2014 (7) TMI 722 - HC - Income Tax

Re-assessment of proceedings u/s 147 r.w section 148 - Based on the opinion of audit party - Held that - Mere opinion of the audit party cannot form the basis for the AO to reopen the closed assessment that too beyond four years from the end of relevant assessment year The decision in COMMISSIONER OF INCOME TAX Versus SHILP GRAVURES LTD 2013 (11) TMI 581 - GUJARAT HIGH COURT followed - If the reassessment proceedings are initiated merely and solely at the instance of the audit party and there was no independent application of mind by the AO with respect to subjective satisfaction for initiation of the reassessment proceedings, the notices cannot be sustained and the same deserves to be quashed and set aside Decided in favour of Assessee.

Summary

Issues:
Challenge to initiation of re-assessment proceedings under Section 148 of the Income Tax Act.

Analysis:
The judgment by the Gujarat High Court, delivered by Justice M. R. Shah, pertains to two petitions challenging the initiation of re-assessment proceedings under Section 148 of the Income Tax Act. Both petitions were taken up for final hearing together due to common questions of law and facts. The petitioner-assessee contested the initiation of re-assessment proceedings for the Assessment Years 2008-09 and 2009-10, arguing that they were solely based on audit objections and lacked the Assessing Officer's subjective satisfaction. The Assessing Officer had concluded the assessment orders for the mentioned years, but re-assessment proceedings were initiated later. The petitioner raised objections, but they were disposed of, and the petitioner was asked to justify certain income additions. The petitioner then filed Special Civil Applications under Article 226 of the Constitution of India challenging the re-assessment proceedings.

The petitioner's advocate contended that the initiation of re-assessment proceedings was illegal and without proper legal basis, solely relying on audit objections. The advocate cited relevant court decisions to support the argument that re-assessment cannot be solely based on audit objections without the Assessing Officer's independent application of mind. The court, to verify the basis of the re-assessment, examined the original file from the Assessing Officer's office, which revealed that the proceedings were indeed initiated based on audit objections without the Assessing Officer's independent satisfaction.

The court relied on previous judgments, including the case of Shilp Gravures Ltd. and Vodafone West Ltd., to conclude that re-assessment proceedings solely initiated at the instance of the audit party, without the Assessing Officer's independent application of mind, cannot be sustained. Therefore, the court quashed and set aside the impugned re-assessment proceedings for both Assessment Years 2008-09 and 2009-10, ruling in favor of the petitioners. The court made the rule absolute without any order as to costs, considering the circumstances of the case.