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AO is obliged to pass a speaking order disposing off any objections raised by assessee before commencing re-assessment proceedings: ITAT

2019-TIOL-1416-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘G’ NEW DELHI

ITA No. 3460/Del/2015
Assessment Year: 2006-07

IFFCO TOKIO GENERAL INSURANCE COMPANY LTD
4TH AND 5TH FLOOR, IFFCO TOWER, PLOT NO 3
SECTOR-29, GURGAON, HARYANA
PAN NO: AAACI7573H

Vs

DEPUTY COMMISSIONER OF INCOME TAX
IRCLE 11(1), ROOM NO 405, C R BLDG, NEW DELHI

H S Sidhu, JM & BRR Kumar, AM

Date of Decision: July 03, 2019

Appellant Rep by: Shri Aseem Chawla, CA & Shri Shashi bekal, Adv.
Respondent Rep by: 
Ms Ashima Neb, SR DR

Income Tax – Sections 147 & 148

Keywords – Dispose of objections – Reassessment order – Speaking order

THE assessee had filed its return for the relevant AY. During the course of search operation, an information was received from the Investigation Wing in the case of Sh. Praveen Aggarwal and his group companies, AO observed that Mr. Praveen Aggarwal had floated paper companies for providing accommodation entries. Further, Mr. Agarwal in his statement admitted that one of his group of companies, M/s Tuticorin Trexim Pvt. Ltd. had received commission from various companies including the assessee company as mentioned in its ledger account, was providing bogus entries to these companies, as no work was actually executed on payment of commission by these companies. It was also mentioned by him that the money received from these companies was received by cheque and was refunded after deducting the commission. Based on this information, the AO issued notice u/s. 148 and on due consideration of the assessee’s reply in this regard made an addition towards payment made to M/s Tuticorin Tremix Pvt. Ltd. by holding it as bogus. On appeal, the CIT(A) dismissed the appeal of the assessee.

On appeal, the Tribunal held that,

Whether AO is duty bound to dispose of the objections if filed by the assessee, by passing a speaking order before proceeding with the reassessment order – YES: ITAT

++ assessee has filed the Objection letter before the AO stating therein “There is no escapement under assessment completed. The initiation of proceedings u/s. 147 are unwarranted.” which shows that the AO has not decided the objection neither by a separate order nor in the final assessment order, which is very essential to decide the same before completing the assessment. Placing reliance on the direction of the Supreme Court of India laid down in the decision of the GKN Driveshafts (India) Ltd. vs. ITO and others this Tribunal observed that CIT(A) has also not taken into consideration the objection filed by the assessee against the ‘reasons to believe’ stated by the AO. Therefore, in the interest of justice, this Tribunal restore the issues in dispute to the file of the AO with the directions to first decide the objection of the assessee and then decide the issues in dispute, afresh, after giving adequate opportunity of being heard to the assessee.

Assessee’s appeal allowed

Case followed:

GKN Driveshafts (India) Ltd. vs. ITO and others – 2002-TIOL-634-SC-IT

ORDER

Per: H S Sidhu:

This is an appeal by the Assessee against the order dated 23.2.2015 of the Ld. CIT(A)-4, New Delhi relevant to assessment year 2006-07 on the following grounds:-

1. That on the facts and circumstances of the case and in law, the ‘reasons to believe’ stated by the Ld. Assessing Officer (‘Ld. AO’) pursuant to which reassessment proceedings were initiated, were unsustainable;

2. That on the facts and circumstances of the case and in law, the order passed by the Ld. AO as upheld by the Hon’ble CIT(A) is barred by limitation, inasmuch as, there was no failure on the part of the Appellant to fully and truly disclose material facts, in terms of first proviso to Section 147 of the Act;

3. That having regard to the facts and circumstances of the case and in law, the impugned order is presumptuous, prejudiced and based on incorrect factual position;

4. That on the facts and circumstances of the case and in law, the Ld. AO had grossly erred by not disposing off the objections raised by the Appellant to the reasons served by the Ld. AO for reopening the assessment and grossly violated the direction of the Hon’ble Supreme Court laid down in the decision of GKN Driveshafts (India) Ltd. vs. ITO and others (2003) 259 ITR 19 (SC) = 2002-TIOL-634-SC-IT.

4.1. That having regard to the facts and circumstances of the case and in law, Hon’ble CIT(A) has not taken into consideration the objection filed by the Appellant against the ‘reasons to believe’ stated by the Ld. AO;

5. That on the facts and circumstances of the case and in law, the addition made under Section 37 of the Act amounting to Rs. 4,53,200/- is bad in law, as the Ld. AO failed to discharge the burden of proof in concluding that the subject entries were bogus in nature;

6. That the Assessment Order passed by the Ld. AO, violates the basic principles of Natural Justice, equity and fair place and is bad in law and void ab-initio;

7. That on the facts and circumstances of the case and in law, the addition made under Section 37 of the Act amounting to Rs. 4,53,200/- by the Ld. AO, as sustained by the CIT(A) is bad in law;

8. That on the facts and circumstances of the case and in law, the Ld. AO has erred in levying interest under Section 234B and 234C of the Act;

9. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiation penalty proceedings under Section 271(1)(c) of the Act.

