2018 (1) TMI 146 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - The assessment was completed under Section 143(3) of the Act. Thus all materials were available in the hands of the assessing officer and the impugned re-assessment proceedings is clearly a case of change of opinion and on the facts noted above and by applying the law laid down in the aforementioned decisions the impugned proceedings are illegal and not sustainable. - Decided in favour of assessee.

Summary

Issues:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961
2. Rejection of petitioner's objection to the re-opening proceedings
3. Reliance on audit objection for re-opening assessment
4. Legality of re-opening assessment solely based on audit objection
5. Jurisdiction of assessing officer in re-opening assessment

Analysis:

Issue 1: Validity of Notice under Section 148
The petitioner challenged the notice issued by the respondent under Section 148 of the Income Tax Act, 1961, seeking to tax an amount of ?193.53 crore reversed from provisions credited in the assessment year 2009-10. The petitioner argued that the re-opening was challenged on technical grounds, questioning the sustainability of the re-opening.

Issue 2: Rejection of Objection to Re-opening
The petitioner's objection to the re-opening proceedings was rejected by the respondent, leading to the filing of the writ petition seeking the quashing of the notice and order. The petitioner's company had withdrawn a portion of provisions, which was reversed and considered as taxable income for the assessment year 2010-11.

Issue 3: Reliance on Audit Objection
The impugned re-opening proceedings were based on an audit objection communicated to the Department. However, the Central Board of Direct Taxes did not accept the audit objection, as stated in a letter addressed to the Director (RA), office of the C&AG of India. Despite this, the assessing officer proceeded with the re-opening, leading to a challenge on the grounds of lack of independent material.

Issue 4: Legality of Re-opening based on Audit Objection
The assessing officer's decision to re-open the assessment solely on the basis of an audit objection was questioned. Legal precedents were cited, emphasizing that the assessing officer cannot blindly follow the opinion of an audit authority and must have a reasonable belief of income escaping assessment. The court referred to relevant judgments highlighting the need for independent application of mind by the assessing officer.

Issue 5: Jurisdiction of Assessing Officer
The court analyzed whether the re-opening proceedings were a change of opinion, as the assessing officer had all materials available during the initial assessment under Section 143(3) of the Act. The court concluded that the re-assessment proceedings were a case of change of opinion and, therefore, illegal and not sustainable, leading to the quashing of the impugned proceedings.

In conclusion, the High Court allowed the writ petition, quashing the re-opening proceedings, and highlighted the importance of independent assessment by the assessing officer, emphasizing the need for a reasonable belief of income escaping assessment.