Sections 48, 54F, 19 and 143 of ITA, 1961 – Assessment – Duty of Assessing Officer – It is a sine qua non for the AO to consider claims of deduction / exemption made by the assessee and thereafter to return the said claims if the assessee is not entitled to the same by assigning reasons

31.  Deepak Dhanaraj vs. ITO; [2019] 107
taxmann.com 76 (Karn.)

Date of order: 28^th
May, 2019

A.Y.: 2016-17

Sections 48, 54F, 19 and 143 of
ITA, 1961 – Assessment – Duty of Assessing Officer – It is a sine qua non
for the AO to consider claims of deduction / exemption made by the assessee and
thereafter to return the said claims if the assessee is not entitled to the
same by assigning reasons

For the A.Y. 2016-17 the
petitioner-assessee had filed a return of income on 30^th March, 2018
offering to tax the capital gains along with other sources of income. The said
return was held to be a defective return. The assessee thereafter filed a
revised return on 18^th September, 2018 declaring long-term capital
gains and claiming deduction u/s 48 and exemption u/s 54F of the Income-tax
Act, 1961. The AO completed the assessment u/s 143(3) without considering the
return and the revised return and the claims for deduction / exemption u/ss 48
and 54F.

The assessee filed a writ petition
challenging the order. The Karnataka High Court allowed the writ petition and
held as under:

“(i)   Ordinarily, the Court would have relegated the petitioner-assessee
to avail the statutory remedy of appeal available under the Act provided the
principles of natural justice are adhered to. As could be seen from the order
impugned, the respondent has not whispered about the revised return filed by
the assessee except observing that the returns filed by the assessee were
invalidated being defective returns. If that being the position, no opportunity
was provided to the assessee u/s 139(9) to remove the defects in the returns
pointed out by the AO, nor was an opportunity provided to file a return
pursuant to the notice issued u/s 142(1). Even assuming the arguments of the
Revenue that no revised returns could be accepted enlarging the claim of
deduction / exemption beyond the time prescribed under the Act, it is a sine
qua non for the AO to consider the claims of deduction / exemption made by
the petitioner-assessee and thereafter to return the said claims if the
assessee is not entitled to the same by assigning the reasons. The impugned
assessment order prima facie establishes that the deduction claimed u/s
54F is not considered while computing the taxable turnover. This would
certainly indicate the non-application of mind by the respondent / Revenue.

(ii)   It is clear that recording of ‘reasons’ is a sine qua non
for arriving at a conclusion by the quasi-judicial authority and it is
essential to adopt, to subserve the purposes of the justice delivery system.
The reasons are the soul and heartbeat of the orders without which the order is
lifeless and void. Where the reasons are not recorded in the orders, it would
be difficult for the Courts to ascertain the minds of the authorities while
exercising the power of judicial review.

(iii)   It is a well-settled legal principle that there is no bar to
invoke the writ jurisdiction against a palpable illegal order passed by the
Assessing Authority in contravention of the principles of audi alteram
partem. On this ground alone, the order impugned cannot be approved. There
is no cavil with the arguments of the respondent placing reliance on the
judgement of the Apex Court in Goetze (India) Ltd. vs. CIT [2006] 157
Taxman 1/284 ITR 323 that no claim for deduction other than by filing a
revised return can be considered but not in the absence of the AO analysing,
adjudicating and arriving at a decision by recording the reasons. It is
apparent that no reasons are forthcoming for rejecting the revised returns as
well as the claims made u/s 54F. Such a perfunctory order passed by the AO
cannot be held to be justifiable.

(iv)  Hence, for the aforesaid reasons, without expressing any opinion on
the merits or demerits of the case, the order impugned and the consequent
demand notice issued u/s 156 as well as the recovery notice issued by the
respondent are quashed. The proceedings are restored to the file of the
respondent to reconsider the matter and to arrive at a decision after providing
an opportunity of hearing to the petitioner, assigning valid reasons as
aforementioned.”