2019 (1) TMI 1814 - AT - Income Tax

Reopening of assessment u/s 147 - case of the assessee was reopened on the basis of audit objection - legal issue or factual mistake - change of opinion or not - HELD THAT - Assessment was reopened on the basis of audit objection by audit party and there is no application of mind by the AO on this issue. We find merit in the arguments of ld. AR that the there is no satisfaction by the AO and there is no application of mind and the notice has been issued in a mechanical manner taking the audit objection verbatim in the reasons recorded by the AO for reopening the assessment. AO has acted upon the borrowed satisfaction of the audit party The case of the assessee is supported by the decision of Xerox Modicorp Ltd. 2013 (1) TMI 160 - DELHI HIGH COURT in which it has been held that opinion by the audit party cannot constitute a tangible material and reassessment was held to be not valid - Decided in favour of the assessee.

Summary

Issues involved:
1. Reopening of assessment u/s.147 of the Income Tax Act, 1961.
2. Validity of reopening based on audit objection.
3. Validity of reopening based on a change of opinion.

Issue 1: Reopening of assessment u/s.147 of the Income Tax Act, 1961:
The appeal arose from the order of the CIT(A) related to the assessment year 2008-2009. The assessee filed a cross objection challenging the reopening of the assessment u/s.147 of the Act. The AO reopened the assessment based on the grounds that the expenses were not amortized as required by law, resulting in under-assessment of income. The assessee contended that the reopening was not valid as it was done without proper application of mind. The CIT(A) dismissed the technical issue raised by the assessee, stating that all necessary preconditions for issuing notice u/s.148 were satisfied. However, the Tribunal disagreed with this conclusion, emphasizing the lack of proper application of mind by the AO in reopening the assessment.

Issue 2: Validity of reopening based on audit objection:
The assessee argued that the assessment was reopened solely on the basis of an audit objection, which is impermissible under the law. The audit objection highlighted the failure to amortize expenses, leading to under-assessment of income. The Tribunal noted that the AO merely reproduced the audit objection verbatim in the reasons recorded for reopening the assessment, indicating a lack of independent judgment. Citing the decision of the Hon'ble Delhi High Court in Xerox Modicorp Ltd. case, the Tribunal held that reassessment based solely on an audit party's opinion is not valid. The Tribunal quashed the reassessment proceedings, emphasizing the need for independent assessment by the AO.

Issue 3: Validity of reopening based on a change of opinion:
The assessee further contended that the reassessment was based on a change of opinion, which is impermissible under the law. The AO had already accepted the claim of expenses during the original assessment proceedings u/s.143(3) of the Act. The Tribunal agreed with the assessee, stating that reassessment on the basis of a change of opinion is not legally sustainable. The Tribunal referred to relevant case law and held that the reassessment proceedings were not valid as per law, ultimately quashing the reopening of the assessment.

In conclusion, the Tribunal allowed the cross objection of the assessee, ruling in favor of the assessee, and dismissed the appeal of the Revenue as it became infructuous. The Tribunal emphasized the importance of proper application of mind by the assessing officer in reopening assessments and highlighted the need for assessments to be based on legal grounds rather than mere audit objections or changes of opinion.