2015 (8) TMI 619 - HC - Income Tax

Reopening of assessment - reliance on audit objection - as per AO assessee was not entitled to the depreciation at 30% on motor vehicles and the normal rate of depreciation at 15% was allowable to the assessee being a contractor and therefore, escaped assessment - Held that - Solely on the audit objection raised by the audit party the assessment is reopened and/or it can be said that the opinion of the Assessing Officer and/or Assessing Officer s reason to believe that there is an escapement of income is solely based upon the audit objections raised by the audit party and there is no independent formation of the opinion by the Assessing Officer. As observed hereinabove even while sending the proposal / communication to grant the approval for remedial action under section 147 of the Act, the Assessing Officer still had maintained that the audit objection raised by the audit party is not acceptable. Therefore, the formation of the opinion by the Assessing Officer and his reason to believe that there is any escapement of income to the tune of ₹ 1,66,42,284/- for AY 2009-10 has been vitiated. Therefore, in the facts and circumstances of the case, the formation of the opinion by the Assessing Officer while reopening the assessment proceedings and his reason to believe that the income has escaped the assessment has been vitiated and therefore, the reopening of assessment proceeding for AY 2009-10 is not valid and permissible. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment was based solely on the audit objection.
3. Independent formation of opinion by the Assessing Officer.

Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 148 of the Income Tax Act, 1961:
The petitioner, an assessee engaged in contract work and heavy earth moving, challenged the notice dated 07.03.2014 issued under Section 148 for reassessment of AY 2009-10. The original assessment had allowed 30% depreciation on dumpers and lorries, but the reassessment notice claimed that only 15% depreciation was permissible, leading to an alleged escapement of income amounting to Rs. 1,66,42,284/-. The petitioner argued that the reassessment was based solely on an audit objection and not on an independent opinion formed by the Assessing Officer, rendering it invalid.

2. Whether the Reassessment Was Based Solely on the Audit Objection:
The petitioner contended that the reassessment proceedings were initiated solely on the basis of an audit objection, which is not permissible. The Assessing Officer had initially justified the higher depreciation rate in response to the audit query but later proposed reassessment to safeguard revenue interests, despite maintaining that the audit objection was not acceptable. This indicated that the reassessment was driven by the audit party's insistence rather than an independent assessment by the Assessing Officer.

3. Independent Formation of Opinion by the Assessing Officer:
The court scrutinized the records and found that the Assessing Officer's decision to reopen the assessment was influenced by the audit party's objections. The communication seeking approval for reassessment explicitly mentioned that the audit objection was not acceptable but suggested reopening to protect revenue interests. The court concluded that there was no independent formation of opinion by the Assessing Officer, as required by law. This lack of independent assessment invalidated the reassessment proceedings.

Conclusion:
The court held that the reassessment proceedings were invalid because they were initiated solely based on the audit objection without an independent opinion formed by the Assessing Officer. The impugned notice dated 07.03.2014 issued under Section 148 of the Income Tax Act for AY 2009-10 was quashed, and the reassessment proceedings were set aside. The court emphasized that reassessment based solely on audit objections without independent verification by the Assessing Officer is not permissible. The petition was allowed, and the rule was made absolute without any order as to costs.