By TIOL News Service

CHENNAI, MAY 08, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether failure to carry out procedural requirement of disposal of assessee's objections, will render the very assessment framed u/s 143(3) as void ab initio, so as to be non curable. NO IS THE VERDICT.

Facts of the case:

The Assessee, a real estate promoter, had filed NIL return for the relevant AY. The assessment was completed. Later on the AO was of the view that the income chargeable to tax had escaped assessment and he therefore issued notice u/s 148. Although he furnished reasons for invoking Section 147 pursuant to the request made by assessee, however, without giving disposal to the objections, proceeded to pass the assessment order. This was challenged by the assessee on the ground that by not passing a specific order after receiving objections, the AO had violated the course of law. After listening to assessee's submissions, the single Judge having found that the AO failed to follow the procedure indicated by the Supreme Court in GKN Driveshafts (India) Ltd., set aside the order and directed the AO to consider the matter afresh, after giving disposal to the objections. However, objections raised by assessee on ground of limitation, was overruled.

High Court held that,

++ it is to be noted that there is no statutory requirement to deal with the objections given by assessee after receiving reasons for initiating proceedings u/s 147. However, there is a judgment of the Supreme Court in GKN Driveshafts (India) Ltd. mandating such disposal of objections before passing the assessment order. The Supreme Court in GKN Driveshafts (India) Ltd. made it clear that on receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by a speaking order. The judgment is very clear that before proceeding with the assessment proceedings, the AO has to pass a speaking order. Coming to the present case, the AO has issued notice of enquiry to the assessee. But, the assessee at no point of time cited the attention of AO that he has to pass a speaking order, giving disposal to the objections, before passing the assessment order. Even in the letter, the assessee though resisted the fresh assessment proceedings, he nowhere pointed out the procedure indicated in GKN Driveshafts (India) Ltd., presumably to take advantage of the irregularity committed by the AO by not following the law laid down by the Supreme Court. The right given to an assessee to ascertain the views of AO taking into account the objections can be waived by the assessee expressly or by implication. The assessee knowing fully well that there was no disposal to the objections, submitted to the jurisdiction of the AO. It was only when the assessment order was passed, the assessee has come up with a contention that the mandatory procedure was not complied with by the AO. Therefore, the Single Judge noticing procedural irregularity committed in the assessment order, remitted the matter to the AO;

++ it is not in dispute that there is no statutory requirement to pass an order taking into account the statement of objections filed by the assessee after receiving the reasons for invoking Section 147. The Supreme Court in GKN Driveshafts (India) Ltd., has given a procedural safeguard to the assessee to avoid unnecessary harassment by directing the AO to pass a speaking order taking into account the objections for reopening the assessment u/s 147. The forming of opinion to proceed further by disposal of the objections need not be a detailed consideration of all the facts and law applicable. It must show application of mind to the objections raised by the noticee. In case the objections are such that it would require a detailed examination of facts and application of legal provisions, taking into account the assessment order sought to be reopened, the string of violations, suppression of material particulars and transactions which would require considerable time and would be in the nature of a detailed adjudicatory process, the AO can dispose of the objections, by giving his tentative reasons for overruling the objections. The disposal of objections is in the value of a procedural requirement to appraise the assessee of the actual grounds which made the AO to arrive at a prima facie satisfaction that there was escape of assessment. The disposal of such objection must be before the date of hearing and passing a fresh order of assessment. In case, on a consideration of the objections submitted by the assessee, the AO is of the view that there is no ground made out to proceed, he can pass an order to wind up the proceedings;

++ the core question is as to whether non compliance of a procedural provision would ipso facto make the assessment order bad in law and non-est. The further question is whether it would be permissible to comply with the procedural requirement later and pass a fresh order on merits. The Single Judge by placing reliance on the decision of the Supreme Court in Sona Builders, quashed the assessment order without remitting the matter to the AO for compliance of the procedure regarding disposal of objection. In Sona Builders, it was the admitted case that only one week before the expiry of the period of limitation, the reassessment proceedings were taken. The Single Judge was therefore not correct in quoting Sona Builders for giving an indication that in case there is a procedural irregularity, it would vitiate the entire proceedings. In case an order is passed without following a prescribed procedure, the entire proceedings would not be vitiated. It would still be possible for the authority to proceed further after complying with the particular procedure. Thus, non compliance of the procedure indicated in the GKN Driveshafts (India) Ltd., would not make the order void or non est. Such a violation in the matter of procedure is only an irregularity which could be cured by remitting the matter to the authority.

(See 2018-TIOL-835-HC-MAD-IT)