Income Tax Act, 1961 – Sections 24(a), 144B, 147 and 148 – Reopening of assessment – Passing of assessment order – Sustainability – AO reopened case of Petitioner/assessee for three assessment years by issuing notice under Section 148 of the Act – On receipt of reasons recorded to effect that there is an escapement of income because of wrong claim of benefit under Section 24(a) of the Act, Petitioner filed objections to reopening of assessment – AO did not decide objections filed by Petitioner and completed assessment under Section 147 read with Section 144B of the Act – Whether impugned assessment order passed by Respondent/AO is sustainable – HELD – On receipt of reasons, assessee is entitled to file objections to issuance of notice and AO is bound to dispose of same by passing a speaking order – It is mandatory on part of Assessing Officer to dispose of objections filed by Petitioner for reopening of assessment in all three assessment years under consideration – It is not in dispute that AO has not passed any order disposing of objections raised by Petitioner pursuant to reasons recorded for issuance of notice for reopening provided to Petitioner – Impugned assessment order passed by AO is quashed and set aside – Matter remanded back to AO to dispose of objections raised by Petitioner for reopening of assessment and to pass order disposing of objections raised by Petitioner after giving opportunity of hearing to Petitioner – Petition allowed

 

2024-VIL-111-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

 

R/SPECIAL CIVIL APPLICATION NO. 14769 of 2021

With

R/SPECIAL CIVIL APPLICATION NO. 14776 of 2021

With

R/SPECIAL CIVIL APPLICATION NO. 14777 of 2021

 

Date: 14.06.2024

 

SHRI K J KOTECHA CHARITABLE TRUST

 

Vs

 

THE INCOME TAX OFFICER, EXEMPTION, WARD 1, RAJKOT

 

For the Petitioner No. 1: MR B S SOPARKAR (6851)

For the Petitioner No. 1: MR VIMAL A PUROHIT (5049)

For the Respondent No. 1: MS MAITHILI D MEHTA (3206)

 

CORAM

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

HONOURABLE MR. JUSTICE NIRAL R. MEHTA

 

ORAL JUDGMENT

 

(PER: HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

 

1. Learned advocate Mr. B.S. Soparkar has tendered the draft amendment. The same is allowed in terms of the draft. To be carried out forthwith.

 

2. Heard learned advocate Mr. B.S.S Oparkar for the petitioner and learned Senior Standing Counsel Ms. Maithili Mehta for the respondent.

 

3. Rule returnable forthwith. Learned Senior Standing Counsel Ms. Mehta waives service of notice of rule for the respondents.

 

4. Having regard to the controversy in the narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing.

 

5. By this petition filed by the petitioner Shri K.J. Koteha Charitable Trust, challenged the notice issued under section 148 of the Income Tax Act, 1961 [for short ‘the Act’] as under:

 

 

6. The petitioner has also challenged the assessment Order dated 24.09.2021 passed under section 147 read with section 144B of the Act in all the three assessment years.

 

7. Brief facts of the case are as under:

 

7.1 The petitioner is a Charitable Trust running a primary school and play school from the past 36 years. The petitioner is also running a community hall for wedding and cultural programmes and carrying on other charitable activities for poor conducting various medical camps etc. The Central Process Unit, Banglore, while processing return of income of the petitioner for Assessment Year 2014-15 had denied the claim of deduction under section 24(a) of the Act and the petitioner paid the demand. The petitioner has also claimed such deduction for the assessment year under consideration of this petition. Notice under section 148 of the Act for reopening of three assessment years have been issued recording reasons to the effect that there is an escapement of the income because of the wrong claim of the benefit under section 24(a) of the Act. The petitioner filed objections to the reopening of the assessment on 10.06.2020 for all the three assessment years on receipt of the reasons recorded. Prior to the issuance of the notice under section 148, a notice under section 133(6) dated 27.02.2020 was also issued calling for information with regard to deduction claimed by the petitioner under section 24(a) of the Act pertaining to the repairs and collection charges from the rented properties under the heading of income from house property. The petitioner filed reply dated 07.03.2020 to the said notice providing the information called for.

