Court quashes cryptic tax reassessment order, demands proper reasoning from tax authorities

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Case Name

Abhiaya Marketing Private Limited Vs Deputy Commissioner of Income Tax (High Court of Patna)

Civil Writ Jurisdiction Case No.18760 of 2021

Date: 15th November 2021

Key Takeaways

• Tax authorities cannot pass cryptic, non-speaking orders when rejecting taxpayer objections
• When rejecting objections to reassessment proceedings, tax officers must provide proper reasons and show application of mind
• Courts will intervene when tax authorities fail to follow principles of natural justice
• Taxpayers have the right to a reasoned order when their objections are considered
• The case reinforces procedural safeguards in tax reassessment proceedings

Issue

The central legal question was: Can a tax authority reject a taxpayer’s objection to reassessment proceedings under Section 147 (of Income Tax Act, 1961) through a cryptic, non-speaking order without providing proper reasons or considering the objections raised?

Facts

1. The Assistant Commissioner of Income Tax issued a notice under Section 148 (of Income Tax Act, 1961) dated March 31, 2021, for assessment year 2017-18, initiating reassessment proceedings against Abhiaya Marketing Private Limited
2. The company filed objections against the initiation of these proceedings under Section 147 (of Income Tax Act, 1961) for multiple assessment years (2013-14, 2016-17, and 2017-18)
3. On August 18, 2021, the tax officer rejected the company’s objections through what the court described as a “cryptic and non-speaking” order
4. The tax officer also issued notices under sections 143(2) (of Income Tax Act, 1961) and 142(1) (of Income Tax Act, 1961) on the same date, directing the company to furnish certain details and documents
5. Frustrated with the inadequate order, the company approached the High Court challenging these proceedings

Arguments

Petitioner’s (Company’s) Arguments:

• The reassessment was initiated on “mere change of opinion” without proper jurisdiction
• The tax officer’s order rejecting their objections was “cryptic and non-speaking”
• No reasons were assigned for rejecting their objections
• There was no consideration of the objections they had raised
• The order showed no application of mind by the authority
• The subsequent notices for furnishing documents were “erroneous and without any basis”

Respondent’s (Tax Department’s) Position:

The connected documents don’t detail the tax department’s specific arguments, but they would typically argue that the reassessment was valid and their procedures were followed correctly.

Key Legal Precedents

The judgment references the Supreme Court case GKN Driveshaft (India) vs ITO and Others reported in (2003) 259 ITR 19. This case established important procedural requirements that tax authorities must follow when dealing with taxpayer objections to reassessment proceedings. The court noted that the tax officer’s order was passed “only as a formal observance of the procedure” laid down in this Supreme Court decision, rather than genuinely considering the objections.

Judgement

The High Court ruled in favor of the taxpayer. Here’s what the court decided:

The Court’s Reasoning:

The court found that the tax officer’s order was fundamentally flawed because it was:

• Cryptic and non-speaking
• Lacked any reasons for rejection
• Showed no consideration of the taxpayer’s objections
• Demonstrated no application of mind by the authority

Court’s Orders:

The court issued comprehensive directions:

1. Quashed the impugned order dated August 18, 2021
2. Remitted the matter back to the tax authority
3. Directed the tax authority to pass a fresh order dealing with the taxpayer’s objections
4. Mandated a “reasoned and speaking order” following principles of natural justice
5. Set a specific date (November 29, 2021, at 10:30 AM) for the taxpayer to appear
6. Prohibited coercive steps during the proceedings
7. Required the authority to decide within two months
8. Reserved liberty for the taxpayer to challenge any future order

FAQs

Q1: What does “cryptic and non-speaking order” mean?

A: It means an order that doesn’t explain the reasoning behind the decision. Instead of providing detailed reasons for rejecting the taxpayer’s objections, the tax officer just issued a brief, unclear order without proper justification.

Q2: Why is this case important for taxpayers?

A: It reinforces that taxpayers have the right to receive proper, reasoned decisions from tax authorities. Tax officers can’t just reject objections without explaining why or considering the points raised.

Q3: What happens next in this case?

A: The tax officer must now reconsider the taxpayer’s objections properly, provide a detailed reasoned order, and follow all procedural requirements. The taxpayer can challenge any new order if they’re still not satisfied.

Q4: Does this mean all reassessment proceedings are invalid?

