2015 (6) TMI 56 - AT - Income Tax

Reopening of assessment - reasons for assessment reopened are identical to the objections of the audit party - tangible material i - Held that - Reasons for which the assessment is sought to be reopened are identical to the objections of the audit party and therefore the reasons did not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there is no independent application of mind by the A.O. before issuing the notice u/s 148 of the Act. The facts in the case before us are identical to that of the case of ICICI Home Finance Ltd. (2012 (8) TMI 312 - BOMBAY HIGH COURT), therefore, following the judgment above as well as in the case of Asian Paints Ltd. (2008 (7) TMI 237 - BOMBAY HIGH COURT), we hold that the A.O. has reopened the assessment without any application of mind and accordingly the reopening is not sustainable in law. Hence, we quash the reassessment for both the assessment years. - Decided in favour of assesse.

Summary

Issues:
Validity of reopening of assessment under section 147 of the Income Tax Act for assessment years 2004-05 and 2005-06.

Analysis:
The appeals by the assessee and the Revenue were directed against the orders of the CIT(A) confirming the stand of the Assessing Officer in reopening the assessments. The main issue raised by the assessee was the legality of the reopening under section 147 of the Act. The assessments for the years in question were reopened based on audit objections, with the A.O. disallowing certain expenses. The assessee contended that the A.O. did not form an independent opinion but blindly followed the audit objections. The A.O. had not even read the audit objection properly and merely reproduced it as reasons for reopening. The A.O. did not state that there were reasons to believe income had escaped assessment. The audit party's observations were taken as reasons for reopening without an independent application of mind by the A.O.

The assessee argued that the reopening was based on factual errors pointed out by the audit party, not on new tangible material, as required by law. The jurisdictional High Court's judgments in the cases of Asian Paints Ltd. and ICICI Home Finance Co. Ltd. were cited, emphasizing the need for the A.O. to have a reasonable belief based on new material, not a mere change of opinion. The High Court held that reopening based on audit objections without independent application of mind by the A.O. is not permissible. The A.O. in this case did not demonstrate an independent opinion but relied solely on the audit party's observations.

Based on the above analysis and the precedents cited, the Tribunal held that the A.O. had reopened the assessments without proper application of mind, rendering the reopening invalid. Consequently, the reassessments for both years were quashed. As the reassessment was deemed invalid, other grounds raised by both the assessee and the Revenue became irrelevant. Therefore, the appeals of the assessee were allowed, and the appeal of the Revenue was dismissed.

In conclusion, the Tribunal found that the reopening of assessments for the years in question was not based on new tangible material but on audit objections, without an independent opinion by the A.O. This lack of proper application of mind made the reopening invalid, leading to the quashing of the reassessments.