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Attorney(S)
  • For the Appellant: E.R. Indra Kumar, K.R. Prasad, Advocates.
Judges
  • D.V Shylendra Kumar, J.
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Citation Codes
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citation codes
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Attorney(S)
  • For the Appellant: E.R. Indra Kumar, K.R. Prasad, Advocates.
Judges
  • D.V Shylendra Kumar, J.
Acts
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Smart Summary

Judgment Summary — D.V. Shylendra Kumar, J.

Factual and Procedural Background

The petitioner, M/s Karnataka Golf Association (an assessee under the Income-tax Act, 1961), faced notices under section 147/148 proposing reopening of assessments for the years 1996-97 to 2001-02. The matter was in its second round before the High Court after earlier Writ Petitions Nos. 8446-51 of 2003 challenged the legality of those notices on the ground that the proposition notices did not disclose reasons for reopening and, despite requests, the assessing authorities had not furnished reasons.

Following the decision of the Supreme Court in GKN Drivershafts (India) Ltd. v. ITO ([2003] 259 ITR 19), this Court by order dated July 23, 2004 directed the respondents to furnish the recorded reasons for reopening and to permit the petitioner to file objections. The respondents furnished reasons (annexure F series); the petitioner filed objections; and the respondents issued an order/communication dated September 27, 2004 (annexure L) purportedly addressing those objections. The present writ petitions seek to quash that September 27, 2004 order/communication and the antecedent notices.

Legal Issues Presented

  1. Whether the High Court should examine the correctness or legality of the respondents' order/communication dated September 27, 2004, which responds to the petitioner's objections to the reasons disclosed for reopening assessments;
  2. Whether the respondents complied with the requirements articulated in GKN Drivershafts (India) Ltd. — specifically, disclosure of reasons for reopening and providing the assessee an effective opportunity to reply — and whether any failure to adequately deal with objections renders the reopening without jurisdiction;
  3. Whether the delay (more than 18 months) by the respondents in furnishing reasons for reopening justifies quashing the notices under section 148 as being suspicious and indicative that reasons were not recorded at the relevant time.

Arguments of the Parties

Appellant / Petitioner (Sri K.R. Prasad, Senior Counsel)

  • The September 27, 2004 order effectively enables the respondents to assume jurisdiction for reopening but does not adequately deal with the objections raised by the petitioner;
  • The order lacks proper and convincing reasons explaining why the petitioner's objections are untenable; absent such explanation, respondents cannot assume jurisdiction to reopen assessments;
  • The respondents were obliged to follow the procedure of furnishing reasons for reopening, permitting the assessee to file objections, and then proceeding only after considering those objections, as directed by the Supreme Court in GKN Drivershafts;
  • The petitioner can legitimately challenge the September 27, 2004 order even though it is not appealable, to avoid further exposure to assessment orders, appeals, and tax liabilities — reliance placed on Garden Finance Ltd. v. CIT (Assistant) (Full Bench, Gujarat High Court) and Smt. Jaswant Kaur Sehgal v. CIT (Gauhati High Court) for the proposition that such an order can be called in question by writ.
  • Additionally, the petitioner argues the long delay (more than 18 months) in furnishing reasons is a suspicious circumstance justifying quashing the notices.

Respondents / Revenue (Sri E.R. Indrakumar, Senior Standing Counsel)

  • The respondents complied with the Court's earlier directions by furnishing the recorded reasons; the petitioner was permitted to file objections;
  • The objections were considered by the concerned officer and an order (dated September 27, 2004) was passed and communicated to the petitioner;
  • Having complied with the directions, the respondents are entitled to proceed further in accordance with statutory provisions; no further judicial hold-up is warranted; statutory appeal and other remedies remain available to the assessee if the assessment order goes against it.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
GKN Drivershafts (India) Ltd. v. ITO, [2003] 259 ITR 19 (Supreme Court) Where the Department proposes to reopen a concluded assessment, it must disclose the reasons for such reopening if the assessee requests disclosure; the disclosure is to enable the assessee to file an effective reply/objections; the assessee also has a duty to respond to such notice. The Court relied on GKN to hold that reasons must be disclosed and that disclosure is for enabling the assessee to file objections. The Court further interpreted GKN as not making the order dealing with those objections an independent proceeding necessarily subject to immediate High Court review, but required that the order passed by the officer dealing with objections be a reasoned order that explains how objections were considered.
Garden Finance Ltd. v. CIT (Assistant), [2004] 268 ITR 48 (Full Bench, Gujarat High Court) Authority for the proposition that the legality/correctness of an order dealing with objections to reasons for reopening may be examined by the High Court. The petitioner relied on this decision to argue that the September 27, 2004 order could be subjected to writ challenge. The Court noted the decision but declined to treat it as establishing a rule applicable in all circumstances.
Smt. Jaswant Kaur Sehgal v. CIT, [2004] 271 ITR 475 (Gauhati High Court) Support for the proposition that an order like annexure L (i.e., an order dealing with objections to reasons for reopening) can be challenged by writ petition. The Court observed this authority was cited by the petitioner but remarked that while some High Courts have exercised jurisdiction to examine such orders, that approach cannot be generalized; the Court did not apply this decision to order interference in the present petition.

