2017 (3) TMI 982 - HC - Income Tax

Reopening of assessment - whether the audit objection may be treated as an escapement or the suppression of the material fact being the ingredients engrafted under section 147? - Held that - Admittedly the assessing officer simply act on the instruction of the CIT despite signifying his opinion that the audit objection is unacceptable and proceeding should not be initiated simply on the basis thereof. This court, therefore, finds that preliminary objection raised by the assessee petitioner has been wrongly decided by the Assessing Officer in upholding its jurisdiction on both the counts as indicated hereinabove. The order impugned is, thus, set aside. The preliminary objection filed by petitioner succeeds. The notice under section 148 is hereby quashed and set aside. - Decided n favour of assessee

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer to issue notice under Section 148 based on audit objections.
3. Influence of higher authorities on the decision of the Assessing Officer.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147:
The petitioner challenged the reopening of the assessment for the year 2006-2007 under Section 147 of the Income Tax Act, 1961. The initial assessment under Section 143(1) was processed, and the liability was enhanced after scrutiny. A notice under Section 148 was issued to reopen the assessment, which the petitioner contested. The court examined whether the reopening was justified based on the audit objection, which suggested that the long-term capital gain should be treated as business income. The court highlighted that the Assessing Officer must have a "reason to believe" that income has escaped assessment. The court found that the reopening was based on a mere change of opinion, which is not sufficient grounds for reassessment under Section 147.

2. Jurisdiction of the Assessing Officer to Issue Notice under Section 148:
The court scrutinized whether the Assessing Officer had the jurisdiction to issue a notice under Section 148 based on audit objections. The audit report suggested that the exemption claimed under Section 10(38) should be treated as business income. However, the Assessing Officer initially did not accept this audit objection. The court referred to the Delhi High Court's decision in Carlton Overseas (P.) Ltd. vs. Income Tax Officer, which held that audit objections are mere opinions and cannot form the basis for reassessment. The court concluded that the audit objection did not provide a valid ground for reopening the assessment, as it did not present new or fresh material evidence.

3. Influence of Higher Authorities on the Decision of the Assessing Officer:
The court examined whether the Assessing Officer acted independently or under the influence of higher authorities, specifically the Commissioner of Income Tax (CIT). The CIT directed the Assessing Officer to reopen the assessment under Section 147, despite the Assessing Officer's initial rejection of the audit objection. The court cited the Supreme Court's decision in Orient Paper Mills Ltd. vs. Union of India, which emphasized that quasi-judicial authorities must act independently and not under the direction of higher authorities. The court found that the Assessing Officer acted on the CIT's instructions without applying independent judgment, thus invalidating the reassessment proceedings.

Conclusion:
The court set aside the order of the Assessing Officer and quashed the notice under Section 148. The preliminary objection raised by the petitioner was upheld, affirming that the reopening of the assessment was not justified based on the audit objection and the influence of higher authorities on the Assessing Officer's decision. The writ petition was disposed of in favor of the petitioner.