2021 (10) TMI 1266 - HC - Income Tax

Reopening of assessment u/s 147 - reopening of assessment has been decided only because of audit objections - HELD THAT - Compulsory scrutiny of the record has revealed, there was a statement of income but reopening has been because of audit objection. We have also noted that Assessing Officer had taken a stand contrary to the view expressed in the audit objection and had even addressed a letter to the Director of Audit intimating that objections raised by audit authority were not acceptable. Nevertheless the Assessing Officer reopened and issued notice under Section 148 of the Act. It is settled law that the opinion of the Internal Audit party of the Income Tax Department cannot be recorded as information within the meaning of section 147(b) of the Act for the purpose of opening the assessment. The courts have also held that notice of reassessment cannot be issued based on information received from audit objection. No substantial question of law.

Summary

Issues:
1. Reopening of assessment under Section 147 of the Income Tax Act
2. Validity of the reasons for reopening the assessment
3. Applicability of deduction under Section 36(1)(viia) of the IT Act

Analysis:

Issue 1: Reopening of assessment under Section 147 of the Income Tax Act
The case involved the reassessment of the assessee's income under Section 143(3) of the Income Tax Act, initiated through a notice under Section 148 of the Act. The Assessing Officer reopened the assessment based on audit objections, despite having disagreed with the objections raised. The High Court noted that the opinion of the internal audit party cannot be considered as information for the purpose of opening the assessment. The court cited the Indian & Eastern Newspaper Society case, emphasizing that the assessing officer must independently determine if income has escaped assessment based on the law, without relying solely on audit opinions.

Issue 2: Validity of the reasons for reopening the assessment
The High Court referred to the Jainam Investments case, highlighting that the reasons for reopening an assessment should be based on the assessing officer's evaluation of the law, and not influenced by external sources. The court reiterated that the assessing officer must directly assess the law's impact on the assessment. In this case, the ITAT concluded that the reopening of assessment was incorrect, leading to the appeal being allowed in favor of the respondent.

Issue 3: Applicability of deduction under Section 36(1)(viia) of the IT Act
One of the substantial questions of law raised was regarding the wrong claim of deduction under Section 36(1)(viia) of the IT Act by the assessee. The court examined whether the assessee was entitled to the deduction amount within the meaning of the section, particularly in relation to advances made by the rural branches of the assessee bank. The court analyzed the provisions of the IT Act concerning the deduction claimed by the assessee and considered the absence of rural branch advances in determining the applicability of the deduction.

In conclusion, the High Court dismissed the appeal, stating that the ITAT did not err in its decision, as no substantial question of law was found. The appeal was deemed devoid of merit, and no costs were awarded.