Court's Reasoning and Analysis

The Court began by referring to and construing the Supreme Court's decision in GKN Drivershafts. It distilled the following legal propositions from GKN: (a) the Department must disclose reasons for reopening when requested; (b) the disclosure is intended to enable the assessee to file a response and objections; and (c) the assessee has a duty to respond to a reopening notice.

On the nature of the order dealing with objections, the Court held that GKN does not treat such dealing as automatically constituting an independent proceeding that must itself be tested before the High Court. Nevertheless, the Court emphasised that any order passed by the competent officer addressing the assessee's objections should be a reasoned order explaining how objections were dealt with, so it "speaks for itself" if the ensuing assessment is appealed.

The Court observed that there is no rigid, universally applicable rule governing exercise of writ jurisdiction under Articles 226 and 227 in such cases; the High Courts' decisions to entertain challenges to orders dealing with objections (as in the Gujarat and Gauhati decisions) do not establish a rule that must be generalized to all circumstances.

Applying these principles to the present facts, the Court noted that: (i) reasons were furnished in compliance with the earlier direction; (ii) the petitioner filed objections; and (iii) the concerned officer considered those objections and passed an order communicated on September 27, 2004 indicating that further examination and action under statutory provisions was required. Given that sequence, the Court concluded that the statutory process should be permitted to run its course rather than be prematurely curtailed by another writ challenge at this stage.

The Court addressed the petitioner's contention about the delay (over 18 months) in furnishing reasons and described the contention as attractive but declined to entertain it in the present proceedings because the petitioner had previously approached the Court and obtained a direction to furnish reasons, and the respondents thereafter complied. Thus the Court found no proper basis in this petition to revisit the delay issue.

Holding and Implications

WRIT PETITION DISMISSED.

Implications and immediate consequences as stated by the Court:

  • The respondents are permitted to proceed in accordance with law from the stage at which the proceedings had been held up;
  • The petitioner may be accorded a proper opportunity if it so seeks and the respondents may continue further statutory action;
  • The High Court has not examined the merits of the September 27, 2004 order; it was considered unnecessary to do so at this stage in writ jurisdiction, and therefore the petitioner remains free to question the correctness or point out defects in the order before the appropriate forum in future proceedings if it suffers an adverse order;
  • The decision does not direct quashing of the notices or the September 27, 2004 order; instead the Court permitted the statutory machinery (including appeals and other remedies) to operate.

Note: The Court expressly declined to generalise the practices of other High Courts that have entertained challenges to orders dealing with objections to reasons for reopening; it treated interference in such matters as discretionary and dependent on the circumstances of each case.

Show full summary ...

    Karnataka Golf Association v. Deputy Director Of Income-Tax (Exemptions) And Another

    D.V Shylendra Kumar, J.:— This writ petition is in second round before this court in a petition under articles 226 and 227 of the Constitution of India by an assessee under the Income-tax Act, 1961, who is facing the prospect of reopening of assessments of earlier years pursuant to notice issued by the respondent-officers invoking the provisions of section 147/148 of the Income-tax Act, 1961.

    2. The petitioner-M/s. Karnataka Golf Association had approached this court earlier questioning the legality of the notices issued under section 148 proposing reopening of the assessments for the years 1996-97 to 2001-02 as per notices dated January 9, 2003, by filing Writ Petitions Nos. 8446-51 of 2003. The principal ground of challenge was that the notices by themselves did not disclose as to under what circumstances the reopening was proposed; that the assessee was in the dark as to why proposition notice was issued at all; that the assessee was entitled to seek from the respondents the reasons for such reopening and notwithstanding the petitioner-asses-see having sought for furnishing of such reasons for reopening, the respondents had not furnished the same and the notices as it is contended are without jurisdiction and are liable to be quashed, etc.