A: No, this case is specifically about procedural requirements. Reassessments can still be valid if proper procedures are followed and adequate reasons are provided.

Q5: What should taxpayers do if they face similar situations?

A: They should ensure they file proper written objections and if they receive inadequate responses, they can approach the courts as this taxpayer did successfully.

Heard learned counsel for the parties.

Petitioner has prayed for the following relief(s):-

“For issuance of writ of certiorari or any other appropriate writ quashing the Notice under section 148 (of Income Tax Act, 1961) ("the Act") dated

31.03.2021, for assessment year 2017-18 issued by the Assistant Commissioner of Income Tax, Central Circle-3, Patna (Respondent No.1) herein and also

referred to as the "Assessing Officer" hereinafter) initiating proceedings for reassessment against the Petitioner as being wholly illegal and without

jurisdiction as the same has been initiated on mere change of opinion.

ii) For issuance of an appropriate writ quashing the preliminary order dated 18.08.2021 passed in pursuance of the said Notice by Respondent No.1 whereby the petitioner's objection on the issue of assumption of jurisdiction has been rejected by a non-speaking and cryptic order passed only as a

formal observance of the procedure laid down by the Hon'ble Supreme Court in the case of GKN Driveshaft (India) vs ITO and Others reported in (2003) 259 ITR 19.

iii) For issuance of an appropriate writ

quashing the notices under section 143(2) (of Income Tax Act, 1961) and 142(1)

dated 18.08.2021 by which the petitioner has been

directed to furnish certain details along with

connected documents as the same is erroneous and

without any basis.

(iv) For issuance of any other writ, order or

direction which your Lordships may deem fit and

proper in the facts and circumstances of the case.”

It is submitted on behalf of the petitioner that petitioner’s

objection to the initiation of proceedings under Section 147 (of Income Tax Act, 1961) of the

Income Tax Act, 1961 for the Assessment Years 2013-14, 2016-17

and 2017-18 has been rejected vide order dated 18th of August,

2021 passed by Respondent No. 1, namely the Deputy/Assistant

Commissioner of Income Tax, Central Circle-3, 6th Floor, Central

Revenue Building (Annexe), Beer Chand Patel Marg, Patna- 800

001 (Annexure-2).

It is further submitted on behalf of the petitioner that the

impugned order is a cryptic and non-speaking. No reason has been

assigned on basis of which impugned order has been passed.

There is no consideration of objection raised by the petitioner

against initiation of proceeding. The order does not disclose the

application of mind by the authority who has passed the order.

As such, we dispose of the present petition in the

following terms:-

(a) We quash and set aside the impugned order dated

18th of August, 2021 passed by Respondent No. 1, namely the

Deputy/Assistant Commissioner of Income Tax, Central

Circle-3, 6th Floor, Central Revenue Building (Annexe), Beer

Chand Patel Marg, Patna- 800 001 (Annexure-2);

(b) Matter is remitted to the Assessing Authority;

(c) The Assessing Authority shall pass a fresh order,

dealing with the objections of the petitioner for initiation of

proceedings under Section 147 (of Income Tax Act, 1961);

(d) The Assessing Authority shall consider the written

objection filed by the petitioner and thereafter pass a reasoned

and speaking order, of course after complying with the

principles of natural justice, and in accordance with law;

(e) Petitioner undertakes to appear before the

Assessing Authority on 29th of November, 2021 at 10:30

A.M.;

(f) Opportunity of hearing shall be afforded to the

parties to place on record all essential documents and

materials, if so required and desired;

(g) During pendency of the case, no coercive steps

shall be taken against the petitioner.

(h) The Assessing Authority shall pass a fresh order

only after affording adequate opportunity to all concerned,

including the writ petitioner;

(i) Petitioner through learned counsel undertakes to

fully cooperate in such proceedings and not take

unnecessary adjournment;

(j) The Assessing Authority shall decide the case on

merits expeditiously, preferably within a period of two

months from the date of appearance of the petitioner;

(k) The Assessing Authority shall pass a speaking

order assigning reasons, copy whereof shall be supplied to

the parties;

(l) Liberty reserved to the petitioner to challenge the

order, if required and desired;

The instant petition sands disposed of in the

aforesaid terms.

Interlocutory Application(s), if any, also stands

disposed of.

Learned counsel for the respondents undertakes to

communicate the order to the appropriate authority through

electronic mode.

(Sanjay Karol, CJ)

( S. Kumar, J)