2016 (12) TMI 1083 - HC - Income Tax

Validity of reopening of assessment - proceedings initiated solely at the instance of audit party and solely on the audit objections - grant of deduction under Section 35 - Held that - On perusal of the file and notings and the relevant documents, it appears that the re-assessment proceedings have been initiated at the instance of audit party and solely on the audit objections. From the correspondence between the Assessing Officer and Principal Director of Audit Central , it appears that even the Assessing Officer justified grant of deduction under Section 35 of the Act granted while passing original assessment order and in fact, he opined that the audit objection be dropped. While making such opinion, in fact, he specifically observed that the assessee has legitimately claimed deduction under Section 35 2AB of the Act. As observed herein above, in fact to the query raised by the audit party, the Assessing Officer had even opined to drop audit query by observing that the assessee was entitled to deduction claimed under Section 35 2AB of the Act. Under the circumstances, in view of the aforesaid ground alone, the impugned notice cannot be sustained and the same deserves to be quashed and set-aside. A speaking order came to be passed by the Assessing Officer in paragraph 4 of the assessment order granting deduction under Section 35 of the Act post August 2010. In that view of the matter, the subsequent re-assessment proceedings initiated by another Assessing Officer can be said to be a change of opinion, and therefore, on a mere change of opinion, the re-assessment proceedings cannot be sustained. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961.
2. Whether the reassessment was initiated solely based on audit objections.
3. Whether the reassessment constitutes a change of opinion by the subsequent Assessing Officer.

Issue-wise Detailed Analysis:

1. Legality of the reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961:

The petitioner challenged the reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961, arguing that the reassessment was illegal and bad in law. The petitioner contended that the reassessment was initiated solely based on audit objections and not on the subjective satisfaction of the Assessing Officer. The petitioner relied on the decisions of the Division Bench of the Gujarat High Court in the cases of Commissioner of Income-tax, Ahmedabad IV vs. Shilp Gravuers Limited and Vodafone West Limited vs. Assistant Commissioner of Income-tax, which held that reassessment proceedings cannot be initiated merely on the basis of audit objections without the Assessing Officer's subjective satisfaction.

2. Whether the reassessment was initiated solely based on audit objections:

To verify if the reassessment proceedings were initiated solely at the instance of the audit party, the court examined the original files from the office of the Assessing Officer. Upon perusal, it was found that the reassessment proceedings were indeed initiated based on audit objections. The correspondence between the Assessing Officer and the Principal Director of Audit indicated that the Assessing Officer had justified the original grant of deduction under Section 35 of the Act and had even opined that the audit objection should be dropped. This evidence supported the petitioner's claim that the reassessment was initiated solely on the audit objections.

3. Whether the reassessment constitutes a change of opinion by the subsequent Assessing Officer:

The court noted that during the original assessment, the Assessing Officer had scrutinized the petitioner's claim for deduction under Section 35 of the Act. Specific queries were raised, and the petitioner had provided detailed responses. The original Assessing Officer had granted partial relief by allowing deductions only for the period post-August 2010. The reassessment proceedings initiated by a subsequent Assessing Officer were deemed to be based on a change of opinion, as the subsequent officer sought to reassess the same claim that had already been scrutinized and decided upon. The court referred to the decision of the Supreme Court in CIT v. Kelvinator of India Limited and the Division Bench decisions in Transwind Infrastructure P. Limited vs. ITO and Siddhi Vinayak Transport v. Assistant Commissioner of Income-Tax, which held that reassessment based on a mere change of opinion is not permissible.

Conclusion:

The court concluded that the reassessment proceedings were initiated solely at the instance of the audit party and constituted a change of opinion by the subsequent Assessing Officer. Therefore, the reassessment proceedings were quashed, and the impugned notice dated 25th February 2016 was set aside. The petition was allowed, and the rule nisi was made absolute to the extent stated, with no order as to costs.