    3. This court in terms of the order dated July 23, 2004, passed in the said writ petitions and following the decision of the Supreme Court rendered in the case of GKN Drivershafts (India) Ltd. v. ITO, [2003] 259 ITR 19, directed the respondents-income-tax officials to furnish the reasons that had been recorded by the respondents in their file for reopening of the assessments and to accord opportunity to the petitioner to file its objections on this aspect also.

    4. In terms of the directions issued by this court, the respondents have, in fact, furnished such reasons in terms of annexure F series. The petitioner did file its objections to the reasons and the respondents have also passed an order on this in terms of the communication dated September 27, 2004, (copy at annexure L) purporting to deal with the objections raised by the petitioner.

    5. This round of writ petitions is for quashing of this order/communication dated September 27, 2004, as also the earlier notices preceding this communication.

    6. Sri K.R Prasad, learned senior counsel appearing for the petitioner, submits that the order now passed by the respondents which in effect enables the respondents to assume jurisdiction for the purposes of reopening the assessments is virtually one which has not dealt with the objections raised on behalf of the petitioner; that the concerned officer having not given proper and convincing reasons as to why the objections that had been put forth by the petitioner should be brushed aside; that the respondents cannot assume jurisdiction, without indicating in the orders as to how the objections put forth by the petitioner are not tenable, this is an order which is required to be quashed along with the notices issued under section 148 for reopening the assessments.

    7. Learned senior counsel submits that the respondents are required to follow the procedure of giving the reasons for reopening the assessments; that the assessee should be enabled to file its reply or objections to such reasons and then only can proceed further in accordance with the procedure and directions issued by the Supreme Court in the case of GKN Drivershafts (India) Ltd., [2003] 259 ITR 19.

    8. It is also the submission of Sri Prasad, learned senior counsel that the petitioner is enabled to question the legality of even the order dated September 27, 2004, passed by the respondents which is one dealing only with the objections with regard to the reasons given to the reopening particularly as this order itself is not an appealable order and unless the petitioner questions the legality, the respondents having assumed jurisdiction will proceed further in the matter exposing the petitioner to further assessment orders, appeals, liability for payment of tax, etc. Learned senior counsel submits that if the petitioner can legitimately avoid being exposed to such proceedings, it is definitely open to the petitioner to question the very order dated September 27, 2004, and in this regard has placed reliance on the Full Bench decision of the Gujarat High Court reported in Garden Finance Ltd. v. CIT (Assistant), [2004] 268 ITR 48.

    9. Learned counsel for the petitioner also places reliance on the reported decision of the Gauhati High Court in the case of Smt. Jaswant Kaur Seh-gal v. CIT, [2004] 271 ITR 475 for the proposition that an order of the nature as under annexure L can also be called in question by filing a writ petition. Sri Prasad further submits that the decisions of the Gujarat High Court and the Gauhati High Court are subsequent to the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd., [2003] 259 ITR 19 and purporting to follow the said decisions and commends for an acceptance of the view taken by these two High Courts not only to examine the legality of the order dated September 27, 2004, but also for issue of a writ by allowing these writ petitions.

    10. Sri E.R Indrakumar, learned senior standing counsel appearing for the respondents, on the other hand, counters the submissions by pointing out that the petitioner had approached this court in the earlier round; that this court had issued directions to the respondents to furnish reasons; that in compliance with such directions, the reasons, in fact, were furnished; that the petitioner was also enabled to file his objections; those objections have been considered elaborately by the concerned officer and an order is passed which is also communicated to the petitioner; that it is now open to the respondents to proceed further in the matter; that no further hold up is warranted in the present circumstances; that the statutory authorities should be allowed to function in accordance with the statutory provisions and to ensure implementation of the statutory provisions.

    11. The question is as to whether this court should examine the correctness or otherwise of the order/communication dated September 27, 2004, which is one in response to the objections raised by the petitioner to the reasons disclosed by the respondents for reopening the assessments.

    12. I have perused the decision of the Supreme Court in GKN Driveshafts' case, [2003] 259 ITR 19 and I have also been taken through the decisions of the Gujarat High Court and the Gauhati High Court.

