2016 (7) TMI 436 - HC - Income Tax

Reopening of assessment - objections of the audit party relied upon - Held that - Primafacie atleast at one stage, the Assessing Officer was convinced that the audit objection was not valid. However, for want of full clarity on this issue, we are not inclined to conclude the matter only on this aspect. It is by now well settled that if the Assessing Officer has recorded his own reasons uninfluenced by audit objection, such action would not be bad in law merely because certain issues were brought to his notice by the audit party. It is equally well settled that when the Assessing Officer does not accept the audit objections, but has issued the notice for reopening based solely on the audit objections, such action would not be valid. The fact that despite said covenant in the partnership firm, no such interest was paid was very much before him during the original assessment. On the other hand, if the amended partnership deed was produced, he could still have questioned the assessee about nonpayment of interest to a partner who had 99% profit sharing stake in the partnership business. He could have questioned the assessee within the purview of section 80IA(10) read with section 10AA(9) of the Act. This would be relevant since the notice for reopening is issued beyond a period of four years from the end of relevant assessment year. In any case therefore, there was no failure on the part of the assessee to disclose truly and fully all material facts in this regard. Purchase of gold from AEL at a rate lower than the prevailing market rate - Held that - We have reproduced the portions of the assessee s communications to the Assessing Officer. Particularly, in the letter dated 02.03.2010, the assessee pointed out that the firm had purchased gold bar from AEL. The assessee submitted sample copy of comparable purchases and sale invoices of gold bar of AEL and the purchases the AEL had made from the overseas buyers. On the basis of such material, the assessee had contended that the transactions were at the arm s length price. Thus, according to the assessee, the supply of gold by AEL to the assessee firm was at the prevailing market price. This explanation had to have relation only to the question of proper pricing of gold purchased by the assessee from AEL. This issue thus, was examined by the Assessing Officer during the original assessment. It would thereafter, not be open for the Assessing Officer to reopen the assessment on this ground particularly after four years - Decided in favour of assessee.

Issues Involved:
1. Validity of notice issued under the insistence of the audit party.
2. Failure of the assessee to disclose fully and truly all material facts.
3. Reopening based on previously scrutinized issues.
4. Duty of the assessee to disclose primary facts.
5. Handling of objections raised by the assessee.

Issue-wise Detailed Analysis:

1. Validity of notice issued under the insistence of the audit party:
The petitioner contended that the notice was issued under the insistence of the audit party, though the Assessing Officer did not accept the audit objections. The court examined the correspondence between the audit party and the Assessing Officer, noting that at one stage, the Assessing Officer was convinced that the audit objection was not valid. However, due to lack of full clarity, the court did not conclude the matter solely on this aspect. It is settled law that if the Assessing Officer records his own reasons uninfluenced by the audit objection, such action is valid. Conversely, if the notice for reopening is based solely on audit objections, it is invalid.

2. Failure of the assessee to disclose fully and truly all material facts:
The court emphasized that the notices for reopening were issued beyond four years from the relevant assessment year. The assessee had disclosed partners' capital accounts and provided detailed responses to the Assessing Officer's queries during the original assessment. The court found no failure on the part of the assessee to disclose truly and fully all material facts, particularly regarding the non-payment of interest to partners and the purchase of gold from AEL.

3. Reopening based on previously scrutinized issues:
The court noted that during the original assessment, the Assessing Officer had raised detailed queries about the price of gold purchased from AEL. The assessee had provided explanations and supporting documents showing that the transactions were at arm's length price. Since the issue was already scrutinized, reopening the assessment on the same ground was not permissible, especially after four years.

4. Duty of the assessee to disclose primary facts:
The court reiterated that it is the duty of the assessee to disclose primary facts. Once primary facts are disclosed, it is the duty of the Assessing Officer to draw conclusions in law. The court found that the assessee had disclosed all primary facts regarding the partnership deed, non-payment of interest, and gold purchases. Hence, the reopening notice was invalid due to the absence of any failure on the part of the assessee to disclose material facts.

5. Handling of objections raised by the assessee:
The petitioner argued that the Assessing Officer did not address all grounds raised in their objections, particularly regarding discrepancies in the price of gold purchased from AEL. The court observed that the Assessing Officer had initially accepted the assessee's explanation about the notional difference in the gold price. Therefore, the court concluded that the Assessing Officer had effectively accepted the objections of the assessee, making the reopening notice invalid.

Conclusion:
The court allowed both petitions, quashing the impugned notices for reopening the assessments for the assessment years 2008-09 and 2009-10. The court found no failure on the part of the assessee to disclose fully and truly all material facts and determined that the issues raised had already been scrutinized during the original assessment.

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