granted substantial relief to the assessee and reduced the additions made by the Assessing Officer. The Commissioner (Appeals), however, had not annulled the assessment on the ground that the Assessing Officer had framed the assessment without disposing of the objections. This order of the Commissioner (Appeals) was challenged .....

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the Revenue and not by the assessee. The validity of the assessment on the ground that it was passed without disposing of the objections was not at large before the Tribunal. In this appeal, therefore, the Tribunal clearly committed a fundamental error. 11. This aspect, however, does not arise in other tax appeals and, in any case, we have framed a common question which does not involve this element at all. We would, therefore, proceed to decide the question framed. 12.We may recall, Section 147 .....

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e a return of his income. Sub section (2) of Section 148 provides that the Assessing Officer shall, before issuing any notice under said section, record his reason for doing so. Thus, before reassessment can be done, statutory requirements are of issuance of a notice and before issuance of notice, recording of reasons by the Assessing Officer for reopening of the assessment. These statutory provisions do not provide for supplying reasons recorded by the Assessing Officer to the assessee, permitt .....

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o file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking Order befo .....

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t, the question arise is, whether if the Assessing Officer defaults in disposing of the objections but proceeds to frame the assessment without so doing, should the reassessment be terminated permanently? In other words, the question is, should the assessment be placed back at a stage where such defect is detected or should the Assessing Officer for all times to come be prevented from carrying out his statutory duty and functions? 15. In case of Arvind Mills Ltd vs. Assistant Commissioner of Wea .....

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f the objections filed by the petitioner by passing a speaking order as per the aforesaid decision of the Hon'ble Supreme Court. It is further laid down in the said order that it is only after the Assessing Officer passes a speaking order deciding the petitioner's preliminary objections against the notice for reassessment that any cause of action would arise for the petitioner. This order was served on the respondent on 4th March 2004 and immediately on 5th March 2004, the petitioner was .....

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ffidavit in reply, the aforesaid averments are dealt with only by reiterating that the objections have been disposed of in the reassessment order itself. The aforesaid conduct of the respondent alongwith the facts stated hereinbefore clearly points out that the stand of the respondent appears to be that once a notice for re-assessment has been made, the respondent is bound to frame an order of re-assessment regardless of the fact as to whether such an order can be supported or not, in law or on .....

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essment under the Income-tax Act would apply with full force to the notice for re-assessment under Section 17 of the WT Act as well. The petitioner-Company had already filed its return in response to the impugned notice and requested for furnishing reasons, which request has been acceded to only very recently and the petitioner has thereafter submitted its objections on 19.2.2004. The Assessing Officer is, therefore, now required to dispose of the objections by passing a speaking order as per th .....

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of action would arise for the petitioner." 16. In case of General Motors India P. Ltd. vs. DCIT (supra) , this Court did strike down the order of assessment which was passed without disposing of the objections. It was provided as under: 23. From the aforesaid discussion, we are of the considered opinion that writ petition under Article 226 of the Constitution of India is maintainable where no order has been passed by the Assessing Officer deciding the objection filed by the assessee under .....

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in absence of reasons having direct link with the formation of the belief, the writ Court under Article 226 can quash the notice issued under Section 148 of the Act. The writ petition filed by the petitioner is maintainable. The Assessing Officer is mandated to decide the objection to the notice under Section 148 and supply or communicate it to the assessee. The assessee gets an opportunity to challenge the order in a writ petition. Thereafter, the Assessing Officer may pass the reassessment ord .....

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on to the notice under section 148 and the assessment order passed under the Act deserves to be quashed. 17.Two things emerge from this judgement. Firstly, that the question whether after striking down the order of assessment on this ground further assessment should be permitted or not, was neither argued nor addressed by the Court. Second aspect is that, in case of General Motors India P. Ltd. vs. DCIT (supra), the Court noticed the judgement of Division Bench of Arvind Mills Ltd vs. Assistant .....

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own the ratio, struck down the order of assessment without any further facility to the Assessing Officer to dispose of the objections and then to proceed to reassess the income of the assessee. In case of Arvind Mills Ltd vs. Assistant Commissioner of Wealth Tax (supra) again the Court had, without laying down the ratio, enabled the Assessing Officer to dispose of the objections and till then prevented him from passing fresh order of assessment. What should, therefore, be the correct legal posit .....

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that the Assessing Officer has to pass a speaking order disposing of the objections before proceeding with the assessment . In the present case, a separate speaking order has not been passed and the objections have been dealt with, if at all, in the re-assessment order itself. On this ground also, the petitioner is liable to succeed. 20. On the other hand, Madras High Court in case of Areva T and D Ltd vs. Assistant Commissioner of Income Tax(supra) came to a specific conclusion that the action .....

