Facts of the Case

The writ petitions involved identical issues and were therefore heard together by the Delhi High Court.

The petitioner, Xerox Medicorp Ltd., had originally been assessed under Section 143(3) of the Income-tax Act for Assessment Years 2002-03 and 2004-05.

Subsequently, the Revenue issued separate notices dated 30.03.2009 under Sections 147 and 148 seeking to reopen the completed assessments.

Upon receipt of the reopening notices, the assessee requested the reasons recorded for reopening. The reasons were supplied by the Revenue.

The assessee thereafter filed detailed objections challenging the validity of the reopening proceedings.

After filing the objections, the assessee expected the Assessing Officer to pass a separate speaking order dealing with those objections, as mandated by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO.

However, no such speaking order was passed.

Instead, the Assessing Officer proceeded directly with the reassessment proceedings and ultimately passed reassessment orders on 31.12.2009.

Aggrieved by the failure to follow the mandatory procedure laid down by the Supreme Court, the assessee approached the Delhi High Court through writ petitions.

Issues Involved

  1. Whether the Assessing Officer is required to pass a separate speaking order disposing of objections raised by the assessee against reopening under Sections 147/148.
  2. Whether reassessment proceedings can continue without first deciding the assessee's objections through a reasoned order.
  3. Whether reassessment orders passed without complying with the procedure laid down in GKN Driveshafts (India) Ltd. v. ITO are liable to be set aside.

Petitioner’s Arguments

The petitioner/assessee contended that:

  • After receipt of reasons recorded for reopening, objections were duly filed against the reopening notices.
  • The Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19) has categorically mandated that such objections must be disposed of by a separate speaking order.
  • The Assessing Officer failed to pass any speaking order before proceeding further.
  • Instead of deciding the objections first, the Assessing Officer directly completed the reassessment proceedings.
  • Such action was contrary to the mandatory procedure prescribed by the Supreme Court and therefore rendered the reassessment orders unsustainable in law.

The petitioner also relied upon the Delhi High Court decision in Kamlesh Sharma v. B.L. Meena, ITO (287 ITR 337), where under similar circumstances reassessment orders had been set aside.

Respondent’s Arguments

The Revenue defended the reassessment proceedings and the assessment orders passed pursuant to the reopening notices.

However, it was not disputed that no separate speaking order had been passed on the objections filed by the assessee before completion of the reassessment proceedings.

The Revenue sought to sustain the reassessment orders despite the procedural lapse.

Court Findings

The Delhi High Court observed that the legal position was already settled by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19, SC).

The Court noted that:

  • Once an assessee files objections against reopening after receiving reasons recorded under Sections 147/148, the Assessing Officer is under a legal obligation to consider those objections.
  • The objections must be disposed of by a separate and reasoned speaking order.
  • Only after passing such a speaking order can the Assessing Officer proceed further with reassessment proceedings.
  • In the present case, no speaking orders were passed.
  • The objections were merely dealt with in the reassessment orders themselves.
  • Such a course of action was contrary to the procedure mandated by the Supreme Court.

The Court further observed that its earlier decision in Kamlesh Sharma v. B.L. Meena, ITO (287 ITR 337 Delhi) had already adopted the same principle under virtually identical circumstances.

Court Order

The Delhi High Court held that:

  • The Assessing Officer failed to follow the mandatory procedure laid down in GKN Driveshafts (India) Ltd. v. ITO.
  • The reassessment orders could not be sustained.
  • The assessment orders were set aside.
  • The Assessing Officer was directed to consider the objections filed by the assessee and pass separate speaking orders dealing with those objections.
  • Thereafter, the Assessing Officer would be at liberty to proceed with the reassessment proceedings in accordance with law.
  • The assessee agreed not to raise the issue of limitation during such proceedings.

Accordingly, the writ petitions and pending applications were disposed of.

Important Clarification

This judgment reinforces the mandatory procedural safeguards governing reassessment proceedings under Sections 147 and 148.

The Court clarified that:

  • Supply of reasons alone is not sufficient.
  • The assessee has a statutory right to file objections against reopening.
  • The Assessing Officer must independently examine those objections.
  • A separate speaking order must be passed before continuing with reassessment proceedings.
  • Merely discussing objections within the reassessment order itself does not satisfy the requirement laid down by the Supreme Court.
  • Non-compliance with this procedure renders the reassessment vulnerable to judicial interference.

Sections Involved

  • Section 143(3) of the Income-tax Act, 1961
  • Section 147 of the Income-tax Act, 1961
  • Section 148 of the Income-tax Act, 1961
  • Principles laid down in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19, SC)

Link to download the order https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:10671-DB/BDA08042010CW23072010_165526.pd

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