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The District Co-op. Central Bank Ltd. Versus ITO, Ward-2, Kakinada

Validity of re-assessment proceedings - failure on the part of the A.O. to provide the reasons recorded for re-opening - Held that:- In the present case on hand, on perusal of the facts available on record, we find that the A.O. has formed an opinion merely based on the return of income and CBDT instructions, but not based on any tangible material which came to his knowledge subsequent to the completion of original assessment completed u/s 143(1) & 143(3) of the Act. - Though there is no qu .....

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on of reason to believe for re-opening of the assessment and hence, re-opening of assessment for the assessment year 2007-08, 2008-09 & 2009-10 is bad in law - Question of non-furnishing the reasons for re-opening on already concluded assessment goes to very route of the matter and that the assessee is entitled to be furnished reasons for such re-opening and that if reasons are not furnished to the assessee, then the proceedings for the re-assessment cannot be taken any further, and re-open .....

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the A.O. to furnish reasons recorded for re-opening of the assessment for all the assessment years. Thereafter, the assessee has filed one more letter on 26.8.2011 and requested the A.O. to treat the return filed earlier u/s 139(1) of the Act, as the return filed in response to notice issued u/s 148 of the Act, for the assessment year 2007-08, but the assessee has filed returns in response to notice u/s 148 for the assessment year 2008-09 and 2009-10. Therefore, it is abundantly clear that the .....

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NATHA, ACCOUNTANT MEMBER For The Appellant : Shri K. Gopala Krishna, AR For The Respondent : Shri T.S.N. Murthy, DR ORDER PER G. MANJUNATHA, Accountant Member: These are 3 appeals filed by the assessee are directed against separate, but identical orders of the Commissioner of Income- Tax (A)-11, Mumbai, Camp office at Visakhapatnam for the assessment years 2007-08, 2008-09 & 2009-10. Since, the facts are identical and issues are common, they are clubbed, heard together and disposed-off by wa .....

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sed u/s 143(1) of the Act, for all the assessment years. Subsequently, the assessment for the assessment year 2007-08 has been subjected to scrutiny and the A.O. has completed assessment u/s 143(3) of the Act on 17.2.2009 determining total income of Rs. 65,150/-. However, the assessment for the assessment year 2008-09 and 2009-10 has been completed u/s 143(1) of the Act and intimation u/s 143(1)(a) of the Act has been issued accepting income declared by the assessee. 3. Subsequently, the assessm .....

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chapter VIA and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner, whereas, the assessee has actually created reserve for bad and doubtful debts, which is less than deduction claimed u/s 36(1)(viia) of the Act. Therefore, in terms of Board s instruction no.17/2008 dated 26.11.2008, the assessee is entitled for deduction u/s 36(1)(viia) of the Act, towards provision for bad and doubtful debts as worked out as pe .....

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ng of section 147 of the Act, for the assessment years 2007- 08 to 2009-10. Therefore, issued a notice u/s 148 of the Act for all the 3 years and asked the assessee to furnish a return. 4. In response to notices u/s 148 of the Act, the assessee has filed a letter on 8.8.2011 requesting to furnish reasons recorded for re-opening the assessment. Thereafter, the assessee has filed one more letter on 26.8.2011 and requested to treat return filed u/s 139(1) of the Act, for the assessment year 2007-08 .....

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ble material came to the knowledge of the A.O., subsequent to the completion of original assessment u/s 143(1) & 143(3) of the Act. The A.O., after considering the objections filed by the assessee and also other relevant materials completed assessment u/s 143(3) r.w.s. 147 of the Act on 30.12.2011 and determined total income of Rs. 13,39,53,049/-, Rs. 7,95,89,262/- & Rs. 7,31,26,120/- respectively, for the assessment years 2007-08, 2008-09 & 2009-10. 5. Aggrieved by the assessment or .....

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assessee also agitated the issues on merit and contended that the A.O. was erred in restricting deductions towards provision for bad and doubtful debts without understanding the provisions of section 36(1)(viia) of the Act, wherein it was categorically specified deduction towards provision for bad and doubtful debts in the case of Co-operative banks. The assessee also made a fresh claim towards exclusion of amount withdrawn from reserves for bad and doubtful debts created for the previous financ .....

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n for bad and doubtful debts u/s 36(1)(viia) of the Act reduced to Nil. 6. The CIT(A) after considering the submissions of the assessee and also by relied upon plethora of judgements, held that the assessee has not provided necessary information neither along with return of income nor during the course of assessment proceedings, therefore, the arguments of the assessee that the assessment has been re-opened merely on change of opinion is incorrect. The CIT(A) further held that the second limb of .....