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e present case, the objections have not been considered at all by the Assessing Officer before proceeding with the reassessment. Reassessment order was completed without considering the objections to the reopening of the assessment. It is nothing but a procedural defect and therefore it could not be held that the reassessment is a nullity in law. 24. Since we are of the view that these are only irregularities committed by the Assessing Officer (i.e.) not considering the objections as well as not .....

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he assessee to produce materials and evidence, if any, and pass orders in accordance with law, as expeditiously as possible. As the matter is remanded, it is not necessary to answer the above questions of law, as the same is likely to adversely affect the rights of either parties. 21. It is by now well settled principle of administrative law that whenever administrative action is found to be suffering from breach of principles of natural justice, the decision making process should be placed at a .....

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t be made available to the delinquent before the same can be accepted by the disciplinary authority and punishment could be imposed. While doing so, the Supreme Court clarified that the decision would not preclude the disciplinary authority from revising the proceedings and continuing with in accordance with law from the state of supply of inquiry report in cases where dismissal, removal was the punishment. 22. The decision of Union of India and ors vs. Mohammad Ramzan Khan(supra) came up for co .....

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whether the delinquent has been prejudiced thereby or not. Reinstatement with back-wages should not be mechanically ordered. It was provided that the Court or the Tribunal should furnish to the delinquent a copy and afford an opportunity to show if any prejudice is caused. 23. The decision in case of Union of India and ors vs. Mohammad Ramzan Khan (supra) came up for consideration in case of State Bank of Patiala and ors vs. S.K.Sharma reported in AIR 1996 SC 1669, in which, while discussing the .....

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ry/departmental enquiry in violation of the rules/regulations/statutory provisions governing such enquiries should not be set aside automatically. The Court or the Tribunal should enquire whether (a) the provision violated is of a substantive nature or (b) whether it is procedural in character. (2) A substantive provision has normally to be complied with as explained hereinbefore and the theory of substantial compliance or the test of prejudice would not be applicable in such a case. (3) In the .....

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ovision should be examined from the point of view of prejudice, viz., whether such violation has prejudiced the delinquent officer/employee in defending himself properly and effectively. If it is found that he has been so prejudiced, appropriate orders have to be made to repair and remedy the prejudicate, including setting aside the enquiry and/or the order of punishment. If no prejudice is established to have resulted therefrom, it is obvious, no interference is called for. In this connection, .....

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that opportunity inspite of the delinquent officer/employee asking for it. The prejudice is selfevident. No proof of prejudice as such need be called for in such a case. To repeat, the test is one of prejudice, i.e., whether the person has received a fair hearing considering all things. Now, this very aspect can also be looked at from the point of view of directory and mandatory provisions, if one is so inclined. The principle stated under (4) hereinbelow is only another way of looking at the s .....

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character, it has to be ascertained whether the provision is conceived in the interest of the person proceeded against or in public interest. If it is found to be the former, then it must be seen whether the delinquent officer has waived the said requirements either expressly or by his conduct. If he is found to have waived its then the order of punishment cannot be set aside on theground of said violation. If, on the other hand, it is found that the delinquent officer/employee has not it or th .....

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ustice - or, for that matter, wherever such principles are held to be implied by the very nature and impact of the order/action the Court or the Tribunal should make a distinction between a total violation of natural justice [rule of audi alteram] and violation of a facet of the said rule, as explained in the body of the judgment. In other words, a distinction must be made between no opportunity" and no adequate opportunity, i.e., between "no notice"/"no hearing" "n .....

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other words, what the Court or Tribunal has to see is whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answer to the said query. [It is made clear that this principle [No.5] does not apply in the case of rule against bias, the test in which behalf are laid down elsewhere.] (6) While applying the rule of audi alteram partem [the primary principle of natural justice] the Court/ Tribunal .....

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rest with the requirement of natural justice and arrive at an appropriate decision. 24. It can thus be seen that whenever an administrative action is found to be tainted with defect in the nature of breach of natural justice or the like, the Court would set aside the order, place back the proceedings at the stage where the defect is detected and leave the liberty to the competent authority to proceed further from such stage after having the defect rectified. In other words, the breach of princip .....

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r and ors (supra) . It is true that when the Assessing Officer proceeds to pass the final order of assessment without disposing of the objections raised by the assessee, he effectively deprives the assessee of an opportunity to question the notice for reopening itself. However, the assessee is not left without the remedy when the Assessing Officer proceeds further with the assessment without disposing of the objections. Even before the final order of assessment is passed it would always be open .....

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