2024 (1) TMI 289 - HC - Income Tax

Reopening of assessment u/s 147 - reassessment proceedings against the petitioner had been triggered based on the audit objections - eligibility to deduction u/s 80-IC - HELD THAT - AO while triggering the reassessment proceedings had not applied his mind independent of what the auditor had flagged. As a matter of fact, the AO did not even examine the reply given by his counterpart to the audit objection. Petitioner is right that this very aspect concerning claim of deduction under Section 80-IC of the Act was examined in the scrutiny proceedings and it was only when the AO was satisfied that the assessment order dated 30.01.2014 was framed. The logical sequitur of this assessment order was that the petitioner obviously had truly and fairly disclosed all material facts. There is not a whisper in the reasons to believe which would point in the direction that the petitioner had failed to disclose truly and fairly all material facts. Since the reassessment proceedings were triggered after four years, the AO ought to have indicated as to what were those material facts which the petitioner had failed to disclose. Thus, the impugned proceedings are flawed on various grounds, i.e., borrowed satisfaction, reasons to believe not adverting to the failure on the part of the petitioner to disclose truly and fairly all material facts, and also the change of opinion. Thus, for the foregoing reasons, we are inclined to allow the writ petition. Consequently, the impugned notice and the order whereby, the petitioner s objections were rejected, are quashed.

Summary

Issues involved:
The issues involved in this judgment are the validity of the notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2011-12 and the challenge to the order disposing of the objections raised by the petitioner regarding the reasons for reassessment.

Validity of Notice under Section 148:
The main issue for consideration was whether the Assessing Officer (AO) had validly initiated reassessment proceedings against the petitioner. The petitioner had previously filed its Return of Income (ROI) for the relevant Assessment Year and the AO had issued a notice under Section 143(2) for scrutiny. The petitioner had also responded to queries, including those related to deductions claimed under Section 80-IC of the Act. An assessment order was subsequently framed accepting the ROI, with the petitioner paying taxes based on book profit calculated under Section 115JB.

Challenge to Reassessment Proceedings:
The petitioner contended that the reassessment proceedings, initiated after four years, were unjustified as all material facts had been disclosed. The petitioner argued that the AO's decision was based on an audit objection without independent assessment. The petitioner emphasized that the deduction under Section 80-IC was correctly claimed and that the reassessment amounted to a change of opinion without fresh material. The objections raised by the petitioner were rejected by the AO, leading to the filing of the writ petition.

Analysis of Reasons for Reassessment:
The court examined the reasons for reassessment, which were based on audit objections related to deductions claimed under Section 80-IC. The auditor had flagged notional losses from previous assessment years that were not set off, leading to a perceived short levy of tax. However, the AO had already considered the set-off of losses for Unit-III against other units, and the deduction was claimed correctly. The court noted that the AO did not independently assess the situation and relied solely on the audit objection, leading to the flawed initiation of reassessment proceedings.

Conclusion:
The court found that the reassessment proceedings were initiated without proper consideration of all relevant facts, leading to a flawed decision. The court quashed the notice dated 02.08.2017 and the order rejecting the petitioner's objections. The writ petition was allowed, and parties were directed to act based on the digitally signed copy of the order.