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provisions of the Act and instructions of the CBDT, wherein the CBDT has explained the position of law with regard to the deduction towards provision for bad and doubtful debts. In so far as assessment year 2008-09 & 2009-10, the question of change of opinion does not arise as the assessment for the above two years has been completed u/s 143(1) of the Act, therefore, the A.O. does not have any occasion to apply his mind to the facts of the case and hence the concept of change of opinion does .....

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sion in the books of accounts, whereas the assessee has made claim as per the provisions of section 36(1)(viia) of the Act, in the statement of computation of total income, therefore, the A.O. was right in restricting the deduction towards provision for bad and doubtful debts to the extent actual provision created in the books of accounts. In so far as fresh claim made by the assessee, towards exclusion of amount withdrawn from reserve created in the earlier period towards provision for bad and .....

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sessee has raised common grounds for all the 3 years, for the sake of convenience, we extract grounds raised for the assessment year 2007-08. 1.The Impugned Order of the Ld. Commissioner of (Appeals), Visakhapatnam is opposed to law, facts and in the circumstances of the case. 2. Under the facts and circumstances of the case, the Appellate Order passed by the Ld. CIT(A) is illegal and against the principles of natural justice, without giving ample opportunity to the Appellants during the course .....

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rely on the basis of mere change of opinion even though full facts are disclosed in the Return of Income and no fresh material was available during the course of Reassessment proceedings. a) Since no fresh material had come to the knowledge of AO after passing of original order and the issue involved was examined in the original assessment, therefore, this being a case of change of opinion, made the reassessment proceedings unjustified. Relied on: Commissioner of Income Tax Vs. Expeditors Intern .....

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was held that if Revenue was of the opinion that the Assessing Officer erroneously and to the prejudice of the interest of the Revenue allowed certain claim, in a given situation, it would have been open for the appropriate authority to exercise revisional powers. However, once the claim was fully examined, power of reopening was simply not available. d) There was no other material for the AO for reopening of the assessment and found that the reopening of the assessment on the same material was .....

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to revenue to reopen the case, it was a case of mere change of opinion and, hence, reassessment could not be made in such a case. Relied on: Jagson International Ltd., Vs. Commissioner of Income Tax (2012) 46 (I) ITCL 517 (Del-HC). 9. The assessee also filed a petition for admission of additional grounds, wherein it has raised additional grounds challenging the validity of re-assessment proceedings on the ground that the reasons recorded for re-opening of assessment has not been furnished, desp .....

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filing of the Return and before commencement of the proceedings even at the instance of the request of assessee for the same vide letter 8th August 2011, which is mandatory on the part of the A.O. failing which the proceedings become invalid and bad in law as for the Supreme Court on in GKN Driveshaft's (India) Ltd. (2003) 259 ITR 19 SC 7B). The Learned Commissioner of Income Tax (Appeals), has erred in law and in facts related to no fresh tangible material available for reassessment and the .....

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s the date of filing of returns for the Asst Year 2007-08, is on 30th September,2007, hence retrospective application of the same to the Asst. proceedings of 2007-08 is bad in Law. 10. The Learned Commissioner of Income Tax (Appeals), erred in law and facts in not allowing deduction in respect of the provision made against NRA., Overdue interest reserve account, Long term reschedule loan interest Account and Overdue Interest account (Cash Credit ) are all in the nature of the provision for bad a .....

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ral Office and spoiled currency stock account in Tuni Branch which deductions are allowable deductions U/s 37 of the income tax Act, without jurisdiction under sec 147 of the income tax Act. 10. The first issue that came up for our consideration from these appeals is validity of re-assessment proceedings. The assessee has raised common grounds for all the 3 years, challenging the validity of re-assessment proceedings on the ground that the A.O. has reopened the assessments merely on change of op .....

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e Ld. A.R. further submitted that the A.O. has recorded reasons, as per which he is referring to the return of income filed by the assessee and also CBDT instruction no.17/2008 dated 26.11.2008 to form a reason to believe that income chargeable to tax had escaped assessment. Except this, the A.O. has not referred to any fresh tangible material to form a reasonable belief that the income chargeable to tax had escaped assessment. Therefore, the formation of reason to believe is purely on the basis .....

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form a reason to believe is the return of income filed by the assessee which was already available with the A.O. at the time of completion of original assessment. The CBDT instruction relied upon by the A.O. is also already available with the A.O. at the time of completion of original assessment and also fact that which is an internal document of the department issued for the benefit of the assessing officer for discharging their official functions and also explaining the position of law with re .....

