2024 (12) TMI 201 - HC - Income Tax

Validity of reassessment proceedings - reopening based on audit objection - reply filed by the assessee ignored - HELD THAT - We are of the opinion that the impugned notice as well as the order passed u/s 148 and Section 148A(d) of the Act respectively are not tenable as the AO could not have assumed jurisdiction in view of the audit objection which is contrary to the facts and evidence on record, more particularly when the department itself has accepted and granted depreciation on the goodwill claimed by the assessee for the earlier years. No reassessment proceedings could have been initiated by AO on the basis such audit objection. It is true that as per provision of Section 148 as amended from 1.4.2021 even the audit objection can be considered for reopening the assessment as part of information . However, it does not mean that merely because the audit objection is raised, the AO is bound to issue notice under Section 148 of the Act merely by reiterating what is stated in the audit objection ignoring the facts of the case and contents of the reply filed by the assessee pursuant to the notice issued under section 148A (b) of the Act. Therefore, the impugned order passed u/s 148A(d) of the Act cannot be sustained as it can not be said to be a fit case to reopen the assessment by any stretch of imagination. It is pertinent to note that merely producing of audit objection in the order under Section 148A(d) of the Act ignoring the reply filed by the assessee is nothing but non application of mind on the part of the AO. Assessee appeal allowed.

Issues Involved:

1. Validity of the notice issued under Section 148A(b) of the Income Tax Act.
2. Consideration of audit objections as a basis for reopening assessment.
3. Application of mind by the Assessing Officer in issuing the notice.
4. Consistency in allowing depreciation on goodwill from previous assessment years.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148A(b):

The petitions challenged the notice issued under Section 148A(b) of the Income Tax Act for the Assessment Years 2017-18 and 2018-19, arguing that the notice was based solely on audit objections. The petitioner contended that the notice was invalid as it contained factual inaccuracies and was issued despite the fact that the depreciation on goodwill had been accepted in prior assessments. The court found that the notice was not tenable as the Assessing Officer had not considered the petitioner's detailed reply and had issued the notice based on incorrect audit objections, thereby lacking jurisdiction.

2. Consideration of Audit Objections as a Basis for Reopening Assessment:

The court examined whether audit objections could serve as a valid basis for reopening assessments. While acknowledging that post-2021 amendments allow audit objections to be considered as "information" for reopening assessments, the court emphasized that this does not obligate the Assessing Officer to issue a notice based solely on such objections. The court criticized the reliance on audit objections without independent verification or consideration of the facts and evidence on record, particularly when the department had previously accepted the depreciation claims.

3. Application of Mind by the Assessing Officer:

The court highlighted the lack of application of mind by the Assessing Officer in issuing the notice under Section 148A(d). It was noted that the Assessing Officer merely reiterated the audit objections without addressing the petitioner's response, which pointed out that the depreciation on goodwill had been consistently allowed since the Assessment Year 2015-16. The court found this approach to be indicative of non-application of mind, rendering the notice and subsequent order unsustainable.

4. Consistency in Allowing Depreciation on Goodwill:

The petitioner argued that the depreciation on goodwill had been granted from the Assessment Year 2015-16 onwards, and thus, the reassessment notice was unjustified. The court agreed, noting that the Assessing Officer could not reopen assessments for subsequent years based on facts that were already available and accepted in earlier assessments. The court concluded that the reassessment proceedings initiated on the basis of the audit objection were contrary to the established facts and prior assessments.

Conclusion:

The court quashed the notices and orders issued under Sections 148A(b), 148A(d), and 148 of the Income Tax Act, finding them to be based on incorrect audit objections and issued without proper consideration of the petitioner's responses and the factual record. The petitions were allowed, and the rule was made absolute, with no order as to costs.

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