For the assessment year 2002-03, assessee filed its return declaring income. After completion of the assessment, a search was carried out under Section 132 in group cases of Shri R during which various incriminating materials were found. In one of the books, reference was made to the assessee which led to unaccounted business transactions of the searched person with the assessee. On the basis of such materials, the Assessing Officer issued a notice for reopening of the assessment under Section 148. The assessee raised objections to the notice of reopening. However, without disposing of such objections, the Assessing Officer continued with the assessment and passed an order of reassessment making addition to the income of the assessee. He also directed initiation of penalty proceedings. Appellate Commissioner partly allowed assessee’s appeal. ITAT held that the order of assessment passed by the Assessing Officer without disposing of the objections is liable to be set aside.

Having heard the parties, the Court held that,

++ Whenever an administrative action is found to be tainted with defect in the nature of breach of natural justice or the like, the Court would set aside the order, place back the proceedings at the stage where the defect is detected and leave the liberty to the competent authority to proceed further from such stage after having the defect rectified. In other words, the breach of principle of natural justice would ordinarily not result in terminating the proceedings permanently;

++ the requirement of supplying the reasons recorded by the Assessing Officer issuing notice for reopening and permitting the assessee to raise objections and to decide the same by a speaking order are not part of the statutory provisions contained in the Act. Such requirements have been created under a judgement of the Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and ors. It is true that when the Assessing Officer proceeds to pass the final order of assessment without disposing of the objections raised by the assessee, he effectively deprives the assessee of an opportunity to question the notice for reopening itself. However, the assessee is not left without the remedy when the Assessing Officer proceeds further with the assessment without disposing of the objections. Even before the final order of assessment is passed it would always be open for the assessee to make a grievance before the High Court and to prevent the Assessing Officer from finalizing the assessment without disposing of the objections;

++ validity of the notice for reopening would depend on the reasons recorded by the Assessing Officer for doing so. Similarly, the order of reassessment would stand failed on the merits of the order that the Assessing Officer has passed. Neither the action of the Assessing Officer of supplying reasons to the assessee nor his order disposing of the objections if raised by the assessee would per se have a direct relation to the legality of the notice of reopening or of the order of assessment. To declare the order of assessment illegal and to permanently prevent the Assessing Officer from passing any fresh order of assessment, merely on the ground that the Assessing Officer did not dispose of the objections before passing the order of assessment, would be not the correct reading of the judgement of Supreme Court in case of GKN Driveshafts (India) Ltd vs. Income Tax Officer and ors;

++ the question is answered in favour of the Revenue. The respective orders of assessment though should stand set aside it would be open for the Assessing Officer to frame fresh assessment after first disposing of the objections of the assessees.

(See 2016-TIOL-1629-HC-AHM-IT)