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TR 561 (SC) 4. Signature Hotels Pvt. Ltd. Vs. ITO (2011) 338 ITR 51 (Del) 5. Madhukar Khosla Vs. ACIT (2014) 367 ITR 165 (Del) 6. CIT Vs. Atul Kumar 362 KTR 693 7. CIT Vs. Jagson International Ltd. (2012) 345 ITR 414 (Delhi). 12. The Ld. A.R. made an alternative plea by filing additional ground of appeal, challenging the validity of re-assessment proceedings on the ground that the re-assessment order passed by the A.O. is bad in law and liable to be quashed, as the A.O. has not furnished reasons .....

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ecorded for re-opening of the assessment, the A.O. is bound to furnish reasons within a reasonable time and also dispose of objections, if any filed by the assessee before completion of reassessment proceedings. Since, the A.O. failed to furnish reasons recorded for re-opening of assessment, the assessment proceedings are bad in law and liable to be quashed. To this effect, the assessee has filed an affidavit stating that the A.O. has not furnished reasons recorded for re-opening of the assessme .....

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Ltd. Vs. Asst. Comm. Of Income Tax and Ors (2004) 266 ITR 462 (Cal) 7. Gujarat Fluorochemicals Ltd. Vs. DCIT (2008) 15 DTR (Guj) 1 8. Nandlal Tejmal Kothari Vs. Inspecting ACIT (1998) 230 ITR 943(SC) 9. CIT Vs. Safetax International India Pvt. Ltd. (Delhi High Court) 10. CIT Vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom) 11. Tata International Mumbai ITAT ITA 3309 to 3361/M/2009 dated 29.6.2012. 13. On the other hand, the Ld. D.R. strongly supporting the order of the CIT(A), submitted th .....

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DT vide no.17/2008, wherein the law with regard to deduction towards provision for bad and doubtful debts has been clearly specified. The A.O. ignoring the provisions of Act, as well as the CBDT instructions has allowed deductions towards provision for bad and doubtful debts as claimed by the assessee, without examining the actual provision created in the books of accounts, which resulted in excess deduction, consequently, the income chargeable to tax had escaped assessment within the meaning of .....

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-assessment proceedings and his order should be upheld. 14. In so far as alternative plea of the assessee, the Ld. D.R. submitted that though the assessee has made a claim by filing additional ground of appeal challenging the validity of re-assessment proceedings on the ground that the reasons recorded for re-opening of the assessment has not been furnished, there is no record in the file to indicate that the assessee has made a specific request for reasons recorded for re-opening of the assessm .....

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ground raised by the assessee that the A.O. has not furnished any reasons recorded for re-opening of the assessment. 15. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix which leads to re-opening of assessment for the assessment year 2007-08 to 2009-10 are that the assessee has claimed deduction towards provision for bad and doubtful debts under the provisions of section 36(1)(viia) of the Act. The .....

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sment for the assessment years 2008-09 & 2009-10 has been completed u/s 143(1) of the Act. In the assessment proceedings, the A.O. has issued intimation u/s 143(1)(a) of the Act, accepting the claim made by the assessee towards provision for bad and doubtful debt u/s 36(1)(viia) of the Act. Subsequently, the assessments has been reopened u/s 147 of the Act, after recording the reasons for re-opening of the assessment which reads as follows: "I submit that the assessment for the assessme .....

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hat the assessee has actually created reserve for bad and doubtful debts at ₹ 45,11,200 only. Therefore, in terms of the Boards Instructions No. 1712008, dated 26-11-2008, the assessee is entitled to the deduction under sec.36(1)(viia) towards bad and doubtful debts as worked out as per the provisions subject to a maximum of the amount actually created in the books of account in relevant accounting year. In this case, the amount worked out as per sec.36(1)(viia) is ₹ 21,51,80,030 whi .....

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8 Add: Income Tax paid 48,63,075 Add: Municipal taxes considered under property income 1,05,789 14,03,32,021 Less: Rents received considered separately 1,98,863 Less: Depreciation allowable included in reserves (net) 12,00,221 13,89,32,937 Less: Deduction u/s 36(1)(viia) 7.5% of total income of 13,89,98,089 4,886 10% of Average advances of Rural branches 21,51,75,144 21,51,80,030 Restricted to income under the head Business 13,89,32,927 Business income 0 Income under House Property offered as th .....