    13. A careful reading of the decision of the Supreme Court indicates that whenever the Income-tax Department is proposing to reopen a concluded assessment, it is but necessary that the Department should disclose the reasons for such reopening if the assessee requests for the same. At the same time, emphasis is laid that on receipt of notice of this nature, it is the duty of the assessee to file its return and respond to the notice. A proper reading of this decision indicates that the reasons to be disclosed by the Department is for the purpose of enabling the assessee to file its reply and objections effectively in the context of proposition for reopening and in furnishing its stand or information. The decision of the Supreme Court does not indicate that the dealing with the objections raised by the assessee for reopening on the disclosure of reasons in itself could form an independent proceeding which should again be tested before the High Court or elsewhere. However, what is required is that while dealing with such objections, the order to be passed by the competent officer should be a reasoned order in the sense that it should disclose as to in what manner the objections have been dealt with by the concerned officer as in the event of the ensuing assessment order being made the subject-matter of appeal or being taken up before the higher forum, the order should speak for itself.

    14. I am afraid that no hard and fast rule can be laid down on the question of exercise of jurisdiction under articles 226 and 227 of the Constitution of India in such matters particularly for interference by the High Court in writ jurisdiction which is a discretionary jurisdiction. It is no doubt true that two of the High Courts have thought it fit to examine even the legality or correctness of the order passed by the officers of the Income-tax Department while dealing with the objections filed by the assessee to the reasons for reopening the assessments. But, that does not mean that it is the law laid down or it can be generalised in all circumstances.

    15. I am of the view that when once the assessee has been informed of the reasons for reopening and is also enabled to file its objections and the concerned officer on examination of the same has passed an order and has indicated that the matter requires further examination and action in accordance with the statutory provisions, the law should be allowed to run its course. It is not as though an order to passed by the Assessing Officer on reopening becomes final by itself. The statutory provisions of appeal and other remedies can take care of the interest of an assessee if the assessment order has gone wrong in any way. The tenor and purpose of the procedure indicated by the Supreme Court in GKN Driveshaft's case, [2003] 259 ITR 19, to my mind appears to be a ensure a fair and reasonable opportunity to be provided to an assessee to enable the assessee to come out with its explanation and also to point out any such anomalies or inconsistencies which might have been noticed in the reasons assigned for reopening. That perhaps was necessitated because of the manner in which the very proposition notice issued under section 148 is couched. The proposition notice does not disclose anything except for saying that the officer is of the opinion that certain income has escaped assessment and is required to be brought to tax. Nothing else is indicated in this notice. Perhaps a little more transparency on the part of the Revenue and a little more information could have avoided all unnecessary litigation. Unfortunately, it is not our strong point to learn from our mistakes. It is high time that the form of the notice under section 148 issued is made more transparent particularly taking a cue from the decision of the Supreme Court in GKN Driveshaft's case, [2003] 259 ITR 19 and considerable litigation is avoided on this aspect which has been a fertile ground for litigation as it is evident from the law reports.

    16. One another contention which is according to Sri Prasad, learned senior counsel of considerable weight and importance is that the respondents-officers have taken more than 18 months from the date of issue of notices for giving reasons for reopening and that in itself should be taken as a justifiable ground to quash the notices as, if the reasons had been noted in the files before the issue of such notices, it should not have taken more than a couple of weeks for the Department to furnish the same and that is a suspicious circumstance as to whether the reasons had been recorded or not at all.

    17. Though the argument appears to be attractive, I am not inclined and am unable to consider the same in the present case as the assessee had approached this court in the earlier round of litigation by filing a writ petition and this court had an occasion to direct the respondents to furnish reasons within a stipulated time and the respondents have complied. That having happened, there is no further scope to go back to this aspect yet again in this writ petition. In the circumstances, I am of the view that there is no need for this court to interfere again in such a matter, in the exercise of writ jurisdiction. It is made clear that the respondents can proceed in accordance with law from the stage at which the proceedings had been held up. The petitioner may be accorded a proper opportunity if the petitioner so seeks and proceed further.

    18. It is also clarified that as this court has not examined the merits of the order which is challenged in this writ petition and I am of the opinion that it is not necessary to examine at this stage in the writ jurisdiction, it is open to the petitioner to question the correctness or point out any of its defects before any forum where it can be so questioned or challenged as and when the occasion arises to the petitioner, if the petitioner should suffer an adverse order which can be made the subject matter of further proceedings. In all other aspects, this writ petition is dismissed.

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    Karnataka Golf Association v. Deputy Director Of Income-Tax (Exemptions) And Another
    (Feb 8, 2005)