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Attorney(S)
Acts
  • u/s 148 of the Income Tax Act
  • Act 1961 Section 147 and 148
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Citation Codes
Equivalent Citations
citation codes
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Attorney(S)
Acts
  • u/s 148 of the Income Tax Act
  • Act 1961 Section 147 and 148
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Smart Summary

Summary of Opinion — ITA No. 135/JP/2020 (Assessment Year 2010-11)

Bench: ITAT, Jaipur Benches, "SMC" Jaipur; Members: Shri Sandeep Gosain, JM & Shri Rathod Kamlesh Jayantbhai, AM.

Parties: Appellant — Shri Banwari Lal Pareek; Respondent — The ITO, Ward 1(5), Jaipur.

Counsel: Assessee by Shri Ashok K Gupta and Shri S.L. Jain; Revenue by Shri A.S. Nehra, Addl. CIT.

Dates: Hearing 14/06/2022; Pronouncement 27/07/2022.

Factual and Procedural Background

The assessee (Shri Banwari Lal Pareek) filed an appeal before the Income Tax Appellate Tribunal against the order of the ld. CIT(A)-1, Jaipur dated 29-11-2019 for the assessment year 2010-11. The grounds of appeal raised include challenge to the validity of service of notice under section 148, the validity of the assessment order without providing the reasons for reopening, and disputes regarding the estimate/acceptance of the cost of construction of a house sold (contentions on estimated cost and a registered valuer's valuation).

During assessment proceedings the assessee requested the Assessing Officer (AO) to furnish the reasons recorded for reopening under section 148. The assessee submitted a written reply dated 27-11-2017 (paperbook pages 53–54) reiterating this demand, but the AO did not furnish the reasons. In appeal before the ld. CIT(A) the assessee specifically raised this ground, but the ld. CIT(A) did not deal with or provide the reasons for reopening. The assessee subsequently appealed to the ITAT, which heard the parties and decided the matter.

Legal Issues Presented

  1. Whether the ld. CIT(A) was correct in upholding service of notice under section 148 within the due time?
  2. Whether the assessment/reassessment order is valid where the assessing officer failed to provide the assessee with the reasons recorded for reopening the assessment under section 148 despite a specific request?
  3. Whether the ld. CIT(A) erred in estimating the cost of construction of the house sold at Rs. 2,50,000/- instead of accepting the actual cost claimed (Rs. 4,36,500/-) or the valuation by an approved Registered Valuer (Rs. 4,19,040/-)?

Arguments of the Parties

Appellant's Arguments

  • The appellant contended that the ld. CIT(A) erred in upholding the validity of the assessment/reassessment without supplying the reasons recorded for issuing notice under section 148, despite a specific request during assessment proceedings (reply dated 27-11-2017).
  • The appellant submitted that furnishing of reasons recorded is sine qua non for reopening of assessment and relied on binding and persuasive authorities, including the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. vs ITO (2003 (1) SCC 72) and subsequent High Court and Supreme Court decisions (see citations below), to contend that reassessment should be quashed where reasons were not supplied.
  • Separately, on valuation of construction cost, the appellant contended that the actual incurred cost and/or the registered valuer's valuation should be accepted instead of the AO/CIT(A)'s assumed figure. (This issue was part of the grounds but the court's detailed determination focused on the reopening/section 148 ground.)