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ion u/s 36(1)(viia) 13,89,32,937 Less: Deduction u/s 36(1)(viia): Restricted to the amount of Reserve for bad & doubtful debts actually debited to the profit & loss account 45,11,200 REVISED TOTAL INCOME UNDER THE HEAD BUSINESS 13,44,21,737 INCOME UNDER HOUSE PROPERTY AS ADMITTED 65,152 TOTAL INCOME 13,44,86,889 Thus, the total income works out to ₹ 13,44,86,889 as against the income assessed at ₹ 65,152/-. The income escaped assessment works out to ₹ 13,44,21,737/-. In .....

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erence to CBDT instruction no.17/2008 dated 26.11.2008, which explains the position of law with regard to deduction towards provision for bad and doubtful debts under the provisions of section 36(1)(viia) of the Act. Admittedly, the A.O. has not referred to any other material except return of income filed by the assessee and CBDT instructions. It is also an admitted fact that these two documents are already available with the A.O. at the time of completion of assessment u/s 143(3)/143(1) of the .....

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ent u/s 143(1)/143(3) of the Act or it is merely a change of opinion without there being any fresh materials in the hand of the A.O. 17. The A.O. re-opened the assessment on the ground that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. The A.O. has recorded reasons which were reproduced in the assessment order. The A.O. formed reason to believe based on the instructions issued by the CBDT vide instructions no.17/2008 dated 26.11.2008, which explain .....

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provisions of section 147, provides for re-opening of assessment, if the A.O. has reason to believe that any income chargeable to tax had escaped assessment. In this case, admittedly, the re-opening is within 4 years, therefore, the second proviso to section 147 of the Act has no application, which mandates failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since, the re-opening was within 4 years, as per the first proviso to section 147 .....

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riginal assessment. The meaning of tangible material and the word change of opinion has been explained by various courts. Before re-opening the assessment, the A.O. should have reason to believe that income chargeable to tax had escaped assessment. Unless there is a sound basis for formation of reason to believe for re-opening assessment, it would amount to a review of already concluded assessments. Therefore, in the absence of such reason to believe, it affects the very jurisdiction to initiate .....

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e knowledge of the A.O. The A.O. cannot issue notice u/s 148 of the Act, merely because it felt that a decision which has been taken earlier is not correct and needs to be corrected. Therefore, to form a reason to believe, there should be a tangible material other than the material available with the A.O. at the time of original assessment. If the reason recorded for re-opening is not based on any material or which is based on same set of facts, which was available with the A.O. at the time of o .....

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ndition of new material, it can be read in accordance with the legislative intention. For instance, the Hon ble Supreme Court in the case of G.K. Drive Shafts (2003) 259 ITR 19 has upheld passing of objective order. Similarly, concept of change of opinion is not prescribed by statute. But these concepts have been evolved in view of interpretation and observation of courts after going through the legislative intention and provisions of the Act, otherwise power to re-open will be abused by the A.O .....

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the reason to believe is based on re-appraisal or re-consideration of the material/information already available on record at the time of completion of original assessment, then re-opening is certainly based on mere change of opinion which is not permissible under law. 21. Having said, let us examine what constitutes a material to form a reason to believe. Whether CBDT instruction, which is an internal document of the department issued for the benefit of the A.Os, constitutes a tangible materia .....

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necessary for completion of assessment. Similarly, in our view, CBDT instructions, which is meant for the benefit of the A.Os, in discharging their functions cannot be considered as tangible material to form a reason to believe in individual assessee s case. We further of the view that material should be either within or outside the file, but it should be related to the assessee and its affairs which suggest escapement of income is only can be considered as material for re-opening of assessment, .....

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fter, the recourse can be taken to section 147 of the Act, provided fresh material has been received by the assessing officer, after the expiry of limitation fixed for framing the original assessment. But, there must be new material which came to the knowledge of the A.O. after completion of the original assessment. If the original assessment is completed u/s 143(1) of the Act, and thereafter the A.O. has received fresh material which pinpoints escapement of income, action can be taken by the A. .....

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t case. In this case, the assessment for the assessment year 2007-08 has been completed u/s 143(3) of the Act. However, the assessment for the assessment year 2008-09 & 2009-10 has been completed u/s 143(1) of the Act. Admittedly, re-opening of assessment in all the 3 years is within 4 years, hence second proviso to section 147 of the Act, has no application. If you examine the facts of the present case with first proviso to section 147 of the Act, it is clear that the A.O. has recorded comm .....

