2015 (8) TMI 722 - HC - Income Tax

Validity of reopening of assessment - Held that - even while sending the proposal/proforma report to the higher authority to grant approval for reopening the assessment, the Assessing Officer continued to maintain that the audit objection raised by the audit party is not acceptable and only with a view to protect the revenue and/or safeguards the interest of the revenue, it was proposed to reopen the assessment under section 147 of the Act. There is no independent formation of opinion by the Assessing Officer that the amount of ₹ 3,26,65,256/- has escaped assessment. The complete assessment has been reopened only at the instance of the audit party and/or on the audit objection raised by the audit party, which is not permissible. Therefore, in the facts and circumstances of the case, formation of opinion by the Assessing Officer while reopening the completed assessment and his reason to believe that the income as escaped assessment has been vitiated and therefore, reopening assessment proceedings for AY 2010-11 is not valid and permissible. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of reopening the assessment under Section 148 of the Income Tax Act.
2. Basis of reopening the assessment, specifically whether it was solely based on audit objections.
3. Independent formation of opinion by the Assessing Officer regarding income escaping assessment.
4. Validity of the reassessment proceedings and order.

Detailed Analysis:

1. Legitimacy of Reopening the Assessment under Section 148 of the Income Tax Act:
The petitioner challenged the notice dated 13.8.2013 issued under Section 148 of the Income Tax Act to reopen the assessment for AY 2010-11. The petitioner argued that the reopening was solely based on audit objections, which is not permissible under the law. The petitioner had filed a return of income for AY 2010-11, which was scrutinized, and the assessment was completed under Section 143(3) of the Act. The respondent issued the impugned notice to reassess the total income, which the petitioner opposed, arguing that the reopening was invalid.

2. Basis of Reopening the Assessment:
The petitioner contended that the reopening of the assessment was based solely on the audit objections raised by the audit party, which vitiated the formation of opinion by the Assessing Officer. The petitioner cited the decisions in Commissioner of Income-tax, Ahmedabad-IV vs. Shilp Gravures Ltd. and Rajrtan Metal Industries Ltd vs. Assistant Commissioner of Income Tax to support their argument. The respondent, however, argued that the reopening was justified and in consonance with Section 147 of the Act, as the petitioner had claimed a higher rate of depreciation (30%) which was not admissible.

3. Independent Formation of Opinion by the Assessing Officer:
The court examined whether the Assessing Officer had independently formed an opinion that the income had escaped assessment. The file revealed that the audit party had issued objections, which the Assessing Officer initially opposed, justifying the higher depreciation rate. However, the Commissioner of Income Tax instructed the reopening of the assessment. The Deputy Commissioner of Income Tax, despite maintaining that the audit objections were not valid, proposed reopening to safeguard revenue interests. The court found that there was no independent formation of opinion by the Assessing Officer, and the reopening was solely based on audit objections.

4. Validity of the Reassessment Proceedings and Order:
The court concluded that the reopening of the assessment was invalid as it was solely based on audit objections without independent formation of opinion by the Assessing Officer. The reassessment proceedings and the subsequent order were thus found to be vitiated. The court referenced the decisions in Shilp Gravures Ltd. and Raajratna Metal Industries Ltd., which held that reassessment initiated solely on audit objections without independent belief by the Assessing Officer must fail. The court also distinguished the present case from the decisions in P.V.S. Beedies Pvt. Ltd. and N.K. Industries Ltd., emphasizing the need for independent opinion formation by the Assessing Officer.

Conclusion:
The court quashed the impugned notice dated 13.8.2013 issued under Section 148 of the Income Tax Act and the consequential reassessment order dated 13.1.2015 for AY 2010-11. The court exercised its powers under Article 226 of the Constitution of India, finding the reopening of the assessment invalid and not justifiable. The rule was made absolute with no order as to costs.

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