2017 (11) TMI 681 - HC - Income Tax

Re-opening of assessment - reopening of assessment on the ground that the same was prompted by audit objection - ITAT quashing reopening orders - Held that - Audit note dated 24.06.2010 pointing out that the assessee was engaged in the business of manufacturing ceramic tiles. The assessee had incurred a sum of ₹ 19,99,107/- of prior period expenses but added only ₹ 8,18,923/- out of this sum instead of the entire sum of ₹ 19,99,107/-. The Assessing Officer responded to such audit objection in letter dated 10.02.2011 conveying that he does not agree to such audit objection since according to him the expenditure had actually crystallized during the year under consideration and therefore rightly allowed. He concluded that such objection may therefore be dropped. Despite this, he eventually issued the notice for reopening by recording reasons which only referred to this discrepancy. We also have further letter dated 30.12.2011 of the Assessing Officer to the Accountant General reiterating that the audit objection was not acceptable despite which reassessment was framed. It can thus be seen that all along the Assessing Officer was under compulsion to act according to the point of view of the audit party although he himself did not agree with such view point. From the stage of reassessment till the reopening of assessment he had acted only mechanically, perhaps in compulsion - Decided against revenue.

Summary

Issues:
Validity of reopening of assessment based on audit objection.

Analysis:
1. The main issue in this case is the validity of the reopening of assessment of the respondent assessee for the assessment year 2006-07. The Revenue argues that the notice for reopening was issued within the prescribed period and after recording proper reasons, making it valid. However, the Tribunal set aside the reopening, noting that it was prompted by an audit objection. The Tribunal observed a note by the Assessing Officer stating that the assessment was completed due to the audit objection raised by the Revenue Audit Party.

2. To gather correct facts, the court requested the original assessment file. The file contained documents showing that the Assessing Officer was compelled by the audit party to reopen the assessment. An audit note dated 24.06.2010 highlighted that the assessee had incurred certain expenses, but only a portion was added back by the Assessing Officer. Despite the officer's disagreement with the audit objection, he eventually issued a notice for reopening based solely on this discrepancy. Further correspondence reiterated the officer's stance against the audit objection.

3. The court observed that the Assessing Officer had been acting under compulsion from the audit party, despite his disagreement with their viewpoint. It was evident that from reassessment to the reopening of assessment, the officer had been acting mechanically, likely due to external pressure.

4. Ultimately, the court found no error in the Tribunal's decision. The Tax Appeal was dismissed, upholding the Tribunal's view on the validity of the reopening of assessment based on an audit objection.