2019 (8) TMI 1070 - HC - Income Tax

Reopening of assessment u/s 147 - reopening based on audit party objection - in reply to the objections of an audit party AO state that this was not a case fit for reopening of the assessment - change of opinion - HELD THAT - It is clear from the correspondence with Audit Party that there was no independent decision arrived at by the AO to form reasons to believe for reopening of the assessment after being satisfied that there was an escapement of income. The above correspondence also indicates that not once but on two separate occasions the AO clearly formed the opinion that this was not a case fit for reopening of the assessment and that the AO was constrained, notwithstanding that opinion, to reopen the assessment on the express instructions issued to him vide letter dated 11th December 2012 of the Addl. CIT Audit-1 referred to herein before. We find that AO had in fact applied his mind to the audit party objection and formed a clear opinion that there is no justification for reopening of the assessment and yet it is only on the insistence of the Addl. CIT Audit that the AO changed his opinion and decided to reopen the assessment. Consequently, the reopening of the assessment in the present case, which was based on a change of opinion was vitiated in law as it did not satisfy the legal requirement of Section 147. In the circumstances, the view taken by the ITAT calls for no interference. No substantial question of law

Summary

Issues Involved:
1. Justification of ITAT in quashing reassessment proceedings under Section 147 of the Income Tax Act on the grounds of change of opinion.
2. Whether the Assessing Officer (AO) had expressed any opinion on the applicability of Section 40(a)(ia) during the original assessment under Section 143(3).

Detailed Analysis:

1. Justification of ITAT in Quashing Reassessment Proceedings under Section 147:

The Revenue appealed against the ITAT's decision to quash the reassessment proceedings under Section 147, arguing that it was not merely a change of opinion. The reassessment was initiated based on the audit party's objections regarding non-deduction of TDS on payments made to labor, job work, and rent. The AO initially rejected the audit objections, stating that the Assessee had correctly accounted for its turnover and there was no need for reopening the assessment. However, the AO later reopened the assessment under pressure from the audit party, which is contrary to the requirement that the AO must independently form the belief that income has escaped assessment.

The Court referenced similar cases, including Larsen and Toubro v. State of Jharkhand and Adani Infrastructure & Developers (P.) Ltd. v. ACIT, where it was established that reopening of assessment based solely on audit objections without an independent belief by the AO is impermissible. The Court concluded that the AO's decision to reopen the assessment was vitiated in law as it did not satisfy the legal requirement of Section 147 of the Act.

2. Whether the AO Expressed Any Opinion on the Applicability of Section 40(a)(ia) During the Original Assessment:

The original assessment order dated 28th March 2008 did not mention any disallowance under Section 40(a)(ia) for non-deduction of TDS. The AO had disallowed 1% of wage expenses to cover up income leakage but did not address the issue of TDS on labor, job work, and rent payments. The reassessment notice issued on 28th March 2013 was based on the audit party's observation that the Assessee had not deducted TDS on payments amounting to ?5.27 crores, thereby attracting Section 40(a)(ia).

The Court found that the reopening of the assessment was not based on any new information or independent belief by the AO but was a result of the audit party's insistence. This constituted a change of opinion, which is not a valid ground for reassessment under Section 147.

Conclusion:

The Court upheld the ITAT's decision to quash the reassessment proceedings, stating that the reopening was based on a change of opinion and did not meet the legal requirements of Section 147. The appeal was dismissed, and no substantial question of law was found to arise.