Gujarat High Court
Torrent Power Sec Ltd vs Asstt. Commissioner Of Income Tax on 12 March, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
C/SCA/24740/2006 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 24740 of 2006
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TORRENT POWER SEC LTD.....Petitioner(s)
Versus
ASSTT. COMMISSIONER OF INCOME TAX....Respondent(s)
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Appearance:
MRS SWATI SOPARKAR, ADVOCATE for the Petitioner(s) No. 1
MS NITIN MEHTA, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 12/03/2014
ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI)
1. This petition challenges the notice of reopening issued under section 148 of the Income Tax Act, 1961 ( "the Act" for short) for the assessment year 2001-02 on 10.11.2005.
2. The petitioner herein is a company incorporated under the Companies Act, which for the concerned Assessment Year, filed return of income which was taken in scrutiny assessment and the same was finalized on 19.2.2004.
Page 1 of 12 C/SCA/24740/2006 ORDER
3. On 10/12/2005, a notice of reopening came to be issued by the Assessing Officer for the Assessment Year 2001-02 upon the petitioner after such notice of reopening was communicated the petitioner on 8.12.2005 requested the Assessing Officer by filing the return to treat the income as declared in the original return as his income and also made a request for supply of reasons recorded for such reopening. Such reasons were not furnished to the petitioner although specific reference was made to the decision of the Apex Court rendered in case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others reported in [2003]259 ITR 19.
4. On 7.11.2006 a show cause notice issued under section 142(1) was received by the petitioner on the ground that the depreciation on meters and capacitors were claimed by the petitioner at 100% which otherwise it was entitled to claim only at the rate of 25%.
5. Aggrieved by issuance of such notice, the petitioner contended vide its communication dated 13.11.2006 inter alia that this would mean that reassessment proceedings have been initiated without furnishing the reasons recorded in complete disregard to the pronouncement of the Apex Court in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others(surpa). Page 2 of 12 C/SCA/24740/2006 ORDER
6. It appears that the respondent vide its letter dated 16.11.2006 acknowledged the communication sent on behalf of the petitioner seeking the copy of the reasons recorded and assured to supply the copy thereof. Simultaneously, it was stated therein that the assessment proceedings on merits need to be proceeded with, and therefore, the formal notice under section 142(1) was attached by fixing the date of hearing on 24.11.2006.
7. On 23.11.2006 authorized representative of the petitioner again made a request to supply a copy of reasons recorded and further relied on the decision of this Court rendered in the case of Garden Finance Ltd. vs. Assistant Commissioner of Income-tax reported in [2004]268 ITR 48 in which this Court has further elaborately explained the ratio rendered in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others(surpa).
8. No reasons despite such persistent correspondences, have been furnished, the petitioner approached this Court by way of the present petition seeking quashment of the impugned notice and this Court vide its order dated 19.12.2006 permitted the assessment proceedings to go on, however, injuncting the respondent not to make any demand of the tax till further order. Such order of protection Page 3 of 12 C/SCA/24740/2006 ORDER has continued till the date.
9. Although on due service of Rule, for and on behalf of the respondent, appearance is made but, affidavit-in- reply has not been furnished.
10. Learned counsel Mr.B.S.Soparkar appearing for the petitioner has urged that non-supply of the reasons recorded is in complete contravention to the decision of the Apex Court and the some of the pronouncements made by this Court as well. He urged fervently that the reassessment proceedings have been finalized in the case of the petitioner and although before such notice of reassessment and after such reassessment proceedings, the issue of depreciation on which reassessment proceedings was initiated, has been concluded in favour of the assessee, the Assessing Officer in the reassessment proceedings has made additional demands. He urged the Court that the action of the respondent being in complete contravention of the law laid down by the Apex Court deserves indulgence.
11. Learned counsel Mr. Nitin Mehta appearing for the Revenue has strongly attempted to defend the action of the Assessing Officer. He urged that the proceedings, since have been concluded, the petitioner herein has option open to approach the appellate forum and, Page 4 of 12 C/SCA/24740/2006 ORDER therefore, the Court may not interfere at this stage. He further urged that during the course of reassessment proceedings, the petitioner has participated and, therefore, also at the initial stage reasons if have not been furnished that should not be the ground for the Court to intervene. Much time, according to him, has passed and that also should be one of the potent reasons for the Court not to interfere at this stage.
12. On thus having heard learned advocates for both the sides and on having given thoughtful consideration to the rival contentions this petition deserves to succeed for the reasons to follow hereinafter.
13. The Apex Court in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others(surpa) has confirmed the judgment of the Delhi High Court rendered in the case of 257 ITR 702. The Court laid down the procedure and the same has been also further amplified by two judgments of this Court. The Apex Court directed that in the event of notice issued under section 148, proper course of action on the part of the assessee is to file the return in pursuance of such notice and if he so desires, to seek reasons for the notice. In such eventuality, the Assessing Officer is bound to furnish the reasons within a reasonable time and on receipt of such reasons, the assessee would be entitled to file Page 5 of 12 C/SCA/24740/2006 ORDER objections to the issuance of notice. Having received such objections, the Assessing Officer is bound to dispose of the same by a speaking order. In the words of the Apex Court :-
" 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 abovesaid five assessment years."
14. It is to be noted that this Court in the case of Garden Finance Ltd. vs. Assistant Commissioner of Income- tax (supra) had followed and further explained this judgment further by holding thus " if the assessee lodges primary objections before the Assessing Officer with reference to the impugned notice under section 148 of the Act and also in relation to the reasons disclosed in additional affidavit, the Assessing Officer would consider and decide the preliminary objections by passing a speaking order". "In case the same is adverse, such order can be challenged by preferring a writ petition and Assessing Officer shall not proceeded with the Page 6 of 12 C/SCA/24740/2006 ORDER reassessment proceedings for a period from the date of dispatch of the order to the assessee".