 

7.2 The respondent-Assessing Officer however did not decide the objections filed by the petitioner and issued notice under section 143(2) read with section 147 calling for details with supporting documents on 27.02.2021. The petitioner filed reply dated 05.03.2021 retreating the objections but the respondent Assessing Officer No.1 did not decide the same and further issued notice under section 142(1) dated 19.03.2021 calling for information to frame assessment. The petitioner, thereafter, filed reply dated 22.03.2021 providing information. The Assessing Officer issued show-cause notice dated 19.09.2021 raising various notices relating to the completely new issues for making proposed addition giving time of three days to reply to the petitioner. The petitioner sought time on 22.09.2021 together material to reply to the show cause notice dated 19.09.2021. However, the respondent-Assessing officer passed the assessment order dated 24.09.2021 for all the three assessment years under consideration.

 

8. Learned advocate Mr. Soparkar appearing for the petitioner submitted that the Assessing Officer has not disposed of the objections raised by the petitioner on 06.06.2020 and reiterated on 05.03.2021 by a speaking order and assumed the jurisdiction to proceed further with the framing assessment contrary to the direction of the Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officers and ors. reported in (2003) 259 ITR 19 SC. It was submitted by not passing order disposing of the objections and straightaway framing the assessment, the Assessing Officer has deprived the petitioner to challenge the issuance of notice at that stage. Reliance was placed on the decision of this Court in case of Ashish Bohra vs. Income Tax Officer reported in (2021) 129 taxmann.com 52 wherein it is held that order disposing of the objection must deal with objection raised. Reliance was also placed on the case of Bharatmaiya Memorial Foundation reported in (2018) 91 Taxmann.com 25 Guj. wherein it is held that order disposing of objection is must even when the objections are filed belatedly. Learned advocate Mr. Soparkar also referred to and relied upon the following decisions:

 

· Simaben Vindorai Ravani vs. Income Tax Officer reported in [2017] 394 ITR 778(Guj.)

 

“[6.0] Heard learned Counsel appearing for respective parties at length.

 

At the outset it is required to be noted that the impugned notice under section 148 of the Act to reopen the assessment for AY 200910 was issued by the Assessing Officer on 29.03.2016. That the assessee asked the reasons recorded to reopen the assessment which came to be supplied / furnished by the Assessing Officer on 14.07.2016 along with the notice under Section 143(2) of the Act and the questionnaire. That the assessee raised the objections against the reasons recorded to reopen the assessment on 24.11.2016. Without dealing with and/or disposing of the said objections the Assessing Officer has framed the reassessment on 30.12.2016 and has simultaneously issued the demand notice dated 30.12.2016. It is required to be noted that between the objections raised on 24.11.2016 and the order of assessment dated 30.12.2016, there was sufficient time available with the Assessing Officer to deal with and dispose of the objections. In the case of G.K.N. Driveshafts (India) Ltd. (Supra), the Hon’ble Supreme Court has laid down an elaborate procedure as to the manner of dealing with objections raised against the notice under Section 148 of the Act in the following words:

 

“ ...However, we clarify that when a notice under section 148 of the Incometax Act is issued, the proper course of action for the notice is to file a 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 notice 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 instance 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.”

 

[6.1] In a subsequent decision in the case of Garden Finance Ltd. v. Asstt. CIT reported in (2004) 268 ITR 48 (Guj.) (FB), the effect of Supreme Court decision in the case of G.K.N. Driveshaft (India) Ltd. (Supra) came up for consideration and by a majority opinion it has been thus laid down by this Court as under:

 

“What the Supreme Court has now done in the G.K.N. Case (2003)259 ITR 19 is not to whittle down the principle laid down by the Constitution Bench of the Apex Court in Calcutta Discount Co. Ltd. case (1961) 41 ITR 191 but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the reassessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the reassessment proceedings which would have entailed the liability to pay tax and interest on reassessment and also to go through the gamut of appeal, the second appeal before Incometax Appellate Tribunal and then reference / tax appeal to the High Court. Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the reassessment notice under section 148 has been considerably softened by the Apex Court in G.K.N. case (2003) 259 ITR 19 in the year 2003. In my view, therefore, the G.K.N. case (2003) 259 ITR 19 (SC) does not run counter to the Calcutta Discount Co. Ltd. case (1961) 41 ITR 191 (SC) but it merely provides for challenge to the reassessment notice in two stages, that is:-

 

i) raising preliminary objections before the Assessing Officer and in case of failure before the Assessing Officer,

 

ii) challenging the speaking order of the Assessing Officer under section 148 of the Act (p.87).”

