Commissioner Of Income Tax vs Safetag International India Pvt. ...
2011 Latest Caselaw 628 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          ITA No.355 of 2010

                                          &

                             ITA No.412 of 2010


%                            DECISION DELIVERED ON: FEBRUARY 03, 2011.

     1) ITA No.355 of 2010

       COMMISSIONER OF INCOME TAX                               . . . Appellant

                           through :          Mr. Sanjeev Sabharwal,           Sr.
                                              Standing Counsel.

                                 VERSUS

       SAFETAG INTERNATIONAL INDIA PVT. LTD.                  . . .Respondent

                           through:           Mr. S. Krishanan, Advocate.

     2) ITA No.412 of 2010

       COMMISSIONER OF INCOME TAX                               . . . Appellant

                           through :          Mr. Sanjeev Sabharwal,           Sr.
                                              Standing Counsel.

                                 VERSUS

       SAFETAG INTERNATIONAL INDIA PVT. LTD.                  . . .Respondent

                           through:           Mr. S. Krishanan, Advocate.


CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE M.L. MEHTA

       1.    Whether Reporters of Local newspapers may be allowed
             to see the Judgment?
       2.    To be referred to the Reporter or not?
       3.    Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J. (ORAL)

1. 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 AO under Section 148/143(3) of the Act with a direction to the AO to follow the procedure laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO, 259 ITR 19?"

2. 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 the parties have made their

submissions on the aforesaid question of law.

3. 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 under Section 148 read with 142(1) of the Income Tax

Act (hereinafter referred to as „the Act‟), pursuant to the

information which the AO had received from the Directorate of

Revenue, Intelligence (DRI).

4. The assessee was engaged in exporting the readymade garments,

etc. to Russia. The information was received by the AO 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 (Pvt.) 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 undue export benefits during

the period 1993 to 1996. After reopening the assessment, the

show cause notice was issued as to why deduction received under

Section 80HHC of the Act be not withdrawn, etc. Thereafter, the

proceedings were held and the AO passed orders of reassessment

which was framed under Section 144 of the Act. As per this, 20%

of the sale proceeds amounting to `69,84,926/- was held to be

income of the assessee in addition to export incentive of

`55,71,397/-. The deduction claimed under Section 80HHC of the

Act amounting `47,07,317/- was held to be not allowable. In this

manner, the assessment was framed at an income of

`1,25,56,323/- for the assessment year 1996-97. On the same

basis, reassessment order in respect of other years was also

passed.

5. The assessee preferred appeal thereagainst. Before the CIT(A),

the assessee also challenged the reopening of the assessment

under Section 147 of the Act as without jurisdiction. Another

ground of challenge was that the AO had wrongly rejected the

books of accounts and also wrongly withdrew the deduction

claimed by the assessee under Section 80HHC of the Act. The

assessee was also aggrieved by the action of the AO taking note

of the recourse to Section 144 of the Act.

6. 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 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

AO in both the years with direction to the AO 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 the 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 under Section 148 of the Act was issued for

reassessment proceedings, no doubt, the AO is required to record

reasons which led him to believe that there was escaped income.

Law does not mandate the AO to suo moto supply the copy of

those „reasons to believe‟ to the assessee. It is for the assessee

and if assessee so chooses can file objections thereto. Only when

such objections are filed, it becomes the duty of the AO 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 AO by filing appropriate writ

petition. This is the law declared by the Supreme Court in the

case of GKN Drive Shafts (India) Ltd. Vs. Income Tax Officer

[259 ITR 19].

7. 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 thereagainst, the assessee filed appeal

before the CIT (A). In this appeal, he challenged the validity of

reassessment proceedings, which was the course of action

available to the assessee. The CIT (A), thus, could examine the

issue as to whether the assessment reopened was valid or not.

Once the CIT (A) 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 AO and give another opportunity to the assessee to

raise objections to „reasons to believe‟ recorded by the AO.

Reassessment order passed by the AO in both the assessment

years is even upheld by the CIT (A). 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 AO‟s

jurisdiction. It is trite that what cannot be done directly, it is not

allowed indirectly as well. This novel and ingenuineness method

adopted by the Tribunal in setting aside the reassessment orders

on 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 CIT (A) and in fact, the assessee

did so for availing that opportunity.

8. 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.

9. 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 CIT (A) while repelling the challenge

laid by the assessee to the reassessment proceedings, as more

than that the AO has duly recorded the „reasons to believe‟ as per

which the reopening of the assessment is justified and on this

ground, 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 AO to accept the

assessee to make his submission before the CIT (A) 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 CIT (A).

The Revenue shall supply „reasons to believe‟ recorded by the AO

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 CIT (A) based on those reasons, challenging the validity

of reassessment proceedings and the CIT (A) shall decide this

issue on merits after hearing both the parties.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE February 03, 2011 pmc