15. In the case of Arvind Mills Ltd. vs. Assistant Commissioner of Wealth Tax (No.2) reported in [2004]270 ITR 469, the notice under section 17 of the Wealth Tax Act was challenged on the ground that the assessment jurisdiction itself was bad and also for the reason that the reassessment orders was passed ignoring the order of the Apex Court rendered in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others(surpa), the Court held that after notice for reassessment has been issued the assessee is required to file the return and seek reasons by issuance of such notice. The Assessing Officer is bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to the issuance of notice and the assessing Officer needs to dispose of such objections by passing a speaking order, without proceeding with the assessment in respect of assessment year for which such notice has been issued". The Court also held that without dealing with and disposing of the said objections, by passing the speaking order, the respondent proceeded to pass the impugned reassessment order on merits of the controversy. Once the Apex Court had directed that the Assessing Officer was bound to Page 7 of 12 C/SCA/24740/2006 ORDER dispose of the objections by passing speaking order, it was not open to the respondent to contend that in absence of any provision, the respondent would not have passed the speaking order".
16. The gist of the settled law, as rendered in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others (supra) is that it is incumbent upon the Assessing Officer to furnish the reasons recorded and to provide an opportunity at the threshold which may have effect to terminate many proceedings at preliminary stage, as contemplated in the said ratio.
17. The assessee is entitled to know the grounds on which the proceedings are initiated by reassessment which may also include those assessments which are completed on scrutiny. In the cases where the very assumption of jurisdiction is unsustainable, the assessee is not to pass through any undesired hazard of undergoing the process of reopening.
18. It is apparent from the discussion of the judicial pronouncement discussed hereinabove that the directions issued in these judgments not only require the consideration of the preliminary objections, if any raised against the notice and also in relation to the reasons recorded, but also to dispose of the objections Page 8 of 12 C/SCA/24740/2006 ORDER by speaking order and Assessing Officer is further directed to provide the reasonable time to challenge such order of rejection of objections on judicial side by way of writ petition.
19. At this stage, reference is surely not necessary to the law on the issue that the ratio laid down in the decisions of the Apex Court and also those rendered by this Court, all quasi judicial authorities and Tribunal are bound to follow. Such is mandate of law. Not only that but the orders of higher appellate authorities must be followed unreservedly by the subordinate authorities.
20. Fulfillment of such requirement is a must on account of judicial discipline well woven in various pronouncements not only for the purpose of adopting the approach of consistency in all quasi judicial proceedings but the same is obligatory and additionally, this also would have an effect of checking allegations of use of powers in arbitrary manner.
20. The Apex Court in the case of Union of India vs. Kamalakshi Finance Corporation Ltd. reported in AIR 1992 SCC 711 has held that the judgment of higher appellate authorities requires to be followed without reservation by other authorities. In the words of the Apex Court:-
"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the Page 9 of 12 C/SCA/24740/2006 ORDER subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department- in itself an objectionable phrase- and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws."
21. On reverting to the facts of the instant case, the stand of the respondent is to be decided on the basis of the aforementioned legal principles, it can be noted from the facts narrated hereinabove and as made available to this Court that in response to the notice under section 148 of the Act dated 10.11.2005, the reasons had been sought for vide communication dated 8.12.2005 thereof by the petitioner. Time and again, such requests continued even after the notice under section 142 (1) was issued on 16.11.2005. Vide communication dated 13.11.2006, such a request was reiterated. The assessee had sought to depend upon the ratio laid down by the Apex Court as also of this Court to substantiate its stand of need to furnish the reasons and dispose of the objection, if raised pursuant to such supply. The assessee came to know of the reasons during the course of reassessment proceedings. This, in our opinion, is nothing but an apparent violation of the principles laid down by the Apex Court in GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others (supra) and as rendered by this Court in the case Page 10 of 12 C/SCA/24740/2006 ORDER of Arvind Mills Ltd. vs. Assistant Commissioner of Wealth Tax (No.2) and Garden Finance Ltd. vs. Assistant Commissioner of Income-tax. The right made available by these decisions to the assessee of availing reasons on asking and of raising the objections against the reasons recorded at the preliminary stage itself, is an option made available to the assessee in the form of the right and that is surely not an option available to the Revenue. At the instance of assessee, such reasons are not made available. And therefore, the very object set out while laying down the ratio in the GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others (supra) and those judgments rendered following GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others (supra) has been rendered nugatory. The conduct on the part of the respondent clearly pointed out that the passing of the order of reassessment was in clear violation and in breach of such mandatory requirements. There is no earthly reasons for not furnishing the reasons recorded despite repeated requests and when respondent ensured to provide the same in one of the correspondences. Such flagrant violation of decision may also lead to infer the arbitrary and highhanded action on the part of the Assessing Officer.
22. In the light of such glaring facts, the contention Page 11 of 12 C/SCA/24740/2006 ORDER on the part of the respondent of upholding the order of reassessment cannot be sustained.
23. Resultantly, the petition deserves to be allowed partially, quashing the order of reassessment with a direction that the Assessing Officer shall furnish the reasons recorded within four weeks of this order and the assessee shall file the objections to such reasons recorded within four weeks thereof. On receipt of such objections. The Assessing Officer shall dispose of the same in accordance with the law and furnish copy of such order of rejection to the assessee. After receiving such copy if in case the order passed is adverse to the cause of the petitioner assessee, reasonable time of 8 weeks from the receipt of the order shall be made available to the petitioner for it to challenge the same by way of writ petition if it so desires.
24. Petition stands disposed of. Rule is made absolute accordingly.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) SUDHIR Page 12 of 12