"Assessing Officer Acted On Dictates Of Higher Authorities": Chhattisgarh HC Quashes Reassessment Order

The Chhattisgarh High Court has quashed a reassessment order by holding that the actions of the assessing officer lacked independent judgment as he acted on dictates of higher authorities.

In that context, the Bench of Justice Goutam Bhaduri and Justice Sanjay Kumar Jaiswal observed that, "The AO has not applied his mind independently without any bias get further confirmed from the records of the order which shows that the officers sitting at Delhi and Jabalpur were constantly involved in the process when the AO was taking decision... In democracy like us every authority may, however, high should only function within the four corners of law because the rule of law requires that all the machinery of State must function according to mandate of statute. The democracy requires the rule of law in State must be protected from becoming rule of man."

Mr. Surendra Kumar Jain, managing director of M/s Bhilai Engineering Corporation Ltd., filed income tax returns for assessment years 1988-89 to 1992-93, which were accepted. On May 3, 1991, the Central Bureau of Investigation (CBI) searched the residence of Mr. J.K. Jain, an employee of M/s BEC Impex International Pvt. Ltd. in Delhi, seizing documents and cash. Copies of the documents were given to the Directorate of Income Tax (DIT) in February 1994. By February 1995, all remaining documents were handed over to the DIT, and reassessment proceedings were initiated. Among the documents was a diary with records of receipts and disbursements, belonging to the now-deceased original assessee.

The Assessing Officer (AO) issued a notice under Section 148 for reassessment. The assessee appealed to the Commissioner of Income-tax (Appeals), who upheld the reassessment but provided some relief on interest charges. Both parties then appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the reassessment's validity but declared the AO’s assessment invalid due to superior directives. Appeals and cross-appeals were filed before the Court.

The High Court ruled in favour of the assessee, determining that the Assessing Officer (AO) had issued the reassessment order under the undue influence of superiors, making both the order and the initiation of reassessment proceedings unsustainable.

The Court noted that the AO failed to apply his mind independently and without bias. It emphasized that undue interference from higher officials violated the constitutional scheme, undermining the rule of law and democratic values by encouraging arbitrary rule.

The Court further held that the ITAT erred in concluding that the initiation of proceedings under sections 147/148 was valid, despite accepting that the assessment was influenced by superiors. The ITAT's findings were found deficient according to legal principles, stressing that connected facts could not be cherry-picked.

Subsequently, the ITAT's decision concerning the AO’s conduct was upheld, emphasizing the AO’s duty to act judicially and independently, free from superior control. Consequently, the initiation of the reassessment proceedings was deemed invalid, and the reassessment proceedings had lapsed the limitation period on March 31, 1997, rendering the question of remanding the case irrelevant.

Cause Title: Deputy Commissioner of Income Tax vs Surendra Kumar Jain (Dead) Through Legal Heirs (Neutral Citation: 2024:CGHC:25811-DB)

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