2015 (8) TMI 571 - HC - Income Tax

Reopening of assessment - reliance on Audit report - Held that - In a case like this where even while sending the proposal to the higher authority to grant the approval for initiation of the reassessment proceedings, the Assessing Officer still maintain that audit objection raised by the audit party is not valid and/or correct. Therefore, as such it cannot be said that the Assessing Officer had independently formed an opinion and/or had reason to believe independently that the income chargeable to tax has escaped assessment. From the correspondence between the Assessing Officer and the higher authority it appears that though the Assessing Officer maintains that the audit objection raised by the audit party is not correct, however as the amount involved is very high as mentioned by the audit party and to safeguard the interest of the Revenue and the guidelines issued the reassessment proceedings have been initiated. Therefore, as such the formation of the opinion by the Assessing Officer that the income chargeable to tax has escaped assessment has been vitiated and therefore, the impugned reopening of the assessment cannot be sustained and the same deserves to be quashed and set aside. Now, so far as the submission of revenue that as now, the order of assessment/reassessment under section 143(3) r/w section 147 has been passed and therefore, the present petition may not be entertained is concerned, it is required to be noted that as such, the reassessment proceeding has been passed during the pendency of the present petition. Even otherwise, when the reopening of the assessment is found to be invalid and not justifiable and the same is solely based on the audit objection raised by the audit party, this is a fit case to exercise the powers under Article 226 of the Constitution of India. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act for reopening the assessment.
2. Whether the reopening of the assessment was based solely on the audit objection.
3. Whether there was an independent formation of opinion by the Assessing Officer.
4. Consideration of objections raised by the petitioner against reopening.
5. Relevance of prior judicial decisions cited by both parties.
6. The appropriateness of exercising powers under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act for reopening the assessment:
The petitioner challenged the notice dated 13.8.2013 issued under Section 148 of the Income Tax Act, aiming to reopen the original assessment for AY 2010-11. The petitioner argued that the reopening was based solely on the audit objection, which is not permissible. The court examined whether the Assessing Officer had an independent reason to believe that income had escaped assessment.

2. Whether the reopening of the assessment was based solely on the audit objection:
The petitioner contended that the reopening was solely based on the audit objection. The court scrutinized the relevant files and found that the audit party had issued an objection, which was initially opposed by the Assessing Officer. However, despite the Assessing Officer's disagreement, the Commissioner of Income Tax instructed the reopening of the assessment based on the audit objection. The court concluded that the reopening was indeed solely based on the audit objection, which is impermissible.

3. Whether there was an independent formation of opinion by the Assessing Officer:
The court found that the Assessing Officer did not independently form an opinion that income had escaped assessment. The files showed that the Assessing Officer maintained that the audit objection was not valid but proceeded with the reopening to safeguard the revenue. The court held that there was no independent formation of opinion by the Assessing Officer, which vitiated the reopening process.

4. Consideration of objections raised by the petitioner against reopening:
The petitioner had raised specific objections against the reopening, stating that it was based on the audit objection. The court noted that these objections were not adequately addressed by the Assessing Officer in his communication. Even in the affidavit in reply, the Revenue did not deal with the petitioner's specific ground. The court emphasized that the Assessing Officer must independently form an opinion rather than rely solely on audit objections.

5. Relevance of prior judicial decisions cited by both parties:
The petitioner relied on decisions such as Commissioner of Income-tax, Ahmedabad-IV vs. Shilp Gravures Ltd. and Rajrtan Metal Industries Ltd vs. Assistant Commissioner of Income Tax, which held that reassessment based solely on audit objections is not permissible. The Revenue cited decisions like Commissioner of Income Tax v. P.V.S. Beedies Pvt. Ltd. and N.K. Industries Ltd. v. Income Tax Officer (OSD), arguing that reopening based on audit information is permissible if the Assessing Officer forms an independent opinion. The court distinguished these cases, noting that in the present case, there was no independent opinion formed by the Assessing Officer.

6. The appropriateness of exercising powers under Article 226 of the Constitution of India:
The Revenue argued that since the reassessment order had already been passed, the petitioner should seek remedy through appeal. However, the court held that since the reopening of the assessment was found to be invalid and solely based on the audit objection, it was appropriate to exercise powers under Article 226 of the Constitution of India. The court quashed the notice under Section 148 and the consequential reassessment order.

Conclusion:
The court allowed the petition, quashing the impugned notice dated 13.8.2013 issued under Section 148 of the Income Tax Act and the consequential reassessment order. The court held that the reopening of the assessment was invalid as it was based solely on the audit objection without an independent formation of opinion by the Assessing Officer. The rule was made absolute with no order as to costs.

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