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Hewlett Packard Financial Services (India) Pvt Ltd Vs DCIT (Karnataka High Court)
Karnataka High Court held that reassessment order under section 148 of the Income Tax Act is bad-in-law since passed without following mandatory procedure of disposal of objections. Accordingly, order of reassessment set aside.
Facts- The 2nd respondent had issued notice u/s. 143(2) of the Income Tax Act, 1961 which was responded to by the petitioner and an order has been passed u/s. 143(3) of the Act. Subsequently, petitioner has received a notice on 31.03.2018 u/s. 148 of the Act by the 2nd respondent proposing to reassess the income of petitioner for the assessment year 2011-12. Petitioner has filed its response to the aforesaid notice objecting to the initiation of proceedings.
The 1st respondent subsequently issued a notice u/s. 143(2) of the Act calling upon the petitioner to furnish documents in support of the returns filed by him, to which the petitioner had filed its objections to the initiation of reassessment proceedings. The 1st respondent has passed an order under Section 143(3) read with Section 147 of the Act re-computing the total income of the petitioner.
Conclusion- In the case of GKN Driveshafts (India) Limited vs. Income-Tax Officer – (2002) 12 Taxmann 963 (SC), it is held that the reasons for issuing notice once communicated and objections received, if the same are not adjudicated upon before reassessment order is passed, then the proceedings of reassessment requires to be set aside.
Held that the mandatory procedure of disposal of objections by the Assessing Officer not having been followed, the order of assessment cannot be sustained. If that were to be so, the assessment order issued under Section 143(3) read with Section 147 requires to be set aside and the question of issuing notice under Section 148 would not arise.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Petitioner has sought for the following reliefs:-
(i) declaring that the impugned proceedings initiated by the 2nd .respondent and continued by the 1st .respondent under Section 147 read with Section 148 of the Act are barred by limitation and opposed to the said provisions and therefore without jurisdiction;
(ii) quashing the notice bearing No. ITBA/AST/S/148/2017-18/1009607021(1) dated 31.03.2018 (Annexure – D) issued by the 2nd quashing the notice bearing No. ITBA/AST/S/148/2017-18/1009607021(1) dated 31.03.2018 (Annexure – D) issued by the 2nd Respondent under Section 148 read with Section 147 of the Act for the assessment year 2011-12;
(iii) quashing the re-assessment order dated 30.12.2018 (Annexure-K) passed by the 1st Respondent under Section 143(3) read with Section 147 of the Act for the assessment year 2011-12;
(i) quashing the demand notice dated 30.12.2018 (Annexure-L) issued by the 1st Respondent under Section 156 of the Act, for the assessment year 2011-12;
(ii) quashing the notice dated 30.12.2018 (Annexure-M) bearing F. No. 271(1)(c)/DCIT-3(1)(2)/2018-19 issued by the 1st Respondent under Sections 274 read with 271 of the Act.”
2. The 2nd respondent had issued notice under Section 143(2) of the Income Tax Act, 1961 (‘the Act’) whichwas responded to by the petitioner and an order has been passed under Section 143(3) of the Act. Subsequently, petitioner has received a notice on 31.03.2018 under Section 148 of the Act by the 2nd respondent proposing to reassess the income of petitioner for the assessment year 2011-12. Petitioner has filed its response to the aforesaid notice objecting to the initiation of proceedings and the petitioner had requested the 2nd respondent to furnish copy of the reasons recorded for initiating the proceedings. The 2nd respondent has furnished copy of the reasons recorded for initiating the proceedings and sanction granted by the Principal Commissioner of Income Tax for issuing notice by way of Annexures-F and G.
3. The 1st respondent subsequently issued a notice under Section 143(2) of the Act calling upon the petitioner to furnish documents in support of the returns filed by him, to which the petitioner had filed its objections to the initiation of reassessment proceedings. The 1st respondent has passed an order under Section 143(3) read with Section 147 of the Act re-computing the total income of the petitioner.
4. Sri. Percy Pardiwalla, learned Senior counsel appearing for the petitioner submits that the matter is to be disposed off on the sole ground that the procedure prescribed in the case of GKN Driveshafts (India) Limited vs. Income-Tax Officer – (2002) 12 Taxmann 963 (SC), which requires that the reasons for issuing notice once communicated and objections received, if the same are not adjudicated upon before reassessment order is passed, then the proceedings of reassessment requires to be set aside. He further submits that admittedly, in the present case, after the reasons for reopening has been communicated in terms of Annexure-F and reply was made out by the petitioner in terms of Annexure-J, without disposal of the same, question of passing reassessment order under Section 143(3) read with Section 147 of the Act would not arise and that in light of such lapse, the legal consequence would lead to setting side of the reassessment order under Section 143(3) read with Section 147 of the Act.