Respondent's Arguments

  • The Departmental Representative (ld. DR) relied on the orders of the lower authorities (AO and ld. CIT(A)). The opinion records that the ld. DR relied on those orders but does not elaborate further specific submissions in the text.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
GKN Driveshafts (India) Ltd. vs ITO, 2003 (1) SCC 72 The Assessing Officer is bound to furnish the reasons recorded for issuing notice under section 148 within a reasonable time; on receipt of reasons the noticee can file objections and the AO must dispose of those objections by a speaking order before proceeding further. The Tribunal relied on this Supreme Court authority to hold that furnishing reasons is mandatory and that failure to supply reasons rendered the reassessment order unsustainable in the present facts.
CIT vs Videsh Sanchar Nigam Ltd., (2012) 340 ITR 66 (Bombay High Court) Where reasons recorded for reopening are not furnished to the assessee until completion of assessment, reassessment cannot be upheld. The Tribunal relied on this precedent as support for quashing the reassessment where reasons were not supplied to the assessee.
CIT vs Trend Electronics, (2015) 379 ITR 456 (Bombay High Court) Recording of reasons and furnishing them to the assessee must be strictly complied with; failure to furnish reasons when sought by assessee renders reassessment invalid and liable to be quashed. The Tribunal cited this decision to reinforce the proposition that reassessment is invalid if reasons were not provided when requested.
Pr. CIT and Another vs V. Ramaiah (Karnataka High Court), ITA No. 451 of 2017 dated 02-07-2018 Recording of reasons before initiation of reassessment proceedings and communicating them to the assessee is sine qua non; it goes to the root of the matter and may confer or deprive jurisdiction to undertake reassessment. The Tribunal applied this reasoning to find that, since reasons were not supplied contemporaneously, the reassessment proceedings were flawed and could be quashed.
Pr. CIT vs V Ramaiah, (2019) 262 Taxman 16 (Supreme Court SLP dismissal) The Supreme Court dismissed the SLP against the Karnataka High Court decision (Pr. CIT and Another vs V. Ramaiah), effectively upholding the earlier conclusions regarding the necessity to record and communicate reasons. The Tribunal noted the dismissal of the SLP as reinforcing the legal proposition relied upon and used it to support quashing the reassessment in the present case.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded as follows, strictly following the materials and authorities cited in the opinion:

  1. Fact finding: It was an admitted fact on the record that from the beginning the assessee had demanded the reasons recorded for reopening by way of a written reply dated 27-11-2017 (paperbook pages 53–54).
  2. Non-supply of reasons: The Assessing Officer did not furnish the reasons to the assessee. In appeal the assessee specifically raised this as a ground that reasons recorded were never supplied or provided to the assessee, but the ld. CIT(A) ignored this ground and did not deal with it.
  3. Legal principle: The Tribunal invoked the Supreme Court decision in GKN Driveshafts (India) Ltd. vs ITO which holds that when a notice under section 148 is issued, the AO is bound to furnish the reasons within a reasonable time; on receipt the noticee is entitled to file objections which the AO must decide by a speaking order before proceeding further.
  4. Application of principle to facts: Because the reasons recorded for reopening were not furnished to the assessee until completion of the assessment, the Tribunal concluded that the reassessment order could not be upheld. The Tribunal reinforced this result by reference to the decisions of the Bombay High Court (CIT vs Videsh Sanchar Nigam Ltd.; CIT vs Trend Electronics) and the Karnataka High Court (Pr. CIT and Another vs V. Ramaiah), and noted the dismissal of the SLP in the Supreme Court in Pr. CIT vs V Ramaiah.
  5. Result: On the basis of the undisputed fact of non-supply of reasons and the binding authorities mandating supply of reasons as a precondition (sine qua non) to valid reassessment, the Tribunal found that the reassessment proceedings and consequential orders of the AO and the ld. CIT(A) were not justified and therefore quashed them.

Holding and Implications

Core Ruling: The reassessment order is quashed and the assessee's appeal is allowed.

Direct consequences for the parties (as stated in the opinion):

  • The reassessment proceedings initiated by the AO and the consequential order passed by the AO, as well as the appeal order passed by the ld. CIT(A), were quashed by the Tribunal.
  • The ground raised by the assessee (non-supply of reasons recorded for reopening) was allowed and the consequential appeal of the assessee was allowed.
  • The Tribunal ordered the appeal allowed with no order as to costs.

Broader legal implication noted in the opinion: The Tribunal applied and reaffirmed existing authorities that recording of reasons before initiation of reassessment proceedings and contemporaneous communication of those reasons to the assessee is mandatory (sine qua non) and goes to the jurisdictional root of reassessment. The opinion does not state that it establishes a new precedent; it applies and follows the cited Supreme Court and High Court decisions.

Disposition: Appeal of the assessee allowed. Order pronounced on 27/07/2022. (Signed by Members: Rathod Kamlesh Jayantbhai, Accountant Member; Sandeep Gosain, Judicial Member.)

Show full summary ...

