ITAT Delhi Quashes Reassessment After AO Failed To Decide Objections Before Proceeding

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently quashed a reassessment against Meramandali Finvest Ltd., holding that the Assessing Officer was required to dispose of the assessee's objections to the reopening by passing a separate speaking order before proceeding with the reassessment.

A bench of Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra observed:

"It is now settled law by a series of judicial precedents that the failure of the Assessing Officer to dispose of objections filed by the assessee against the reopening notice by passing a speaking order, becomes fatal to the assumption of jurisdiction under Section 147 and renders any reassessment order passed thereafter null and void."

The company had filed its income tax return for the assessment year 2012-13 declaring nil income. The Income Tax Department later reopened the assessment after receiving information from the Investigation Wing that the company had received ₹75 crore as share capital and share premium from Concise Exim Pvt. Ltd.

The Assessing Officer completed the reassessment by treating the amount as an unexplained cash credit after holding that the company had failed to discharge the onus of establishing the identity and creditworthiness of the investor and the genuineness of the transaction. The Commissioner of Income Tax (Appeals) upheld the addition.

Before the tribunal, the company submitted that after obtaining the reasons recorded for reopening the assessment, it had filed objections challenging the reopening. It argued that the Assessing Officer completed the reassessment without first disposing of those objections through a separate speaking order, contrary to the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd.

The Revenue relied on the assessment order and the Assessing Officer's stand in the remand report that the objections had been adequately dealt with in the body of the reassessment order itself and that no separate order was required.

Rejecting the Revenue's contention, the tribunal noted that the Assessing Officer had himself accepted in the remand report that the objections were addressed only in the assessment order. It held that this did not satisfy the mandatory procedure laid down by the Supreme Court and consistently followed by the Delhi High Court and other High Courts.

"In view of the discussion as above, it is held that in the instant case wherein the objections filed on behalf of the assessee to the issue of notice u/s 148 were not disposed off vide a distinct and separate order, the issue of notice u/s 148 of the Act and the consequent reassessment framed u/s 143(3)/147 is bad in law, void ab-initio and unsustainable in law.", the court ruled.

The tribunal also found that the Commissioner (Appeals) dismissed the ground on the basis that the assessee had not produced a copy of its objections. It observed that the Commissioner had overlooked the Assessing Officer's own remand report discussing those objections and had also ignored the assessee's request to obtain the objections from the Assessing Officer's records.

Having found that the reassessment was vitiated by this procedural defect, the tribunal quashed the reopening notice and the consequential reassessment. Since the appeal was allowed on the legal issue, it did not examine the merits of the ₹75 crore addition.

For Assessee: Ashwani Kumar, CA and Shri Ankur Aggarwal, CA

For Revenue: Dayainder Singh Sidhu, CIT-DR