2023 (6) TMI 286 - HC - Income Tax

Reopening of assessment u/s 147 - non-independent application of mind by AO - information which has been provided to the petitioner under the Right to Information Act relied upon - claim of CSR expenses made by the petitioner - HELD THAT Information which has been provided to the petitioner under the Right to Information Act and from the details which are provided it has been emerged that the AO (ACIT) circle 1(1) (1) has objected to the audit objections raised by the JCIT (Audit) on the issue of claim of CSR expenses for AY 2017-18 recording of reasons for Assessment Year 2016-17 for the same issue does not amount to application of an independent mind and therefore also it cannot be said that any independent application of mind reflects in recording of reasons for Assessment Year 2016-17 when reasons for AY 2017-18 are held to be invalid by order of this Court in 2015 (5) TMI 216 - GUJARAT HIGH COURT as indicated above and the said reasons were recorded on the very same day and this itself is a circumstance which indicates that in a routine manner re-opening is sought by the authority which is impermissible. Thus action of issuance of notice under Section 148 of the Act in the background of present facts as erroneous reflects no subjective satisfaction nor any application of mind. Hence this would be one of the relevant circumstance to arrive at a conclusion that a case is made out by the petitioner to call for interference. As per Adani Power Rajasthan Limited 1998 (12) TMI 51 - GUJARAT HIGH COURT and in view of the conclusion which is arrived at in Special Civil Application supra we hold that very exercise of jurisdiction by the authority gets vitiated. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Application of mind and subjective satisfaction in granting approval under Section 151 of the Income Tax Act.
3. Reopening of assessment based on audit objections.

Summary:

1. Validity of the Notice Issued under Section 148:
The petitioner challenged the notice dated 21.03.2021 issued under Section 148 of the Income Tax Act, arguing that it was fundamentally erroneous. The main reason cited for reopening the assessment was the disallowance of CSR expenses amounting to Rs. 4,05,629/-, which the petitioner claimed were incurred voluntarily and exclusively for business purposes. The petitioner contended that as per Section 135 of the Companies Act, they were not obligated to spend any amount towards CSR due to an average net loss in the preceding three financial years. Therefore, the disallowance under explanation 2 to Section 37(1) of the Act was erroneous.

2. Application of Mind and Subjective Satisfaction:
The petitioner argued that the sanction required under Section 151 of the Act was granted without proper application of mind, reflecting a mechanical exercise of power. The petitioner emphasized that the higher authority must be satisfied with the reasons recorded by the assessing officer before issuing a notice under Section 148. The petitioner pointed out that the approval lacked subjective satisfaction, making the action impermissible in law.

3. Reopening of Assessment Based on Audit Objections:
The petitioner contended that the reopening was based on information provided by the audit party, which is impermissible as per settled legal positions. The petitioner cited various judgments, including Vodafone West Ltd vs. Assistant Commissioner of Income Tax and Commissioner of Income-Tax vs. Shilp Gravures Ltd, to support the argument that reassessment proceedings initiated solely on audit objections without the assessing officer's independent belief are invalid.

Court's Observations:
The Court noted that the reassessment proceedings were initiated at the instance of the audit party without the assessing officer having an independent reason to believe that the income had escaped assessment. The Court referred to previous judgments, including Cadila Health Care Ltd vs. Assistant Commissioner of Income Tax, which held that reassessment based solely on audit objections is not maintainable.

Conclusion:
The Court concluded that the subjective satisfaction of the assessing officer was lacking, and the reopening was a colorable exercise of jurisdiction. The notice issued for reopening the assessment and the order rejecting the objections were quashed and set aside. The petition was allowed, and the impugned notice dated 21.03.2021 and the order dated 25.10.2021 were annulled.