    BANWARI LAL PAREEK, JAIPUR v. ITO, WARD-1(5), JAIPUR

    vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj

    IN THE INCOME TAX APPELLATE TRIBUNAL,

    JAIPUR BENCHES,"SMC" JAIPUR Jh lanhi xkls kbZ] U;kf;d lnL; ,o a Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 135/JP/2020

    fu/kZkj.k o"kZ@Assessment Year : 2010-11

    Shri Banwari Lal Pareek cuke The ITO

    67, Saket Colony, Path No. 7, Vs. Ward 1(5)

    Vijaywari, Sikar Road, Jaipur Jaipur

    LFkk;h y[s kk la-@thvkbZvkj la-@PAN/GIR No.: AKFPP 5820 L vihykFkh@Z Appellant izR;FkhZ@Respondent

    fu/kZkfjrh dh vksj l s@ Assessee by : Shri Ashok K Gupta, Advocate & Shri S.L. Jain, Advocate

    jktLo dh vksj ls@ Revenue by: Shri A.S. Nehra, Addl. CIT

    lquokbZ dh rkjh[k@ Date of Hearing : 14/06/2022

    mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 27 /07/2022

    vkn's k@ ORDER

    PER: SANDEEP GOSAIN, JM

    The assessee has filed an appeal against the order of the ld. CIT(A)-1, Jaipur dated 29-11-2019 for the assessment year 2010-11 wherein the assessee has raised the following grounds of appeal.

    ''1. That the ld. CIT(A) has grossly erred in law and facts in upholding services notice u/s 148 on the assessee within the due time.

    2. That the ld. CIT(A) has grossly erred in law and facts in upholding validity of assessment order without providing reasons of

    1

    reopening of the assessment by the AO in spite of the specific request made by the assessee during the course of assessment proceeding.

    3. (a) That the ld. CIT(A) has grossly erred in law and facts in estimating the cost of construction of the house sold on the basis of assumption only at Rs.2,50,000/- as against the actual cost incurred of Rs.4,36,500/-.

    (b) That the ld. CIT(A) Jaipur has grossly erred in law and facts in not accepting the cost of construction of the house Rs.4,19,040/- as valued by the approved Registered Valuer's (Mahendra Singhal).''

    2.1 At the outset of the hearing, the ld. AR straightway raked up grounds of appeal stating that this ground is purely legal in nature and goes to the root of the case. The ld. AR of the assessee submitted that the ld. CIT(A) has grossly erred in law and facts in upholding the validity of the assessment order without providing the reasons of reopening of the assessment by the AO in spite of the specific request made by the ld. AR of the assessee during the course of assessment proceedings. In this regard, the ld. AR of the assessee had drawn our attention towards the order of the ld. CIT(A) at page No. 2 wherein Ground No. 3 has been specifically taken by the assessee and he has categorically mentioned that the AO has erred in law as well as on facts in not providing reasons for issue of notice u/s 148 as demanded by the assessee during the assessment proceedings. The ld. AR of the assessee had further drawn our attention to Page No.6 of the impugned order of the ldl. CIT(A) wherein he has filed the written submission in support of Ground

    2

    No. 3. Apart from this, the ld. AR has also drawn our attention towards reply dated 27-11-2017 filed by the assessee before the AO which is at Page 53 to 54 of the Paper book wherein the assessee had also requested the AO for providing the reasons for issuance of Notice u/s 148 of the Act. The ld. AR of the assessee further submitted that providing of reasons recorded is sine qua non for reopening the assessment. To this effect, the ld. AR has relied upon the decisions of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs ITO, 2003 (1) SCC 72, Hon'ble Bombay High Court in the case of CIT vs Videsh Sanchar Nigam Ltd. 2012 (340) ITR 66, Hon'ble Bombay High Court in the case of CIT vs Trend Electronics, 2015 (379) ITR 456, decision of Hon'ble Karnataka High Court in the case of Pr. CIT and Another vs V. Ramaiah (ITA No. 451 of 2017 dated 02-07- 2018) and the decision of Hon'ble Supreme Court in the case of Pr. CIT vs V Ramaiah, reported in (2019) 262 Taxman 16 and submitted that since the AO has failed to furnish the reasons, therefore, the entire proceedings of reopening of assessment may be quashed.

    2.2 On the other hand, the ld. DR relied on the orders of the lower authorities.

    2.3 We have heard both the parties and perused the material available on record. It is an admitted fact that from the very beginning the assessee had been demanding the reasons recorded and in this regard the reply dated 27-11-2017 (PBP 53-54) of the assessee written to the ITO, wherein the assessee had

    3

    specifically asked and demanded the AO to provide the reasons for issuance of Notice u/s 148 of the Act to the assessee. However, the AO did not provide the same. In appeal before the ld. CIT(A), the assessee had categorically raised the specific ground that the reasons recorded for reopening of the assessment was never supplied / provided to the assessee. However, the ld. CIT(A) had ignored the said ground of the assessee and also did not deal with the specific ground raised by the assessee. In our view, the AO was bound to furnish reasons recorded by him within a reasonable time as has been held by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs ITO (supra) wherein the Hon'ble Court held as under:-

    ''5. We see no justifiable reason to interfere with the

    order under challenge. However, we clarify that when a notice u/s 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and 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.''

