Commissioner of Income Tax vs Safetag International India P. Ltd.

A.K. Sikri, J.—Admit on the following substantial question of law:

Whether on the facts of the present case the Tribunal was justified in law in setting aside the assessment framed by the Assessing Officer u/s 148/ 143(3) of the Act with a direction to the Assessing Officer to follow the procedure laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others,

This is the common question of law which arises in both these appeals. We have taken, the matter for final hearing straightaway, as learned Counsel for both parties have made their submissions on the aforesaid question of law.

The fact of the matter is in a narrow compass and taking note of the facts in brief would suffice for our purpose. These appeals pertain to the assessment years 1996-97 and 1997-98. The Assessing Officer (AO) had issued notice for reopening of the assessment u/s 148 read with Section 142(1) of the income tax Act (hereinafter referred to as "the Act"), pursuant to the information which the Assessing Officer had received from the Directorate of Revenue, Intelligence (DRI).

The Assessee was engaged in exporting readymade garments, etc., to Russia. The information was received by the Assessing Officer from the DRI that the Assessee in association with the handling and forwarding agents M/s. Sam Aviation (P) Ltd. was carrying out fraudulent exports. On the basis of this information, a search was conducted by the DRI at the office of M/s. Sam Aviation (P.) Ltd. During the course of search proceeding, some incriminating material, according to the DRI, was found and seized which divulged that the Assessee was involved in fraudulent export and money laundering and was availing of undue export benefits during the period 1993 to 1996. After reopening the assessment, the show-cause notice was issued as to why deduction received u/s 80HHC of the Act be not withdrawn, etc. Thereafter, the proceedings were held and the Assessing Officer passed orders of reassessment which was framed u/s 144 of the Act. As per this, 20 per cent. of the sale proceeds amounting to Rs. 69,84,926 was held to be income of the Assessee in addition to export incentive of Rs. 55,71,397. The deduction claimed u/s 80HHC of the Act amounting Rs. 47,07,317 was held to be not allowable. In this manner, the assessment was framed at an income of Rs. 1,25,56,323 for the assessment year 1996-97. On the same basis, reassessment order in respect of other years was also passed.

The Assessee preferred an appeal there against. Before the Commissioner of income tax (Appeals), the Assessee also challenged the reopening of the assessment u/s 147 of the Act as without jurisdiction. Another ground of challenge was that the Assessing Officer had wrongly rejected the books of account and also wrongly withdrew the deduction claimed by the Assessee u/s 80HHC of the Act. The Assessee was also aggrieved by the action of the Assessing Officer taking note of the recourse to Section 144 of the Act.

The Assessee carried the matter further by filing appeal before the income tax Appellate Tribunal (hereinafter referred to as "the Tribunal"). The Tribunal has adopted a short-cut method. It did not decide the appeal on the merits. It has not even touched the issue as to whether the reassessment proceedings were valid or not. It, thus, chartered altogether a different course of action. Accepting the plea of the Assessee that the Assessee was not aware that the Revenue was bound to provide the copy of "reasons to believe", he could not demand the same and raise objections thereto, the Tribunal has remitted the case back to the Assessing Officer in both years with direction to the Assessing Officer to provide a copy of "reasons to believe" to the Assessee and give him opportunity to raise objections and thereafter pass speaking order on those objections and frame de novo assessment in both assessment years, if objections are rejected. This course of action, to our mind, is totally unsustainable. In the first place, we may record that when notice u/s 148 of the Act was issued for reassessment proceedings, no doubt, the Assessing Officer is required to record reasons which led him to believe that there was escaped income. Law does not mandate the Assessing Officer to suo motu supply the copy of those "reasons to believe" to the Assessee. It is for the Assessee and if the Assessee so chooses can file objections thereto. Only when such objections are filed, it becomes the duty of the Assessing Officer to dispose of all those objections first by passing speaking order and if the objections are rejected it gives a cause to the Assessee to challenge the said order of the Assessing Officer by filing appropriate writ petition. This is the law declared by the Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, .

In the present case, the Assessee did not ask for these "reasons to believe". The Assessee rather participated in the reassessment proceedings. When the reassessment orders were passed and the Assessee felt aggrieved there against, the Assessee filed an appeal before the Commissioner of Income tax (Appeals). In this appeal, he challenged the validity of reassessment proceedings, which was the course of action available to the Assessee. The Commissioner of income tax (Appeals), thus, could examine the issue as to whether the assessment reopened was valid or not. Once the Commissioner of income tax (Appeals) also dismissed the appeal of the Assessee and against that the second appeal was also preferred before the Tribunal, the Tribunal could not have restored the matter back to the file of the Assessing Officer and give another opportunity to the Assessee to raise objections to "reasons to believe" recorded by the Assessing Officer. Reassessment order passed by the Assessing Officer in both assessment years is even upheld by the Commissioner of income tax (Appeals). It was the Assessee''s own creation that it did not ask for the reasons or raise objection thereto. Merely because the Assessee was oblivious of such a right would not mean that the Tribunal should have granted this right to the Assessee, that too, at the stage when the matter was before the Tribunal and travelled much beyond the Assessing Officer''s jurisdiction. It is trite that what cannot be done directly, it is not allowed indirectly as well. This novel and ingenious method adopted by the Tribunal in setting aside the reassessment orders on the merits cannot be accepted. Even otherwise, we are of the view that the Assessee had not supplied any purchase inasmuch as it was still open to the Assessee to challenge the validity of reassessment notice before the Commissioner of income tax (Appeals) and in fact, the Assessee did so for availing of that opportunity.

We, thus, answer the question in favour of the Revenue and against the Assessee. As a result, the impugned order passed by the Tribunal is set aside.

At this stage, it would be necessary to deal with another submission of the learned Counsel for the Respondent/Assessee. He has pointed out that the Commissioner of income tax (Appeals) while repelling the challenge laid by the Assessee to the reassessment proceedings, as more than that the Assessing Officer has duly recorded the "reasons to believe" as per which the reopening of the assessment is justified and on this ground, the challenge to the validity of the notice is turned down. Learned Counsel for the Respondent is justified in his submission that at least at this stage, the Assessee could have been provided with the "reasons to believe" recorded by the Assessing Officer to expect the Assessee to make his submission before the Commissioner of income tax (Appeals) predicated on the said "reasons to believe". While setting aside the order of the Tribunal, we direct that the matter be remitted back to the Commissioner of income tax (Appeals). The Revenue shall supply "reasons to believe" recorded by the Assessing Officer within four weeks from today. On the supply of these "reasons to believe", it would be open to the Assessee to make submissions before the Commissioner of income tax (Appeals) based on those reasons, challenging the validity of reassessment proceedings and the Commissioner of income tax (Appeals) shall decide this issue on the merits after hearing both parties.