2023 (2) TMI 1080 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - audit party objections had come and the AO issues notice - independent application of mind by AO v/s borrowed satisfaction - HELD THAT - Assessing Officer himself initiated the reassessment proceedings without his own conviction and only at the instance of the audit party which was termed to be a coulourable exercise of jurisdiction and the same was not sustained. Here is a case where, admittedly, audit party had expressed the opinion on a question of law. It had also pointed out to the Assessing Officer and that information which had been given was on question of law. when the audit party had pointed out to the Assessing Officer, it not only was disagreeing with the information given on the law point, it had completely disagreed after examining the objections raised by the audit party. Twice at paragraph 3 and paragraph 6, it has said that on examining carefully, the objections are not acceptable and they need to be dropped. The Assessing Officer, without any conviction, when has issued the notice, this surely is not a case where the reopening of the case is on the basis of any factual error pointed out by the audit party so as to be covered by the decision of the P.V.S.Beedies (P) Ltd. 1997 (10) TMI 5 - SUPREME COURT There is no material worth the name emerging that to indicate any independent application of mind could be noticed. On the contrary, there are glaring facts which have been pointed out that the Assessing Officer had no subjective satisfaction while issuing the notice of reopening. Therefore also, in this background, it is a settled law that any notice of reopening issued by the Assessing Officer without any independent application of mind would laid the validity. Accordingly, this petition is allowed.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act for the assessment year 2016-17.
2. Challenge to the order disposing of objections against the notice.
3. The role of audit party objections in the reopening of assessments.
4. The requirement of independent application of mind by the Assessing Officer for reopening.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner, a limited company, challenged the notice issued under Section 148 of the Income Tax Act dated 21.3.2021, which directed the petitioner to furnish the return of income for the assessment year 2016-17. The petitioner argued that the notice was contrary to law and without jurisdiction. The petitioner had filed its return of income for A.Y. 2016-17, declaring a total loss, which was accepted by the Assessing Officer under Section 143(3) without any additions or disallowances. The notice for reopening was issued based on the audit party's objections, which the petitioner contended was not permissible as the reasons to believe must be that of the Assessing Officer alone.

2. Challenge to the Order Disposing of Objections:
The petitioner also challenged the order dated 10.11.2021, which disposed of the objections raised against the notice under Section 148. The petitioner had filed objections on 9.7.2021 after being provided with the reasons and approval for reopening. The respondent disposed of these objections, maintaining that the reopening was valid.

3. Role of Audit Party Objections:
The petitioner argued that the reopening was based on the audit party's objections, which is not permissible under settled law. The Assessing Officer must have his own reasons to believe that income has escaped assessment, and this belief cannot be substituted by the audit party's objections. The petitioner relied on the decisions of this Court and the Supreme Court, which held that reassessment proceedings initiated solely on audit objections are not valid if the Assessing Officer does not independently believe that income has escaped assessment.

4. Requirement of Independent Application of Mind:
The petitioner contended that the Assessing Officer did not independently apply his mind and had initially objected to the audit party's communication. The respondent, however, denied this and argued that the Assessing Officer had formed his opinion based on correct facts and law. The Court examined the correspondence between the Assessing Officer and the audit party, noting that the Assessing Officer had clearly stated that the audit objections were not acceptable and that the CSR expenses were allowable as they were incurred wholly and exclusively for business purposes.

Conclusion:
The Court held that the Assessing Officer had no independent reason to believe that income had escaped assessment and had acted solely on the audit party's objections. The reopening of the assessment was therefore not permissible. The Court quashed the notice dated 21.3.2021 and the order dated 10.11.2021, emphasizing that the Assessing Officer must have a subjective satisfaction and cannot rely solely on audit objections for reopening assessments. The petition was allowed, and the impugned notice and order were set aside.