 

[6.2] In the case of Arvind Mills Ltd. (Supra), in para 9, the Division Bench after considering the decision of the Hon’ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. (Supra) and the Garden Finance Ltd. (Supra) has observed and held as under:

 

“9. The position in law is thus well settled. After a notice for reassessment has been issued an assessee is required to file the return and seek reasons for issuance of such notice. The Assessing Officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the Assessing Officer is under a mandate to dispose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued.”

 

[6.3] Identical question came to be considered by the Division Bench of this Court in the case of Banaskantha District Oilseeds Growers Coop Union Ltd. vs. ACIT rendered in Special Civil Application No.7813/2015 and considering the decisions of the Hon’ble Supreme Court and this Court, the Division Bench of this Court quashed and set aside the reassessment order which was passed without disposing of the objections raised by the assessee.

 

[7.0] In view of the above and for the reasons stated above, present Special Civil Application succeeds in part. Impugned assessment order dated 30.12.2016 passed by the Assessing Officer is hereby quashed and set aside. Consequently, the demand notice dated 30.12.2016 is also quashed and set aside. The matter is remitted to the file of the Assessing Officer at the stage of submitting the objections by the petitioner against the reopening of the assessment for AY 200910. The Assessing Officer now to deal with and dispose of the objections raised by the petitioner on 24.11.2016 and pass a speaking order, before proceeding with the reassessment in respect of the assessment year for which such notice has been issued and communicate the outcome of the same and thereafter after giving some reasonable time to the petitioner to challenge the decision dispose of the objections (in case the Assessing Officer overrules the objections raised by the petitioner by a speaking order). He may proceed further with the reassessment proceedings in respect of AY for which such notice has been issued. The Assessing Officer to give reasonable time to the petitioner which shall not be less than two months from the date of disposing of the objections (in case the Assessing Officer overrules the objections raised by the petitioner by a speaking order). However, it is made clear that we have not expressed anything on merits and the impugned assessment order has been set aside solely on the aforesaid ground and for the reasons stated above. Rule made absolute to the aforesaid extent. In the facts and circumstances of the case, more particularly when the Assessing Officer has not followed the binding decisions of the Hon’ble Supreme Court as well as Full Bench and Division Bench of this Court referred to hereinabove and has passed the reassessment order without dealing with and/or disposing of the objections raised by the petitioner, the petition is allowed with cost which is quantified at Rs.5000/, which shall be deposited by the concerned Officer with the Registry of this Court, within a period of 3 weeks from today. On such deposit the Registry is directed to transmit the same to Gujarat State Legal Services Authority.”

 

· Pr. Commissioner of Income Tax vs. Sagar Developers reported in [2016] 72 taxmann.com 321 (Gujarat) para 25-27

 

“25. As noted, the requirement of supplying the reasons recorded by the Assessing Officer issuing notice for reopening and permitting the assessee to raise objections and to decide the same by a speaking order are not part of the statutory provisions contained in the Act. Such requirements have been created under a judgement of the Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer 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 for the assessee to make a grievance before the High Court and to prevent the Assessing Officer from finalizing the assessment without disposing of the objections.

 

26. The issue can be looked from slightly different angle. Validity of the notice for reopening would depend on the reasons recorded by the Assessing Officer for doing so Similarly, the order 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, merely on the ground that the Assessing Officer did not dispose of the objections before passing the order of assessment, in our opinion would be not the correct reading of the judgement of Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and ors (supra). In such judgement, it is neither so provided nor we think the Supreme Court envisaged such an eventuality.

 

27. In the result, the question is answered in favour of the Revenue. The impugned respective judgements of the Tribunal would stand modified by providing that the respective orders of assessment though should stand set aside it would be open for the Assessing Officer to frame fresh assessment after first disposing of the objections of the assessees. Needless to clarify the provisions for time limit for framing the assessment as may be applicable would apply.”

