2017 (8) TMI 1604 - AT - Income Tax

Reopening of assessment u/s 147 - validity of reason to believe - audit wing of the Department brought to the notice of the AO that an amount of expenditure actually incurred for services rendered by the assessee-company has escaped assessment - HELD THAT - AO came to a conclusion after considering the audit objection, that there was no escapement of income. Therefore, it cannot be said that the audit wing of the Department has merely brought to the notice of the Assessing Officer the fact of escapement of income. Once, the Assessing Officer is not satisfied about escapement of income and requested the audit wing to drop the proceeding, he cannot change his mind subsequently and issue notice under Section 148 for reopening assessment. No material is available on record to suggest that the Assessing Officer reopened the assessment due to change of circumstances after the reply dated 04.03.2014 requesting the audit wing of the Department to drop the audit objection. In the absence of any material, this Tribunal is of the considered opinion that the reopening of assessment is not justified. Therefore, the consequential assessment order passed by the Assessing Officer cannot stand in the eye of law. .Accordingly, the order of the Assessing Officer is quashed - Decided in favour of assessee.

Summary

Issues Involved:
Reopening of assessment based on audit objection after four years for assessment year 2007-08.

Analysis:
The case involved the reopening of assessment for the assessment year 2007-08 based on an audit objection raised by the Department after four years. The assessee contended that the reopening was not justified as it was a mere reimbursement of expenditure between sister concerns, and there was no income chargeable to tax that had escaped assessment. The Departmental Representative argued that the entire amount received by the assessee for services rendered should be taxed, as per the audit objection. The Assessing Officer reopened the assessment under Section 147 of the Income-tax Act, 1961. The Tribunal analyzed the provisions of Section 147 and emphasized that for reopening assessment, it is mandatory that the Assessing Officer has a reason to believe that income chargeable to tax has escaped assessment.

The Tribunal noted that the Assessing Officer, after considering the audit objection and the reply from the assessee, found no escapement of income and requested the audit wing to drop the objection. Subsequently, the Assessing Officer issued a notice under Section 148 of the Act for reopening the assessment. The Tribunal held that the Assessing Officer did not independently satisfy himself about the escapement of income, and the reopening of assessment was not justified. The Tribunal emphasized that the reason to believe that income has escaped assessment must be that of the Assessing Officer, and in this case, the Assessing Officer concluded that there was no escapement of income after considering the audit objection.

The Tribunal further stated that once the Assessing Officer is not satisfied about escapement of income and requests the audit wing to drop the objection, he cannot change his mind later and issue a notice for reopening assessment. Since there was no material available to suggest a change in circumstances for reopening the assessment, the Tribunal held that the reopening was not justified. Consequently, the Tribunal quashed the assessment order passed by the Assessing Officer. The appeal filed by the Revenue was dismissed, while the cross-objection filed by the assessee was allowed.