    4

    As per record, since the reasons recorded for reopening of the assessment were not furnished to the assessee till the completion of the assessment, therefore, in our considered view, the reassessment order in these circumstances of the case, cannot be upheld. For reaching this conclusion, we draw strength from the decision of Hon'ble Bombay High Court in the case of CIT vs Videsh Sanchar Nigam Ltd (2012) 340 ITR 66 wherein Hon'ble Bombay High Court had categorically held that since the reasons recorded for reopening of the assessment were not furnished to the assesse till the completion of the assessment then reassessment order cannot be upheld and thus dismissed the appeal filed by the Revenue. Even in the case of CIT vs Trend Electronics reported in (2015) 379 ITR 456, Hon'ble Bombay High Court has categorically held as under:-

    ''Income Tax Act 1961 Section 147 and 148 Reopening of

    assessment - validity of - Notice - Objections - Recording of reasons and furnishing of reasons to be strictly complied with - Failure on part of assessee to furnish reasons recorded to assessee when sought for - Reassessment not valid - Quashed - Appeal dismissed.''

    Hon'ble Karnataka High Court in the case of Pr.CIT and Another vs V. Ramaiah (ITA No. 451 of 2017 dated 02-07-2018) has held as under:-

    ''8. The decision relied upon by the learned counsel for the Revenue is distinguishable on facts. The order which was to be passed by the assessing authority as preliminary objection of the assessee, once the assessee has raised the objection to such reassessment

    5

    proceedings, the meeting of such objections in the main reassessment order, could be procedural aspect of the matter but the recording of the reasons before the initiation of the reassessment proceedings and communication thereof to the assessee is sine qua non as held by the Hon'ble Supreme Court and that goes to the root of the matter and confers or deprives the assessing authority of the jurisdiction to undertake such reassessment proceedings, as the case may be.

    9. In the present case, admittedly, such reasons were not supplied to the assessee during the contemporary period before going ahead with the reassessment proceedings. Therefore, the Tribunal in our opinion was perfectly justified in quashing such reassessment order.

    10. We do not find any substantial question of law arising in the matter. Therefore, the appeal of the Revenue stands dismissed. No costs.''

    The SLP of the Revenue against the above order of Karnataka High Court (supra) has also been dismissed by the Hon'ble Supreme Court reported in (2019) 262 Taxman 16. Therefore considering the totality of the facts and circumstances of the case and keeping in view the legal proposition as discussed above, we hold that recording of reasons before initiation of reassessment proceedings and communication thereof to the assessee is sine qua non as held by the Hon'ble Supreme Court (supra) that goes to the root of the matter and confers or deprives the assessing authority of the jurisdiction to undertake such reassessment proceedings, as the case may be. In the present case, admittedly such reasons were not supplied to the assessee during the contemporary period before going ahead with the reassessment proceedings. Therefore, in our view, the reassessment

    6

    proceedings initiated and consequential order passed by the AO and appeal order passed by the ld. CIT(A) are not justified and, therefore, we quash such reassessment order. Therefore, the ground raised by the assessee is allowed and consequential appeal of the assessee is also allowed with no order as to cost.

    3.0 In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 27 /07/2022 Sd/- Sd/-

    ¼ jkBksM dey's k t;UrHkkbZ ½ ¼lanhi xkls kbZ½ (Rathod Kamlesh Jayantbhai) (Sandeep Gosain) y[s kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;ijq @Jaipur

    fnukda @Dated:- 27/07/2022

    *Mishra

    vkns'k dh izfrfyfi vxszf'kr@Copy of the order forwarded to:

    1. The Appellant- Shri Banwari Lal Pareek, Jaipur

    2. izR;Fkh@Z The Respondent- The ITO, Ward - 1(5), Jaipur

    3. vk;dj vk;qDr@ The ld CIT

    4. vk;dj vk;Dq r¼vihy½@The ld CIT(A)

    5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

    6. xkMZ QkbZy@ Guard File (ITA No.135/JP/2020) vkns'kkuqlkj@ By order,

    lgk;d ita hdkj@Asstt. Registrar

    7

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    Comments

    BANWARI LAL PAREEK, JAIPUR v. ITO, WARD-1(5), JAIPUR
    (Jul 27, 2022)