2022 (11) TMI 1293 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - Reopening based on audit objection and also change of opinion - HELD THAT - Thus in view of the above discussion and case law of Hon ble Madras High Court in the case of Cholamandalam Investment Finance Co. Ltd. 2018 (1) TMI 146 - MADRAS HIGH COURT that the reasons recorded in the present case are verbatim what the audit objection is. It means that the AO has not applied his independent mind to the facts of the case before recording reasons and hence, the reason merely based on audit objection cannot be a basis of reopening. Therefore, we held that reopening is bad in law and hence, the reassessment framed is quashed. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Reopening of assessment based on audit objection.
2. Reopening of assessment without bringing any new material on record.

Detailed Analysis of the Judgment:

1. Reopening of assessment based on audit objection:
The assessee challenged the reopening of the assessment under section 148 of the Income Tax Act, arguing that it was based solely on an audit objection and not on any fresh material. The Commissioner of Income Tax (Appeals) [CIT(A)] had previously rejected this ground, stating there was no material to substantiate that the assessment was reopened based on an audit objection. However, the assessee obtained information under the RTI Act, 2005, confirming that the reopening was indeed based on an audit objection.

The Tribunal noted that the CIT-DR could not refute the fact that the reopening was based on an audit objection. The Tribunal admitted this issue as it was a legal matter that went to the root of the case and did not require any new facts to be investigated.

The Tribunal referred to the reasons recorded for reopening, which included disallowing expenses related to software development charges and IST expenses as capital expenditure and treating relocation expenses as capital expenditure. The Tribunal found that these reasons were verbatim to the audit objections raised.

The Tribunal relied on the Supreme Court's decision in Indian & Eastern Newspaper Society, which held that an internal audit objection cannot be the basis for reopening under section 148. Furthermore, the Tribunal cited the Jurisdictional High Court's decision in Cholamandalam Investment & Finance Co. Ltd., which held that reopening based solely on audit objections without independent material is not permissible.

2. Reopening of assessment without bringing any new material on record:
The Tribunal observed that the Assessing Officer (AO) had not applied his independent mind and had merely adopted the audit objections as the reasons for reopening. This was evident from the matching content of the audit objections and the reasons recorded by the AO.

The Tribunal concluded that the reopening was bad in law as it was based solely on audit objections and lacked any fresh material. Consequently, the reassessment framed was quashed.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the reopening of the assessment was invalid as it was based solely on audit objections without any new material. The reassessment framed was quashed. The order was pronounced in the open court on 23rd November 2022 at Chennai.