Bayer Material Science Pvt Ltd vs. DCIT (Bombay High Court)

(i) This passing of the draft Assessment order on 30th March, 2015 was in the face of the decision of the Supreme Court in GKN Driveshafts (India)Ltd v/s Income Tax Officer and Others reported in 259 ITR 19 (SC), wherein it has been laid down that whenever a reopening notice is issued under Section 148 of the Act, the Assessing Officer was to make available to the assessee, on request, a copy of the reasons recorded while issuing the notice for reopening the Assessment. The assessee is then entitled to file its objection to the grounds in support of the reopening notice and the Assessing Officer is required to dispose of the assessee’s objection to the reasons recorded by a speaking order. It is only if the Assessing Officer rejects the objection that he can proceed with the Assessment proceedings of the reopened Assessments.

(ii) In the present case, as the issue involves the provisions with regard to transfer pricing cases, the period of limitation to dispose of an Assessment consequent to reopening notice as provided in 4th proviso to sub-section(2) of Section 153 of the Act is two years from the end of the financial year in which the reopening notice was served. In this case, the impugned reopening notice was issued on 6th February, 2013 and the reasons in support were supplied only on 19th March, 2015. This when the Revenue was aware at all times that the period to pass an order of reassessment on the impugned reopening notice dated 6th February 2013 would expire on 31st March, 2015. However, there is no reason forthcoming on the part of the Revenue to satisfactorily explain the delay. The only reason made out in the affidavit dated 3rd September, 2015 by the Assessing Officer was that the issue was pending before the Transfer Pricing Officer (TPO) and it was only after the TPO had passed his order on transfer pricing were the reasons for reopening provided to the Petitioner. We are unable to understand how the TPO could at all exercise jurisdiction and enter upon enquiry on the reopening notice before the same is upheld by an order of the Assessing Officer passed on objections. Besides the recording of reasons for issuing the reopening notice is to be on the basis of the Assessing Officer’s reasons. The TPO’s reasons on merits much after the issue of the reopening notice does not have any bearing on serving the reasons recorded upon the party whose assessment is being sought to be reopened.

(iii) One more peculiar fact to note is that in the affidavit dated 10th July 2015 filed by one Prabhakar Ranjan on behalf of the Revenue it is stated that the Assessing Officer was under a bonafide impression that the TPO would pass an order in favour of the assessee. In fact, if that be so, we are unable to understand how the assessing officer could have any reason to believe that income chargeable to tax has escaped assessment. Be that as it may, this petition was adjourned from time to time to enable the Revenue to file the necessary affidavits explaining their contention.

(v) In fact, on 23rd December 2015 the Revenue again sought time. At that stage, we indicated that in view of the gross facts of this case, the Principal Commissioner of Income Tax would take serious note of the above and after examining the facts, if necessary, take appropriate remedial action to ensure that an assessee is not made to suffer for no fault on its part. This is particularly so as almost the entire period of two years from the end of the financial year in which the notice is issued was consumed by the Assessing Officer in failing to give reasons recorded in support of the impugned notice. Nevertheless, the Assessing Officer proceeds to pass a draft Assessment order without dealing with the objections filed by the Petitioner. We could have on that date or even earlier passed an order setting aside the draft assessment order dated 30th March 2015 as it was passed without disposing of the objections. Thus, clearly without jurisdiction. However, we were of the view that although this appears to be a gross case of harassing an Assessee, the Principal Commissioner would take note and adopt remedial action / proceedings.