2018 (12) TMI 513 - AT - Income Tax

Reopening of assessment u/s 148 - reopening on the basis of audit party - question of law raised by audit party - Held that - The issue of law pointed out by the Audit objection was relatable to the set off of unabsorbed depreciation relating to the Assessment Year 1998-99, the set off of which to the extent of ₹ 3,38,521/- stands allowed against the income of year in the question and set off of ₹ 12,10,970/- was allowed in the preceding Assessment Year and the balance in subsequent Assessment Year. According to the audit party the unabsorbed depreciation for Assessment Year 1998-99 was eligible for set off of within a period of 8 years vide amendment made in law. In support of this fact assessee submitted before the CIT(A) the text of the audit objection. Notice u/s 147/148 in the assessee s case was issued on the basis of point of law raised. This by itself exposes the invalidity of the action of issuance of notice u/s 148 of the Act. It is well established principle of law that resort to proceedings u/s 147 r.w.s 148 cannot be had to on a question of law raised by audit party. This law has been laid down in the case of CIT vs. Lucas TVS Ltd. 2000 (12) TMI 102 - SUPREME COURT , wherein held an audit opinion in regard to the application or interpretation of law cannot be treated as information for reopening the assessment under s. 147(b) In view of the above position in law proceedings set in motion with the issuance of notice u/s 148 r.w.s. 147 on the basis of audit query are not sustainable under law in the facts and circumstances of the case and as such the impugned assessment order is not maintainable and sustainable under law hence on this ground alone the assessment order deserves to be vacated.- decided in favour of assessee.

Summary

Issues involved:
1. Validity of reassessment proceedings under section 147/148 of the Income Tax Act.
2. Allowance of unabsorbed depreciation for Assessment Year 1998-99.
3. Requirement of tangible material for issuing notice under section 148.
4. Compliance with principles of natural justice in appeal proceedings.

Issue 1: Validity of reassessment proceedings under section 147/148 of the Income Tax Act:
The appeal challenged the legality of the reassessment proceedings initiated by the Assessing Officer under section 147/148 of the Income Tax Act. The appellant contended that such proceedings cannot be initiated solely based on a question of law raised by the audit party. The Tribunal observed that the notice under section 147/148 was issued on the basis of a legal issue highlighted by the audit party, which is not a valid ground for reassessment. Citing the precedent set by the Supreme Court in CIT vs. Lucas TVS Ltd., the Tribunal held that an audit opinion on the application or interpretation of law does not constitute valid information for reopening assessments. Consequently, the Tribunal concluded that the reassessment proceedings were not sustainable under the law, leading to the allowance of the appeal.

Issue 2: Allowance of unabsorbed depreciation for Assessment Year 1998-99:
The dispute revolved around the allowance of unabsorbed depreciation for Assessment Year 1998-99. The Assessing Officer found that the appellant had carried forward unabsorbed depreciation beyond the permissible eight-year limit, resulting in an alleged escapement of income. The Tribunal examined the provisions related to unabsorbed depreciation and noted that the set-off of such depreciation must occur within eight assessment years succeeding the relevant year. The Tribunal determined that the excess carry forward of unabsorbed depreciation amounted to an income escape, leading to the initiation of reassessment proceedings. However, the Tribunal ultimately ruled in favor of the appellant on other grounds, rendering this issue moot.

Issue 3: Requirement of tangible material for issuing notice under section 148:
The appellant contested the validity of the notice issued under section 148, arguing that there was no tangible material to support the belief of income escapement. The Tribunal reviewed the circumstances and found that the notice was based on a legal issue raised by the audit party, rather than concrete evidence of income escapement. Relying on legal principles, the Tribunal concluded that the notice lacked the necessary foundation of tangible material, rendering the reassessment proceedings invalid on this ground.

Issue 4: Compliance with principles of natural justice in appeal proceedings:
The appellant raised concerns regarding the dismissal of the appeal by the Commissioner of Income Tax (Appeals) in a summary manner without proper consideration of the appellant's contentions and without recording reasons. The Tribunal acknowledged the appellant's argument, highlighting the importance of adhering to principles of natural justice in appeal proceedings. While this issue did not directly impact the outcome of the appeal, the Tribunal noted the violation of natural justice principles in the appellate process.

In conclusion, the Tribunal allowed the appeal on the basis of the invalidity of the reassessment proceedings initiated under section 147/148 of the Income Tax Act due to reliance on a legal issue raised by the audit party. The decision emphasized the importance of tangible material and adherence to legal principles in conducting reassessment proceedings.