2023 (4) TMI 1305 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - claim under CSR (Corporate Social Responsibility) expenses made was otherwise not allowable and as such, the said claim deserves to be disallowed and to that extent, income of the petitioner has escaped assessment - reliance on audit party opinion - HELD THAT - As a matter of records, the petitioner has made average net loss of Rs. 187.67 crores during three immediately preceding Financial Years and as such, the petitioner was not under obligation to spend any amounts toward CRS by virtue of Section 135 of the Act and as such, the expenditure incurred by the petitioner is not the one which requires disallowance under explanation 2 to Section 37 (1). The expenditure incurred is out of Commercial expenses and is fully allowable and further it is the stand of the petitioner that even it is not the case of revenue that expenditure if any for explanation 2 to Section 37 is not allowable expenditure and as such, the fundamental error appears to have been crept in. At this stage, reliance which has been made by the learned advocate appearing for the petitioner about the decision passed by the co-ordinate Bench of this Court in the case of Adani Power Maharashtra Limited 2023 (3) TMI 987 - GUJARAT HIGH COURT where-in also this issue has been the subject matter of consideration and in which notice for re-opening and the order rejecting the objections came to be set aside. Re-opening on the basis of audit party objection - As submitted that one of the Director of the Company submitted an application u/s 6(3) of the Right to Information Act seeking information as to objection raised by the audit party and the reply of the same was given by assessing officer. The said information was provided in the form of order dated 10.12.2021 issued u/s 7(1) of the Right to Information Act, it appears that step of re-opening is on the basis of the objection raised by the audit party as can be seen from paragraph 3 of the said page 117 in the case of this very petitioner and as such, also when the co-ordinate Bench has dealt with the issue as to whether on the strength of audit objections, re-opening of assessment is permissible or not is clearly clinching the issue raised in the present proceedings and hence, we answer in negative against the revenue. Re-opening of the assessment is on the basis of the change of opinion - As detailed scrutiny was undertaken and after satisfying himself, the assessing authority has passed an order of assessment wherein neither there is any addition or disallowance of any claim is made and as such, on the basis of the same records, issuance of notice under Section 148 of the Act tantamounts to be on the basis of the change of opinion which is impermissible and since the said issue is now well settled, we may not overburden the present order by incorporating the case law on the subject. On the contrary, we also found from the contents of the objection that all details are consisting to computation of income, profit and loss figures and also tax audit report which are forming part of the assessment records, still in the absence of any tangible material, the respondent authority is trying to take a different view despite the original scrutiny of assessment is done. Under the circumstance, the action sought to be initiated is impermissible and we are of the considered opinion that a case is made out by the petitioner to call for interference. Petition allowed.

Issues Involved:

1. Legality and validity of the order dated 10.11.2021 and Notice dated 21.03.2021 under Section 148 of the Income Tax Act.
2. Whether the re-opening of the assessment was based on a change of opinion.
3. Whether the re-opening was permissible based on audit objections.
4. Compliance with statutory requirements and application of mind by the authority.

Summary:

1. Legality and Validity of the Order and Notice:

The petitioner, a limited company, challenged the order dated 10.11.2021 and the notice dated 21.03.2021 under Section 148 of the Income Tax Act. The petitioner filed its return for the Assessment Year 2017-18, declaring a total loss. The return was processed, and an assessment order was passed on 20.12.2019 under Section 143(3) of the Act, accepting the returned loss without any addition or disallowance. Despite this, the respondent issued a notice under Section 148, which the petitioner contested, claiming it violated the guidelines issued by the Court. The petitioner argued that the notice and order were illegal, contrary to law, and violated Articles 14 and 19(1)(g) of the Constitution of India.

2. Re-opening Based on Change of Opinion:

The petitioner argued that the re-opening of the assessment was based on a change of opinion, which is impermissible. The case was selected for scrutiny, and a detailed assessment was done without any disallowance. The petitioner contended that there was no fresh tangible material to justify the re-opening, and the action was based on the same records already scrutinized. The Court agreed, stating that re-opening on the same grounds constitutes a change of opinion, which is not allowed.

3. Re-opening Based on Audit Objections:

The petitioner contended that the re-opening was based on audit objections, which is not permissible. The Court referred to several decisions, including the case of Adani Power Maharashtra Ltd., where it was held that re-opening based on audit objections is not valid. The Court observed that the audit party had expressed an opinion on a question of law, and the Assessing Officer had no independent conviction. The Court concluded that the re-opening was not permissible based on audit objections.

4. Compliance with Statutory Requirements and Application of Mind:

The respondent argued that all statutory requirements were observed, and the notice was issued after due application of mind. However, the Court found that the sanction was accorded mechanically without proper application of mind. The Court noted that the Assessing Officer had initially objected to the audit party's communication but later issued the notice without independent conviction. The Court held that the action was not sustainable as it lacked proper application of mind and was based on audit objections.

Conclusion:

The Court quashed and set aside the impugned notice dated 21.03.2021 and the order dated 10.11.2021, allowing the petition with no order as to costs. The re-opening of the assessment was deemed impermissible as it was based on a change of opinion and audit objections, lacking proper application of mind.

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