2016 (1) TMI 1107 - HC - Income Tax

Reopening of assessment - reliance on audit party report - Held that - It emerges from the recorded portion of the noting of the Assessing Officer that she had not accepted the point of view of audit party at all. She in fact recorded that the objections raised by the Revenue s audit party is not acceptable. However for some strange reasons later on proceeded to issue the notice for reopening on the ground that action is getting time barred and that remedial action is being initiated within four years. It is by now well settled for issuing notice for reopening the Assessing Officer herself ought to have recorded the satisfaction that income chargeable to tax had escaped assessment. Even the revenue s audit party cannot prevail over such opinion of the Assessing Officer. The audit party can bring to the notice of the Assessing Officer an element which might have escaped her notice nevertheless once she was convinced that the objection of the revenue party was not valid her act of issuing notice for reopening was simply not permissible. We may refer to the decision of the Supreme Court in case of Indian and Eastern Newspaper Society v. Commissioner of Incometax New Delhi reported in 1979 (8) TMI 1 - SUPREME Court . - Decided in favour of assessee.

Summary

Issues:
Challenge to notice for reopening assessment after scrutiny.

Analysis:
The petitioner, a registered company, filed a return of income for the assessment year 2010-2011, declaring a loss. The scrutiny assessment was completed on 28.2.2014. The Assessing Officer issued a notice for reopening the assessment, citing irregular allowance of depreciation on "Infrastructure Usage Facility." The reasons for reopening highlighted that the right to use the infrastructure was not similar to intangible assets like patents or copyrights, and thus, not eligible for depreciation. The Assessing Officer believed that this led to an escapement of income due to the failure of the assessee to disclose all material facts. The petitioner raised objections to the notice, contending that the Assessing Officer was compelled to issue the notice without being convinced of any escapement of income. The petitioner also argued that during the original assessment, the Assessing Officer was convinced that no additions were necessary, thus forming a belief that should not be changed now. Additionally, the petitioner claimed that the reasons for reopening were self-contradictory.

In response, the Revenue opposed the petition, providing the original assessment file for examination. The Assessing Officer had initiated remedial action based on audit objections regarding depreciation on the infrastructure usage facility. However, it was noted that the Assessing Officer had not accepted the objections raised by the Revenue's audit party. The court observed that for issuing a notice for reopening, the Assessing Officer must independently satisfy that income chargeable to tax had escaped assessment. In this case, the Assessing Officer did not accept the audit party's objections but still proceeded to issue the notice for reopening, citing time-barred action as a reason. The court emphasized that the Assessing Officer's satisfaction is crucial for issuing such notices, and the audit party's objections cannot override her opinion. Referring to a Supreme Court decision, the court quashed the notice dated 31.3.2015, allowing the petition.

In conclusion, the court allowed the petition, quashing the notice for reopening the assessment. The judgment highlighted the importance of the Assessing Officer's independent satisfaction in cases of reopening assessments and emphasized that audit objections alone cannot justify such actions if the Assessing Officer is not convinced of an escapement of income.