2015 (9) TMI 1124 - HC - Income Tax

Reopening of assessment - Held that - As regards the contention that the reassessment based on audit report without independent application of mind by the Assessing Officer is not sustainable, is concerned, do not find any force in the said contention since the respondent has given cogent reasons in his speaking order, dated 12.1.2015 while rejecting the objections raised by the petitioner, for re-opening of the assessment and therefore, it cannot be stated that the respondent has not applied his mind and solely resorted to based on the audit report. In fact, the audit party is entitled to point out a factual error or omission in the assessment and it is settled law that re-opening of the case on the basis of a factual error pointed out by the audit party is permissible under law. It has been held so in the case of CIT versus P.V.S.Beedis reported in (1997 (10) TMI 5 - SUPREME Court ), wherein, the Hon ble Supreme Court has held as under The dispute as to whether reopening is permissible after audit party expresses on opinion on a question of law is now being considered by a larger Bench of the Supreme Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Re-opening of the case on the basis of a factual error pointed out by the audit party is permissible under law. .. In view of above conclusion that the re-opening of the assessment resorted to by the respondent is valid in law, all the other grounds raised on behalf of the petitioner, such as, unabsorbed depreciation of earlier years and carried forward losses can be set off against income computed under Sections 68, 69 and 69A of the Act, applicability of Section 115BBE and parallel proceedings under Sections 154 and 147 cannot be undertaken simultaneously, etc., in my opinion, are the subject matter of the appeal inasmuch as, as against the impugned proceedings, the petitioner is having an efficacious remedy. W.P. dismissed.

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Jurisdictional conditions for reopening beyond four years.
3. Application of mind by the Assessing Officer versus reliance on audit report.
4. Simultaneous proceedings under Sections 154 and 147.
5. Set-off of unabsorbed depreciation and carried forward losses against deemed income under Sections 68, 69, and 69A.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147 of the Income Tax Act, 1961:
The petitioner company, engaged in infrastructure and development, filed its original return for the assessment year 2008-09, declaring a loss, which was later revised. The assessment was completed under Section 143(3), determining a substantial total income. Subsequently, the petitioner filed a rectification application under Section 154, which was accepted, reducing the total income. However, after four years, the respondent issued a notice under Section 148 to reopen the assessment, alleging that income had escaped assessment. The court held that the reopening was valid as the Assessing Officer had a reason to believe that income had escaped assessment due to unabsorbed depreciation and business loss not being disclosed in the original returns.

2. Jurisdictional Conditions for Reopening Beyond Four Years:
The court emphasized that for reopening beyond four years, the Assessing Officer must have a reason to believe that income chargeable to tax had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court noted that the petitioner had not disclosed unabsorbed depreciation and business loss in the original returns, which were only disclosed in a rectification petition filed later. Therefore, the reopening was within the four-year period from the date of the rectification petition, making the reassessment valid.

3. Application of Mind by the Assessing Officer versus Reliance on Audit Report:
The petitioner contended that the reassessment was based solely on an audit report without independent application of mind by the Assessing Officer. The court rejected this argument, stating that the respondent had provided cogent reasons in a speaking order while rejecting the petitioner's objections. The court cited the Supreme Court's decision in "CIT versus P.V.S. Beedis," which allows reopening based on factual errors pointed out by the audit party.

4. Simultaneous Proceedings under Sections 154 and 147:
The petitioner argued that parallel proceedings under Sections 154 and 147 could not be undertaken simultaneously. The court did not find merit in this contention, stating that the issue of unabsorbed depreciation and carried forward losses being set off against deemed income under Sections 68, 69, and 69A, and the applicability of Section 115BBE, were matters for appeal. The court directed the petitioner to approach the appellate authority for redressal.

5. Set-off of Unabsorbed Depreciation and Carried Forward Losses against Deemed Income under Sections 68, 69, and 69A:
The petitioner contended that the Assessing Officer wrongly refused to set off unabsorbed depreciation and carried forward losses against deemed income under Sections 68, 69, and 69A, relying on Section 115BBE, which was introduced later and could not apply retrospectively. The court held that these contentions were subject to appeal and directed the petitioner to pursue the matter with the appellate authority, providing relief from the limitation aspect due to the peculiar circumstances of the case.

Conclusion:
The writ petitions were dismissed, and the court permitted the petitioner to move an appeal before the appellate authority, directing the authority to consider the appeal without insisting on the limitation aspect, given the bona fide impression under which the petitioner had pursued the matter.

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