 

8.1 It was submitted that reasons recorded are factually incorrect and therefore, are invalid ab initio inasmuch as the petitioner has not availed any deduction under section 24(a) of the Act which is now proposed to be disallowed. It was pointed out that the reasons recorded are factually incorrect and are recorded without application to mind as if it disallowed something which is already stands allowed. It was therefore submitted that assumption of jurisdiction is therefore fundamentally bad and illegally.

 

8.2 It was pointed out that the claim of the assessee for deduction under section 24(a) of the Act has now been disallowed in the intimation issued under section 143(1) and it does not amount to any income having escaped assessment and the total income of the assessee would not undergo any challenge. In respect of his submissions reliance was placed on the following decisions:

 

· Ganga Saran & Sons (P.) Ltd [1981] 130 ITR 1 (SC);

 

· P.G. & W. Sawoo (P) Ltd (2016) 385 ITR 60 (SC);

 

· Shreenathji Cotgin (2020) 115 taxmann.com 292 (Guj.);

 

· Devesh Metcast (2011) 12 taxmann.com 458(Guj.);

 

· PKM advisory (2011) 339 ITR 585 (Guj);

 

· GNVF (2009) 319 ITR 120 (Guj);

 

· Motto Tiles (2016) 386 ITR 280 (Guj);

 

8.3 It was submitted that even otherwise impugned assessment order is passed ignoring the reasons recorded as deduction that is sought to be added in the reasons is not eventually added in the computation of income under the Assessment order passed under section 147 of the Act. It was pointed out that the Assessing Officer has in fact granted deduction as was originally claimed by the assessee as stated in para 6 of the impugned assessment order compared with the written of income. Reliance was placed on the decision in case of Mohmed Juned Dadani reported in [2014] 355 ITR 152 (Guj).

 

8.4 It was therefore submitted that notice under section 148 may be ordered to be quashed and set aside having been issued without jurisdiction and consequent assessment order may also be quashed and set aside or alternatively quashed impugned assessment order by directing the respondent Assessing Officer to pass speaking order disposing of the objection.

 

9. On the other hand, learned Senior Standing Counsel Ms. Metha submitted that the contention with regard to prayer for quashing notice issued under section 148 is already considered by the respondent Assessing Officer in the impugned assessment order. It was submitted that as the assessment order is already passed, the petitioner has alternative efficacious remedy to challenge it before the CIT(A) and therefore no interference may be made in the notice as well as impugned assessment order.

 

10. Having heard learned advocates for the respective parties and having considered the facts of the case it is not in dispute that the respondent Assessing Officer has not passed any order disposing of the objections raised by the petitioner pursuant to the reasons recorded for issuance of the notice for reopening provided to the petitioner.

 

11. Hon’ble Supreme Court in case of GKN Driveshaft (supra) has held as under:

 

“[3] By the order under challenge, a division bench of the High Court at Delhi dismissed the writ petition filed by the appellant challenging the validity of notices issued under sections 148 and 143 (2) of the Income Tax Act, 1961. The High court took the view that the appellant could have taken all the objections in its reply to the notices and that, at that stage, the writ petition was premature. Accordingly, the writ petition was dismissed on 31st January, 2001. Aggrieved by that order, the appellant is in appeal before us.

 

Xxx

 

[5] 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 notice 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 then 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 above said five assessment years.”

 

12. In view of the above decisions, it is mandatory on part of the respondent Assessing Officer to dispose of the objections for reopening of the assessment filed by the petitioner on 08.06.2020 in all the three Assessment Years under consideration. Therefore, without entering into the merits of the matter, the impugned assessment orders passed by the Assessing Officer are hereby quashed and set aside and the matters are remanded back to the respondent Assessing Officer to dispose of the objections raised by the petitioner for reopening of the assessment and after giving opportunity of hearing to the petitioner to pass order disposing of the objections raised by the petitioner against the reopening of the assessment. Such exercise shall be completed within 12 weeks from the date of receipt of copy of this order. It is clarified that this Court has not gone into merits of the matter and the respondent Assessing Officer shall pass appropriate order disposing of the objections in accordance with law. Rule is made absolute to the aforesaid extent. No order as to costs.

 

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