2017 (9) TMI 815 - AT - Income Tax

Re-opening of assessment u/s.147 - proceedings initiated only on the basis of the audit objection without any application of mind by the AO - reasons to believe - Held that - For issuance of notice u/s 148 beyond a period of 4 years from the end of the relevant A.Y, it was necessary for AO to record that the income has escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. We have also gone through the order sheet entries of the AO placed filed by the Revenue and there is no recording whatsoever even in the order sheet that there is escapement of income due to failure of the assessee to disclose truly and fully all material facts. The CIT (DR) has tried to justify that there is failure on the part of the assessee to disclose fully and truly all material facts by drawing our attention to the financials of the assessee but it is the AO who has to record the finding and not the CIT (DR). It has been held that the AO has to speak his mind through his order and it cannot be presumed in the absence of any such recording. In the case before us the assessee has filed the return of income for the relevant financial year and it is only from these documents that the audit party has raised its objections. Thus, there is no new material which has come to the notice of the audit party or the AO for raising such objection or forming a belief that there is escapement of income. When all the material facts were part of the record, even if there is loss of revenue, it cannot be reassessed after lapse of four years from the end of the relevant A.Y unless the loss has occurred due to failure on the part of the assessee to disclose fully and truly all material facts. Since the preconditions for initiation of proceedings u/s 147 of the Act by issuance of notice u/s 148 of the Act are not satisfied, we see no reason to interfere with the order of the CIT (A) and the Revenue s appeal is accordingly dismissed.

Issues Involved:
1. Validity of reopening assessment under section 147 of the Income Tax Act.
2. Consideration of audit objections as the basis for reopening.
3. Requirement of full and true disclosure by the assessee.
4. Application of judicial precedents to the facts of the case.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act:
The primary issue was whether the reassessment proceedings initiated under section 147 were valid. The assessee's original assessment was completed under section 143(3) on 15.12.2008, and the notice for reopening was issued on 26.03.2013, which is beyond the four-year period from the end of the relevant assessment year (A.Y 2005-06). The proviso to section 147 requires that for reopening beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal found that the reasons recorded for reopening did not mention any failure by the assessee to disclose fully and truly all material facts. Therefore, the reassessment proceedings were held to be invalid.

2. Consideration of Audit Objections as the Basis for Reopening:
The Revenue contended that the reopening was based on audit objections, which can be considered as valid information for reopening an assessment. The Tribunal noted that while audit objections can be a source of information, the Assessing Officer (AO) must independently apply his mind and form a belief that there is escapement of income. The Tribunal found that the AO had merely reproduced the audit objections as reasons for reopening without independently verifying the assessment records or forming an independent belief. This reliance on audit objections alone was deemed insufficient for valid reassessment.

3. Requirement of Full and True Disclosure by the Assessee:
The Tribunal examined whether there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The assessee had filed its return of income and disclosed all material facts. The Tribunal found that the audit objections were based on information already available in the assessment records, indicating no new material had come to light. Since the AO did not record any failure by the assessee to disclose material facts, the reassessment proceedings were held to be invalid.

4. Application of Judicial Precedents to the Facts of the Case:
The Tribunal considered various judicial precedents cited by both parties. The Revenue relied on cases such as CIT vs. PVS Beedis Pvt. Ltd, where audit objections were considered valid information for reopening. However, the Tribunal noted that these cases were decided under the pre-amended provisions of section 147, which did not require the AO to record a failure by the assessee to disclose material facts. The Tribunal found that the current provisions require such a recording, and since the AO did not comply with this requirement, the reassessment was invalid.

The assessee cited cases like CIT vs. LGE & C-NCC (Jt. Venture) and CIT vs. Arvind Remedies Ltd, where courts held that reopening beyond four years without recording a failure by the assessee to disclose material facts was invalid. The Tribunal found these precedents applicable and supportive of the assessee's case.

Conclusion:
The Tribunal dismissed the Revenue's appeal, holding that the reassessment proceedings were invalid as they were based solely on audit objections without independent application of mind by the AO and without recording any failure by the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal upheld the CIT(A)'s order quashing the reassessment proceedings as void ab initio.

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