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n of original assessment to form a reason to believe, which is clear from the reading of reasons recorded for reopening of assessment. We further observed that the assessment for the assessment year 2007-08 has been completed u/s 143(3) of the Act. During the course of assessment proceedings, the A.O. had issued a specific notice dated 12.5.2008 and 19.10.2009, called upon the assessee to furnish details of deduction claimed u/s 36(1)(viia) of the Act and the assessee has furnished complete deta .....

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nt was completed u/s 143(1) of the Act, all the facts are identical to that of the facts for assessment year 2007-08. The A.O. had recorded common reasons for all the assessment years, which is based on return of income and CBDT instruction no.17/2008 dated 26.11.2008, but nothing on record to indicate that the A.O. had any new material which was not there at the time of original assessment to form a reasonable belief that income had escaped assessment. In our opinion, CBDT instructions which wa .....

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e time of original assessment either because the material did not form part of the record itself or was not brought to his notice. In any case, the circular of the CBDT would not satisfy such a test. As already noted, the circular only lays down general reference and expect the A.Os to examine the issues referred to in the said circular or instructions with reference to the provisions of law. Therefore, we are of the view that a general instruction, which is meant for the benefit of the A.O. and .....

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re stronger than the words is satisfied . In other words, the A.O. himself formed an objective and prima facie opinion himself on the basis of expressed statement or reasons or definite/relevant material in his possession. To put it differently, the words reason to believe suggest that the belief must be that of a honest and reasonable person based upon reasonable grounds and that the A.O. may act on irect or circumstantial evidence, but not on mere suspicion, gossip or rumour. 25. In the presen .....

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pt of change of opinion has not been given a go by. Though there is no question of change of opinion in the cases where the assessment has been completed u/s 143(1) of the Act, but the facts remains that the A.O. should form reasons to believe which should be based on a new material which is came to his knowledge after completion of original assessment, but not based on same set of facts or return of income, which is already available with the A.O. at the time of completion of original assessmen .....

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t the A.O. has not furnished reasons recorded for re-opening of the assessment, despite a specific request made by the assessee, in view of the decision of Hon ble Supreme Court in the case of G.K.N. Drive Shaft s India Ltd. Vs. ITO and Others (supra). The Ld. A.R. submitted that the assessee has filed a letter on 8.8.2011 and requested the A.O. to furnish reasons recorded for re-opening of the assessment for all the assessment years. Inspite of request, the A.O. has not furnished reasons record .....

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ing of the assessment. 27. Having heard both the sides and considered material on record, we find that the assessee has filed a letter requesting the A.O. to furnish reasons recorded for re-opening of the assessment. We further observed that the revenue failed to bring on record any evidence to counter the claim made by the assessee that the A.O. has not furnished reasons recorded for re-opening of assessment. The law is well settled now that in respect of re-opening of assessment, the Hon ble S .....

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must be followed by both the parties. If any party makes a default in following the procedure, it is to his detriment. Accordingly, as per the said judgement, the court observed that on receipt of notice u/s 148 of the Act, the assessee can file a fresh return of income declaring his true income in compliance to the notice. Alternatively, the assessee can write to the A.O. that the return already filed u/s 139(1) of the Act, may be treated as a return filed in compliance to notice u/s 148 of the .....

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urt, it is abundantly clear that the A.O. has to furnish reasons recorded for re-opening of the assessment, if the assessee has made a specific request. If the A.O. failed to furnish the reasons despite a specific request made by the assessee, then the subsequent assessment proceedings are bad in law and liable to be quashed. 28. We further observed that the Hon ble Bombay High Court, in the case of CIT Vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66, has held that in case reasons are not furnis .....

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of G.K.N. Drive Shaft s India Ltd. (supra). A similar view has been reiterated by Hon ble Karnataka High Court, in the case of Kothari Metals in writ appeal no.218/2015 (IT), wherein it has been held that the question of nonfurnishing the reasons for re-opening on already concluded assessment goes to very route of the matter and that the assessee is entitled to be furnished reasons for such re-opening and that if reasons are not furnished to the assessee, then the proceedings for the re-assessm .....

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f the facts available on record, we find that the A.O. had issued notice u/s 148 of the Act, on 30.6.2011 calling upon the assessee to furnish return of income. In response, the assessee has filed a letter on 18.7.2011 requesting for time of atleast 30 days for submitting the required details. Thereafter, the A.O. has issued a letter dated 25.7.2011 to furnish returns in response to notice issued u/s 148 of the Act. In response to letter, the assessee has filed a letter on 8.8.2011 and requested .....

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