The Income Tax Appellate Tribunal (ITAT) has quashed a reassessment order passed against former IPL commissioner Lalit Kumar Modi for the assessment year 2010-11 and held that the Income Tax Department initiated reassessment proceedings without jurisdiction while scrutiny assessment proceedings were still pending.
The matter came before the Delhi Bench “D” of the Tribunal comprising Judicial Member Vikas Awasthy and Accountant Member Brajesh Kumar Singh.
Modi filed his income tax return for AY 2010–11 on July 28, 2010 declaring an income of Rs 54.81 lakh. The return was selected for scrutiny and the Assessing Officer issued a notice under Section 143(2) of the Income Tax Act on July 27, 2011.
While the scrutiny proceedings were still underway, the Assessing Officer issued a notice under Section 148 on March 29, 2012 seeking to reopen the assessment on the ground that certain income escaped assessment.
The reasons for reopening were later supplied to the assessee on January 21, 2013. A show cause notice followed on February 25, 2013. Modi filed detailed objections on March 22, 2013 challenging the reopening of the assessment.
However, the Assessing Officer proceeded to complete the reassessment on March 28, 2013. The order determined Modi’s total income at Rs 20.12 crore. This was a sharp increase from the declared income of Rs 54.81 lakh.
The additions mainly related to alleged unexplained credit card expenditure of Rs 4.24 crore, lease rental and fuel expenses of Rs 9.65 crore for a private jet, and liabilities of ₹5.66 crore connected with Golden Wings Pvt Ltd.
Modi challenged the reassessment before the Tribunal. His counsel argued that the reopening of assessment under Sections 147 and 148 took place while scrutiny assessment proceedings under Section 143(3) were still pending. According to him, the law does not permit parallel assessment proceedings.
The counsel also argued that the Assessing Officer completed the reassessment without disposing of the objections filed by the assessee. This, he submitted, violated the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO.
During appellate proceedings, the department submitted that reassessment proceedings can coexist with scrutiny assessment proceedings and can eventually merge into a single order under Section 143(3). The revenue relied on a decision of the Bengaluru Bench of the Tribunal in DCIT v. C. Gangadhara Murthy.
The Tribunal examined the assessment record and noted that the reassessment proceedings clearly formed the basis of the additions made by the Assessing Officer. It also observed that the assessee filed objections against reopening of assessment but the officer proceeded to complete the reassessment without deciding those objections.
The remand report submitted before the Commissioner of Income Tax (Appeals) also stated that no document existed in the department’s record to show that the objections were disposed of.
The Tribunal relied on the judgment of the Delhi High Court in KLM Royal Dutch Airlines vs Asst. DIT, which clarified that once scrutiny assessment proceedings begin, the Assessing Officer must conclude those proceedings before initiating reassessment under Sections 147 and 148.
The Tribunal observed that parallel assessment proceedings are not permissible under the Income Tax Act.
“To sum up, in the first place the action of the AO in initiating reassessment proceedings u/s.148/147 of the Act during pendency of scrutiny assessment u/s. 143(3) of the Act is without jurisdiction. Hence, such assessment order passed u/s.148/147 of the Act is null and void. Further, the assessment is also liable to be quashed on the ground that the assessment order has been passed without deciding objections of the assessee i.e. in violation of the law expounded by Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd,” the ITAT held.
