M/S. DEEPAK EXTRUSIONS PVT. LTD., V. THE DEPUTY COMMISSIONER OF INCOME TAX

WA/1725/2017

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The case involves M/s. Deepak Extrusions Pvt. Ltd., which appealed against the order of the learned Single Judge of the Karnataka High Court, who had dismissed their writ petition challenging a re-assessment order under the Income Tax Act. The re-assessment was initiated for the assessment year 2007-2008 by the Income Tax Officer under Section 148 of the Act. The appellant contested the legality of the notice and the subsequent assessment, arguing that their objections were not addressed before the assessment was finalized. The High Court, referencing decisions from the Supreme Court and its own previous judgments, held that the Assessing Officer was required to address the objections raised by the appellant before proceeding with the assessment. The court found that the failure to do so violated principles of natural justice and the mandatory procedural requirements under the law.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 755325 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 15-03-2017
• Assessment Year: misc
• Other Referred Cases: G.K.N. Driveshafts (India) Limited Vs. Income Tax Officer, M/S.Vardhman Metals Vs. Income Tax Officer
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: V S HARISH
• Keywords: Alternative remedy; Natural Justice; Objection Disposal; Re-assessment
• Section: 147; 148; 143(3)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF MARCH, 2017 PRESENT THE HON'BLE MR. JUSTICE JAYANT PATEL AND THE HON’BLE MR. JUSTICE N.K.SUDHINDRARAO WRIT APPEAL NO.1725/2017 (T - IT) BETWEEN: M/s. Deepak Extrusions Pvt. Ltd., A Company incorporated under the Companies Act, 1956, Having its Office at: No.187/780, Yeranda Halli Village, Behind Page Industries Dommasandra Inds. Area, Bangalore-562 158. Represented by its Director Mr. Deppak Bethala S/o Prakash Bethala Aged about 45 years. ... Appellant (By Sri V.S. Hairsh, Adv.) AND: The Deputy Commissioner of Income Tax Central Circle-1(4), Central Revenue Building Queens Road, Bangalore-560 001. ... Respondent (By Sri K.V.Aravind, Adv.) 2 This Writ Appeal is filed under Section 4 of the Karnataka High Court Act praying to set aside the order passed in the Writ Petition No.16380/2015 dated 10.2.2017, etc. This Writ Appeal coming on for preliminary hearing this day, JAYANT PATEL J. delivered the following: JUDGMENT Admit. Mr.K.V. Aravind, learned counsel appears for the respondent in view of notice issued on 8.3.2017. With the consent of the learned counsel appearing for both the sides, appeal is finally heard. 2. The present appeal is directed against the order dated 10.2.2017 passed by the learned Single Judge of this Court in the main writ petition, whereby the learned Single Judge declined to interfere in the matter on the ground that there is alternative efficacious remedy available to the appellant-petitioner of preferring an appeal. 3 3. The only question to be considered in the present appeal is, whether it was obligatory on the part of the Assessing Officer to dispose of the objection before invoking the re-assessment proceedings or not? 4. In order to appreciate the contention we may refer to certain relevant facts and they are as under: On 17.3.2014 the Income Tax Officer issued notice under Section 148 of the Income Tax Act (hereinafter referred to as the ‘Act’) for the re-opening of assessment year 2007-2008. On 15.4.2014 the appellant requested the Income Tax Officer to furnish the reasons in accordance with law. On 8.5.2014 the Income Tax Officer vide its letter furnished the reasons for re- opening of the assessment and for issue of notice under Section 148 of the Act. On 11.6.2014, the appellant filed objections to the reasons interalia contending that the notice is bad in law. 4 5. Considering the facts and circumstances of the case the Income Tax Officer was supposed to dispose of the objections before proceeding with further assessment. However, on 31.3.2015 he passed the final assessment order under Section 147 read with Section 143(3) of the Act and also issued a Demand Notice for recovery of the amount. 6. Being aggrieved by the aforesaid, the appellant approached to this Court by preferring writ petition. The learned Single Judge as observed earlier dismissed the petition on the ground of availability of alternative remedy. In the circumstances, the present appeal before this Court. 7. We have heard Mr.Harish V.S., learned counsel appearing for the appellant and Mr.K.V.Aravind, learned counsel appearing for the respondent. 5 8. As such in our view the question involved is no more res-integra and is covered the decision of the Apex Court as well as of this Court. In case of G.K.N. Driveshafts (India) Limited Vs. Income Tax Officer and others reported in (2003)1 SCC 72, wherein the Apex Court made an occasion to consider about the course of action on the part of the Income Tax Officer when notice under Section 148 of the Act has been issued for re- opening of the assessment. The Apex Court at Para-5 interalia observed as under: “However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice 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.” (Emphasis supplied) 6 9. The aforesaid shows that if the assessee desires to seek the reasons for issuing the notice, the Assessing Officer is bound to furnish the reasons and upon the receipt of such reasons, the assessee is entitled to file the objections to the issuing of the notice and the Assessing Officer thereafter is bound to dispose of the same by passing a speaking order. It is only thereafter the assessment may proceed in accordance with law unless there is any prohibitory order of the competent forum. 