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The Income Tax Appellate Tribunal (ITAT) Jaipur, in the case of Bansal Oil Mill Ltd. vs. Assistant Commissioner of Income Tax (ACIT), decided that the reassessment order passed by the Assessing officer was invalid due to a violation of natural justice. The Jaipur Bench highlighted the significance of providing the reasons for reopening a tax assessment, affirming the taxpayer’s right to be informed.
The dispute arose when the Assessing Officer (AO) reopened the assessment of Bansal Oil Mill Ltd. for the assessment year 2009-10, alleging unverified and bogus transactions. The AO invoked Section 147 of the Income Tax Act, 1961, on the grounds that the company had taken loans from shell entities lacking genuine business activities.
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March 31, 2016: The AO issued a notice under Section 148, reopening the assessment.
April 28, 2016: Assessee filed its return of income and requested the AO to provide the reasons for reopening the case.
The AO failed to provide the reasons, despite the Assessee’s formal request.
December 29, 2016: The AO proceeded with the assessment and made an addition of ₹22,50,000 under Section 68 of the Act, treating the loan as unexplained cash credit.
The primary issue in this case was the non-disclosure of reasons for reopening the assessment, which the taxpayer argued violated its right to a fair hearing.
The taxpayer relied on the Supreme Court’s ruling in GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19, which clearly states that “Upon receiving a notice under Section 148, the taxpayer has the right to seek the reasons for reopening.
The AO is obligated to provide the reasons within a reasonable time. The taxpayer can then file objections against the reopening, and the AO must dispose of those objections before proceeding with the assessment.”
Since the AO did not follow this procedure, the tribunal concluded that the assessment was legally flawed.
The ITAT ruled in favor of Bansal Oil Mill Ltd., with the following key observations:
Failure to Provide Reasons: The tribunal held that the non-communication of reasons for reopening the case rendered the entire assessment process invalid. The taxpayer was deprived of the opportunity to challenge the reopening, violating the principles of natural justice.
Reliance on GKN Driveshafts Case: The tribunal emphasized the importance of adhering to the procedural safeguard established in the GKN Driveshafts case, which mandates the disclosure of reasons and disposal of objections before proceeding with reassessment.
Setting Aside the Assessment: The tribunal set aside the assessment order, stating that the failure to communicate the reasons invalidated the entire reassessment process. The appeal was allowed on technical legal grounds.
The failure to provide reasons for reopening the assessment violates the principles of natural justice and makes the reassessment invalid.
The ITAT relied on the GKN Driveshafts case to reinforce the taxpayer’s right to know the reasons for reopening.
The tribunal quashed the assessment order and ruled in favor of Bansal Oil Mill Ltd., giving a strong message about the importance of transparency in tax reassessments.
The ruling is significant for taxpayers as it reinforces the right to transparency in reassessment proceedings. It highlights that the tax authorities must strictly adhere to procedural safeguards and cannot bypass the legal requirement of providing reasons for reopening cases. This decision also serves as a precedent for future cases where reassessment is challenged on procedural grounds.
The ITAT Jaipur’s decision in favor of Bansal Oil Mill Ltd. is a crucial reminder that procedural fairness is a fundamental right in tax proceedings. The ruling underscores the importance of transparency and adherence to legal safeguards, ensuring that taxpayers are granted their rightful opportunity to challenge reassessments.
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CA Jitendra Agarwal, a Chartered Accountant, is an experienced Income Tax Advisor with a proven track record in tax planning and compliance.
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