2024 (7) TMI 352 - HC - Income Tax

Validity of reassessment proceedings - reason provided in the corrigendum can be considered as a new tangible material sufficient for initiating reassessment proceedings or not? - HEKD THAT - Since the reassessment proceedings before the issuance of corrigendum were initiated on the basis of a report furnished by the Audit Party, it is pertinent to examine the scope and extent of such information constituting fresh tangible material. In the case of Indian Eastern Newspaper Society 1979 (8) TMI 1 - SUPREME COURT has held that an audit by the Comptroller and Auditor General of India is principally intended for the purposes of satisfying itself with regard to the sufficiency of the rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. The relevant Internal Audit Manuals and Circulars indicate that Audit Department should not in any way substitute itself for the Revenue authorities in the performance of their statutory duties. It remains established that tangible material or factual information can be received from various external sources and the objections raised by an Audit Party is not absolutely barred. In Transworld International Inc. 2004 (9) TMI 26 - DELHI HIGH COURT this Court has observed that factual information can come from various sources including an audit objection. But a blanket reliance should not be placed on such objection to initiate reassessment proceedings and the AO must apply its own mind. Reverting to the facts of the present case, undisputedly, the proceedings dated 30 July 2022 were firstly closed by the respondents upon being satisfied after a perusal of the audited final accounts filed by the petitioner indicating that there was no immovable property held by the petitioner as on 01 April 2016 and therefore, there was no sale undertaken by it.However, on 30 July 2022 itself i.e., hours after terminating the reassessment proceedings, the respondents again issued a corrigendum initiating the reassessment proceedings. Corrigendum issued to the order u/s 148A(d) - It is palpably observed from the extract of the impugned corrigendum that no new material has been found by the Revenue which would warrant reopening the assessment. A reading of the aforesaid two notices would crystallize the fact that the corrigendum has been issued merely on the basis of a change of opinion as two different conclusions are being drawn on the basis of same material i.e., audited final accounts of the petitioner. Thus, the AO has apparently reviewed its own decision, which is not permissible as per the settled law. It is trite that under the guise of power vested in the Revenue to reassess an income which had escaped assessment upon production of fresh tangible material, it cannot be allowed to exercise the power of review. It is apposite to refer to the decision of the Supreme Court CIT v. Techspan India (P) Ltd. 2018 (4) TMI 1376 - SUPREME COURT Thus, we are of the opinion that the impugned proceedings are unsustainable and deserve to be quashed. Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of the corrigendum issued to the order under Section 148A(d) of the Act.
3. Whether the reasons provided in the corrigendum constitute new tangible material sufficient for initiating reassessment proceedings.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 30 July 2022 issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2017-18. Initially, the respondents issued a notice on 28 June 2021, proposing to reassess the income based on a belief that certain income had escaped assessment. However, this notice was quashed by the Court in light of the Supreme Court's judgment in Union of India & Others v. Ashish Agarwal. Subsequently, a show cause notice under Section 148A(b) was issued on 24 May 2022.

The petitioner responded, asserting no sale of immovable property during the concerned AY and clarifying transactions involving the purchase of property. The respondents initially concluded that reassessment proceedings could not continue as it was not a suitable case for issuing a notice under Section 148. However, on the same date, a corrigendum was issued, allowing the continuation of reassessment proceedings.

2. Legitimacy of the Corrigendum Issued to the Order Under Section 148A(d) of the Act:
The petitioner contended that the corrigendum issued was an afterthought and reflected a non-application of mind by the respondents. They argued that reassessment proceedings cannot be initiated based on mere suspicion or incorrect information. The respondents, on the other hand, argued that the notice was issued after final objections were raised by the Comptroller and Auditor General of India, indicating that the assessment was not made in accordance with the provisions of the Act.

The Court examined whether the corrigendum could be considered as a new tangible material sufficient for initiating reassessment proceedings. It was noted that the proceedings were initially closed upon being satisfied with the audited final accounts indicating no immovable property held by the petitioner. However, the corrigendum was issued merely hours after terminating the reassessment proceedings, without any new material being found.

3. Whether the Reasons Provided in the Corrigendum Constitute New Tangible Material Sufficient for Initiating Reassessment Proceedings:
The Court referred to the Supreme Court's judgment in Indian & Eastern Newspaper Society v. CIT, which held that an audit by the Comptroller and Auditor General of India is intended for satisfying the sufficiency of rules and procedures, not for substituting the Revenue authorities' statutory duties. It was observed that audit objections constitute merely information and cannot be a solitary basis for initiating reassessment proceedings.

The Court also cited CIT v. Kelvinator of India Ltd., which emphasized that reopening an assessment requires tangible material showing that income has escaped assessment. The reasons recorded for reassessment must have a live link with the formation of the belief, and a mere change of opinion does not justify reassessment.

In the present case, the corrigendum was issued based on the same material as the initial order, indicating a mere change of opinion rather than new tangible material. The Court concluded that the AO had reviewed its own decision, which is not permissible under the law.

Conclusion:
The Court found that the reassessment proceedings initiated via the corrigendum were unsustainable as they were based on a mere change of opinion without any new tangible material. Consequently, the writ petition was allowed, and the notice issued via corrigendum dated 30 July 2022, along with all consequential proceedings, was quashed. The writ petition was disposed of along with any pending applications.

← Previous Next →