5. While placing reliance on the order of the Division Bench of this Court in the case of Deepak Extrusions (P) Limited vs. Deputy Commissioner of Income Tax – (2017) 80 taxmann.com 77 (Karnataka), it is specifically asserted that noncompliance of procedure prescribed under GKN Driveshafts (supra) insofar as passing of order on the objections filed by the assessee and ifthe Assessing Officer proceeds to pass the reassessment order without passing such an order, then such an illegality is to be visited with the consequence of quashing the reassessment order and the question of keeping open any other right by enlarging the period of limitation for issuance of notice under Section 148 would not arise.
6. Sri. K. V. Aravind, learned counsel for the respondent would submit that the judgment in GKN Driveshafts (supra) merely lays down the procedure to be followed and if such procedure is not followed, it would not have the effect of taking away the substantive right of the Authority and he submits that in the event the procedure prescribed under GKN Driveshafts (supra) is not followed as in the present case, the notice under Section 148 requires to be protected while directing the assessing officer to redo the procedure after following the procedure as laid down in GKN Driveshafts (supra) and relies on the judgment of the Madras High Court in the case of Home Finders Housing Limited vs. Income Tax Officer – (2018) 93 taxmann.com 371 (Madras).
7. Learned Senior counsel for the petitioner relies on the judgment of the Division Bench of this Court in A.No.919/2019 disposed off on 24.01.2023, wherein the Division Bench has again reiterated the conclusion in Deepak Extrusions (Supra) while observing that the procedure in GIN Driveshafts (supra) is a procedure that has been held to be mandatory and accordingly, the Division Bench has rejected the contention raised by the Revenue that the judgment in Home Finders (supra) ought to have been followed.
8. Heard both sides.
9. It is not in dispute that the Apex Court in the case of GKN Driveshafts (supra) has laid down the procedure to be followed when a notice under Section tzin of the Act is issued. The procedure that is envisaged is as follows:
“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the noticee is to 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 before proceeding with the assessment in respect of the abovesaid five assessment years.”
10. The adherence to the above procedure has been insisted for strict compliance wherever matters have come before the Courts.
11. In the present case, it needs to be kept in mind that the proceedings under Section 148 will have the effect of reopening the assessment. It is in this context, the Court has to decide while construing the effect of non-following of the procedure under GKN Driveshafts (supra). Admittedly, the reasons for reopening having been communicated as per Annexure-F and reply to such reasons having been furnished by the petitioner, the Assessing Officer is bound to dispose off the same by passing a speaking order before proceeding to pass an order under Section 143(3) read with Section 147 of the Act. In light of the limitation expiring on 31.12.2018, the practical difficulties of the Assessing Officer could be of no reason to condone the non-adherence to the procedure in GKN Driveshafts (supra). The effect of non-following such procedure has been dealt with by the judgment of the Division Bench of this Court in Deepak Extrusions, wherein the Division Bench of this Court has rightly held that the mandatory procedure of disposal of objections by the Assessing Officer not having been followed, the order of assessment cannot be sustained. If that were to be so, the assessment order issued under Section 143(3) read with Section 147 requires to be set aside and the question of issuing notice under Section 14e would not arise.
12. The contention of the learned counsel for the revenue relying on the judgment of the Madras High Court in the case of Home Finders (supra) cannot be accepted in light of the declaration of the Division Bench of this Court in the case of Deepak Extrusions stating that the procedure prescribed in GKN Driveshafts (supra) is a mandatory procedure which would vitiate the assessment order and the same having been concurred with in another judgment of the Division Bench in W.A.No.9 19/20 19 disposed off on 24.01.2023. It is impermissible for this Court to accept the contention of the revenue and pass orders contrary to that of the Division Bench orders referred to above. Even otherwise, a perusal of the observations made by the Apex Court in CKIV Drives ras (supra) clearly records a finding that the Assessing Officer is bound to dispose off the objections filed by passing a speaking order.
13. Accordingly, the order of reassessment dated 30.12.2018 vide Annexure-K is set aside. Consequently, the notice dated 30.12.2018 at Annexure-L and the notice dated 30.12.2018 at Annexure-M are set aside. Further the notice issued under Section 148 at Annexure-D is also set aside.
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