All of the above grounds of appeal are without prejudice and notwithstanding each other.

The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.

2. The brief facts of the case are that an information was received from the Investigation Wing, Kolkata that during the course of search operation in the case of Sh. Praveen Aggarwal and his group companies, it was established that the said Mr. Praveen Aggarwal, had floated paper companies for providing accommodation entries. The said Mr. Agarwal in his statement u/s. 134(4) admitted that one of his group of companies, M/s Tuticorin Trexim Pvt. Ltd. which had received commission from various companies including the assessee company as mentioned in its ledger account, was providing bogus entries to these companies, as no work was actually executed on payment of commission by these companies. It was also mentioned by him that the money received from these companies was received by cheque and was refunded after deducting the commission. based on this information, the AO issued notice u/s. 148 of the Income Tax Act, 1961 (in short “Act”) on 30.3.2013 and on due consideration of the assessee’s reply in this regard made an addition of Rs. 4,53,200/- towards payment made to M/s Tuticorin Tremix Pvt. Ltd. by holding it as bogus. Aggrieved with the assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 23.3.2015 has dismissed the appeal of the assessee. Against the impugned order dated 23.3.2015 assessee is in appeal before the Tribunal.

3. During the hearing, Ld. counsel for the Assessee drew our attention towards page no. 89 of the Paper Book which is the Objection letter dated 15.4.2013 of the assessee addressed to the Assessing Officer wherein it was stated that “There is no escapement under assessment completed. The initiation of proceedings u/s. 147 are unwarranted.” and stated that AO has erred by not disposing off the objections raised by the Assessee to the reasons served by the AO for reopening the assessment and grossly violated the direction of the Hon’ble Supreme Court of India laid down in the decision of the GKN Driveshafts (India) Ltd. vs. ITO and others (2003) 259 ITR 19 (SC) = 2002-TIOL-634-SC-IT. It was further submitted that Ld. CIT(A) has not taken into consideration the objection filed by the assessee against the ‘reasons to believe’ stated by the AO. In view of above, he requested that issues in dispute may be set aside to the file of the AO with the directions to first decide the aforesaid objection and then decide the issue in dispute afresh, after giving adequate opportunity of being heard to the assessee.

4. On the contrary, Ld. DR relied upon the orders of the authorities below.

5. We have heard both the parties and perused the records, especially the assessment order passed u/s. 143(3)/147 of the Act and the impugned order. We find that assessee has filed the Objection letter dated 15.4.2013 before the Assessing Officer stating therein “There is no escapement under assessment completed. The initiation of proceedings u/s. 147 are unwarranted.” which shows that the Assessing Officer has not decided the objection neither by a separate order nor in the final assessment order dated 21.3.2014, which is very essential to decide the same before completing the assessment and against the spirit of the direction of the Hon’ble Supreme Court of India laid down in the decision of the GKN Driveshafts (India) Ltd. vs. ITO and others (2003) 259 ITR 19 (SC) = 2002-TIOL-634-SC-IT and also Ld. CIT(A) has not taken into consideration the objection filed by the assessee against the ‘reasons to believe’ stated by the AO. Therefore, in the interest of justice, we are remitting back the issues in dispute to the file of the Assessing Officer with the directions to first decide the objection of the Assessee and then decide the issues in dispute, afresh, after giving adequate opportunity of being heard to the assessee. Our aforesaid view is fortified by the decision of the Hon’ble Supreme Court of India in the case of GKN Drive Shafts India Ltd. vs. ITO (2003) 259 ITR 19 = 2002-TIOL-634-SC-IT wherein the Hon’ble Supreme Court of India has passed the following order:-

“Heard learned counsel for the parties.

Leave is granted.

By the order under challenge, a Division Bench of the High Court at Delhi (see [2002] 257 ITR 702) 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 January 31, 2002. Aggrieved by that order, the appellant is in appeal before us.

Mr. M. L. Verma, learned senior counsel appearing for the appellant, submits that the impugned notices relate to seven assessment years ; that during; the pendency of these appeals, in respect of two assessment years, viz., 1995-96 and 1996-97, assessment has been completed against which appeals have been filed. Notices relating to the other five assessment years, viz., 1992-93 1993-94, 1994-95, 1997-98 and 1998- 99, are now the subject-matter of these appeals. 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 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 (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 above-said five assessment years.

In so far as the appeals filed against the order of assessment before the Commissioner (Appeals), we direct the appellate authority to dispose of the same, expeditiously.

With the above observations, the civil appeals are dismissed.

No costs.”

6. In the result, appeal of the assessee stands allowed for statistical purposes.

(Order pronounced on 03.07.2019)

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