2018 (11) TMI 601 - HC - Income Tax

Reopening of assessment - reopening relying on audit objection - Held that - This court is of the opinion that Carlton (2009 (8) TMI 57 - DELHI HIGH COURT) concludes the issue in the present case ; the audit objection merely is an information. As reiterated in Kelvinator (2010 (1) TMI 11 - SUPREME COURT OF INDIA) by the Supreme court, change of information is impermissible. The Revenue was clearly barred by the provisions of section 147/148 of the Act. The impugned reassessment notice dated March 30, 2017, cannot be sustained. It is hereby quashed ; all consequential proceedings issued and conducted pursuant to the said reassessment notice are also hereby quashed.

Summary

Issues:
Challenge to notice under section 148 of the Income-tax Act, 1961 for assessment year 2010-11 based on addition made during scrutiny assessment. Validity of reassessment notice issued due to claimed deduction of forex gain on interest income. Interpretation of case laws supporting reopening of case under section 147/148. Review of original scrutiny assessment barred from conducting afresh. Consideration of subsequent audit objection as tangible material for reassessment. Quashing of reassessment notice and consequential proceedings.

Detailed Analysis:

1. The assessee challenged a notice issued under section 148 for the assessment year 2010-11, objecting to an addition of &8377; 31.13 crores during scrutiny assessment. The reassessment notice was based on the disallowance of a claimed deduction of &8377; 3,11,80,117 for forex gain on interest income, deemed not allowable as per the Income-tax Act, 1961.

2. The reasons recorded for issuing the notice highlighted the audit party's objection to the deduction claimed by the assessee, leading to the under-assessment of income. The Assessing Officer found the claimed amount as not allowable under the Act, indicating that the income had escaped assessment due to the assessee's failure to disclose all material facts.

3. The assessee argued that revisiting the merits of the original assessment was impermissible, citing previous judgments. It was contended that tangible material must be available for a complete scrutiny review, and subsequent audit objections alone did not constitute valid grounds for reassessment.

4. The Revenue contended that the reassessment notice was valid, emphasizing that the claimed forex gain should not have been treated as an allowable expenditure, following accounting standard AS 11. The Revenue's reliance on a subsequent audit report was challenged by the assessee.

5. The court referred to previous decisions, notably Carlton Overseas Pvt. Ltd. v. ITO, to establish that a mere change of opinion without fresh material did not justify action under section 147/148. The court emphasized that audit objections alone did not provide substantial grounds for reassessment.

6. Concluding that the audit objection was merely informational and did not constitute valid grounds for reassessment, the court held that the Revenue was barred by the provisions of section 147/148. The impugned reassessment notice was quashed, along with all consequential proceedings.

7. The court disposed of the writ petition, quashing the reassessment notice dated March 30, 2017, and all related proceedings, based on the impermissible grounds for reassessment identified during the case analysis.