10. A reference may also be made to the decision of this Court in case of M/S.Vardhman Metals Vs. Income Tax Officer in Writ Appeal No.219/2015 decided on 26.10.2016, wherein the learned Single Judge had more or less taken a similar view of dismissal of the appeal on the ground of existence of the alternative remedy and the matter was carried in appeal before this Court in the writ appeals. This Court by relying upon its earlier 7 decision in Writ Appeal No.218/2015 observed at para-8 as under: “This is an appeal filed by the assessee against the judgment and order dated 11.12.2014 passed by the learned Single Judge in W.P.No.14670/2014 whereby the petition challenging the notice under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) has been dismissed on the ground of availability of alternative remedy. 2. The brief facts of this case are that for the assessment year 2006-07 the appellant had filed its return of income, which was accepted under Section 143(1) of the Income Tax Act, 1961 (for short ‘the Act’) on 14.06.2007. Subsequently, on 28.03.2013, notice under Section 148 of the Act was issued for re-opening of the assessment. In response to the same, the appellant requested the respondent to treat the earlier return filed as the return filed in response to the notice issued under Section 148 of the Act. The appellant also prayed for furnishing the 8 reasons for issuance of notice under Section 148 of the Act. Even when no reason for the issuance of the notice was furnished to the appellant, the Assessing Officer commenced proceedings for re-assessment of the income of the assessee/appellant for the said assessment year and issued questionnaire under Section 142(1) of the Act. 3. From the questionnaire issued to the assessee, it appears that re-opening of the assessment was on the basis of statement recorded by the Income Tax authorities of some other person, which statement was never furnished to the appellant. The appellant, thus, contends that besides the non-furnishing of the reasons for re-opening the assessment, principles of natural justice were also not complied in the present case in as much as the appellant was not even furnished the statement, which was required to be explained by the appellant before the Assessing Officer. 4. Sri K.V.Aravind, learned counsel appearing for the respondent has, however, 9 submitted that since the re-assessment order has now been passed on 31.01.2014, the same can be challenged in appeal and, as such dismissal of the writ petition on the ground of availability of alternative remedy is perfectly justified. 5. We have heard learned counsel for the parties and perused the record. 6. The question of non-furnishing the reasons for re-opening an already concluded assessment goes to the very root of the matter. After filing of the return in response to the notice issued under Section 148 of the Act or on request of the assessee requesting that the return of income initially filed be treated as a return of income filed in response to such notice, the assessee is entitled to be furnished the reasons for such re-opening, which can also be challenged independently. Since such reasons had not been furnished to the appellant, even though a request for the same had been made, we are of the opinion that 10 proceedings for the re-assessment could not have been taken further on this ground alone. 7. Besides this, it is not disputed that the statement of some other person which was recorded and the appellant was asked to explain the same, was itself not furnished to the appellant-assessee. As such, besides non- furnishing of reasons for re-opening, there was also gross violation of principles of natural justice and in view of the aforesaid, we are of the opinion that writ petition against the re- assessment order dated 31.01.2014 ought to have been entertained and that dismissal of the writ petition on the ground of availability of alternative remedy was not justified in the facts of the present case. 8. Since we are of the opinion that the re-opening of assessment under Section 143 of the Act was itself bad in law, we set-aside the order passed by the writ Court and as well as the re-assessment order dated 31.01.2014. Accordingly, this appeal as well as the writ petition stand allowed. 11 9. However, it may be observed that the respondent shall be at liberty to proceed in the matter, in accordance with law, after furnishing reasons for issuance of notice under Section 148 of the Act, if law so permits. No order as to costs. All pending applications stand consigned to file.” 11. If the facts of the present case are examined in the light of aforesaid legal position, it is an admitted position that the reasons for re-opening of the assessment by issuing of the notice under Section 148 of the Act were supplied to the appellant assessee. It is also admitted position that the appellant assessee after receipt of such reasons raised objections. It is also undisputed position that the Assessing Officer did not dispose of the objections prior to proceeding with the assessment further and proceeded to pass the order for assessment. Under the circumstances, it can be said 12 that the mandatory procedure of disposal of the objection by Assessing Officer before proceeding with the assessment has not been followed and exercise of power can be said as not only vitiated, but the order of assessment cannot be sustained. 12. If the decision of the Assessing Officer is illegal on the face of it, in our view, it would fall in the exceptional category of making departure from the normal principles of self impose limitation of not to interfere in a matter where there is existence of alternative statutory remedy. 13. In view of the aforesaid, the impugned order passed by the learned Single Judge is set aside. The impugned order of assessment is also set aside. It is observed that the Assessing Officer shall be at liberty to proceed in the matter in accordance with law. 13 The appeal is allowed to the aforesaid extent. Considering the facts and circumstances, no order as to costs. Sd/- JUDGE Sd/- JUDGE AP "