Reassessment Blocked: Court Halts Tax Reopening Due to Lack of Reason Disclosure

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Case Name:

Kothari Metals vs. Income Tax Officer (High Court of Karnataka)

W.A. No. 218 of 2015 (T-IT)

Date: 14th August 2015

Key Takeaways:

- The court emphasized the importance of providing reasons for reopening a tax assessment, as it is a fundamental aspect of natural justice.

- The decision highlights the taxpayer's right to challenge the reasons for reassessment independently.

- The ruling underscores the necessity of adhering to procedural fairness in tax proceedings.

Issue

Can a tax assessment be reopened without providing the taxpayer with the reasons for such action?

Facts

- Kothari Metals filed its income tax return for the assessment year 2006-07, which was initially accepted.

- On March 28, 2013, a notice was issued under Section 148 of the Income Tax Act to reopen the assessment.

- Kothari Metals requested that the reasons for reopening be furnished, but this request was not honored.

- The reassessment was based on a statement from another person, which was also not provided to Kothari Metals.

Arguments

- Kothari Metals: Argued that the reassessment proceedings were invalid due to the non-furnishing of reasons and the statement from another person, violating principles of natural justice.

- Income Tax Officer: Contended that the reassessment order could be challenged in appeal, suggesting that the dismissal of the writ petition was justified due to the availability of an alternative remedy.

Key Legal Precedents

- The court referred to the necessity of providing reasons for reopening an assessment under Section 148 of the Income Tax Act, which can be independently challenged by the taxpayer.

Judgement

The court ruled in favor of Kothari Metals, setting aside the reassessment order dated January 31, 2014. The court found that the failure to provide reasons for reopening the assessment and the non-disclosure of the statement from another person constituted a violation of natural justice. The court allowed the appeal and the writ petition, emphasizing that the reassessment proceedings could not continue without fulfilling these procedural requirements.

FAQs

Q1: What does this ruling mean for taxpayers?

A1: This ruling reinforces the taxpayer's right to be informed of the reasons for reopening a tax assessment, allowing them to challenge such actions if necessary.

Q2: Can the Income Tax Officer reopen the assessment again?

A2: Yes, but only if they provide the reasons for reopening the assessment in accordance with the law.

Q3: Why is providing reasons for reopening important?

A3: It ensures transparency and allows the taxpayer to understand and potentially contest the basis for the reassessment, upholding principles of natural justice.

1. 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

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, 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 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.

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.

Sd/-

JUDGE

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JUDGE