Vinoda B. Jain v. Jt. CIT

INCOME TAX ACT, 1961

--Reassessment--ValidityNon-furnishing of recorded reasons--On 11-12-1999, Central Excise Authorities had seized five gold balls and gold ornaments, weighing 1,545 gms. and cash of Rs. 2.6 Lakhs, from the residential premises of the assessee. The above seized assets were taken over by the Investigation Wing of the Department under section 132A. Order under section 132(5) was passed on 9-7-1996. A notice under section 148, was issued to the assessee calling for return of income for assessment year under consideration. The assessee filed his return showing income of Rs.15,009.The AO finalised the assessment under section 143(3) read with section 147(a), determining the income of the assessee at Rs. 10.27 Lakhs. Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority (FAA). The FAA deleted certain additions made by the AO. However, he upheld the addition of Rs. 2.60 lakhs and addition made by the AO. With regard to the 5 gold balls weighing 1,545 gms., he directed the AO to file a remand report. He finally held that there was no infirmity for the order of the AO treating the above cash found from the assessee as unexplained asset under section 69. He confirmed the order of the AO. During the course of hearing, AR stated that assessee had requested the AO in November 1996 to furnish him the copy of reasons recorded, that in February 1997 the then AO was again requested to furnish the copy, that the AO did not supply the copy of the reasons, that even after filing the return of income on 26-11-1996, the assessee wrote several letters regarding furnishing the copy of the reasons recorded, that till date assessee had not received any reply from the AO or the reasons recorded by him. Held: The effect of reopening is to partly vacate or set aside the original order of assessment and to substitute it and the concept of escapement of income includes both non-assessment or under assessment. Whatever may be the reason but it is mandated by the Courts that reasons to believe must necessarily show, indicate and communicate why and for what grounds/cause any income has escaped assessment. Recording of reasons has been emphasised and adverted to as the foundation of the jurisdiction of an AO, who initiates reassessment proceedings. The validity of the reassessment proceedings is tested, by the Courts, on the basis of the underlying reasoning stated and recorded for opening of the reassessment. If the person affected by the action of the AO is not aware as to why the AO had found it fit to reopen his assessment, he will be in dark and will not be in position to defend himself. Principles of natural justice demand that nobody should be penalised unheard. Without furnishing the assessee a copy of the reasons recorded would tantamount to punish the assessee without hearing him. The power of the AO to issue notice under section 147 of the Act is coupled with the duty to follow a prescribed method. A duty has been cast upon him to supply the copy of reasons recorded to the assessee. Rights are always accompanied by duties and bigger rights bring higher the duties in picture. Power given to the AO by section 147 is not a simple power it is to unsettle the completed proceedings and it generally results in higher tax liability. Therefore, safeguards have been provided in the Act. Duty of the AO to communicate the reasons to the assessee is the other side of the coin and is the right of the assessee. The assessee cannot be burdened only with duties. His duty is to file the return once he gets the notice. Similarly, his right to know the reasons starts once he files a return and asks the AO to supply him the copy of recorded reasons. His right has the same sanctity that of the right of the AO. The assessee had asked the AO as early as 8-11-1996 to furnish him a copy of reasons recorded that on 10-9-1997 the assessee made similar request (page 730-731). On 22-9-2009, 1-10-2009, 21-1-2013, 29-1-2013 various letters were addressed to the AO by the assessee to furnish the copy of the reasons. It is found that even after completion of the assessment/appellate proceedings, the assessee was requesting the AO to supply him the copy of the reasons. But, till the date of hearing, i.e., on 19-9-2014, even after 18 years of the issuance of notice under section 148, the AO has not been able to prove that the assessee was supplied copy of the reasons recorded. Considering the peculiar facts and circumstances of the case, issuance of notice under section 148, the requests made by the assessee during assessment and after the assessment/appellate proceedings, the inability of the AO to produce the reasons recorded or to produce the evidence of supply of the copy of reasons to the assessee, validity of the assessment order and the subsequent order of the FAA could not be upheld. Therefore, following the judgments of the jurisdictional High Court delivered in the cases of Videsh Sanchar Nigam Ltd. and Fomento Resorts and Hotels, the order passed by the AO was not valid.The action of the AO had resulted in violation of basic principles of natural justice as well as invaluable right of the assessee. His order was beyond validity, so it was unsustainable.

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