2019 (12) TMI 154 - HC - Income Tax

Reopening of assessment u/s 147 - Reopening at insistence of the audit department - HELD THAT - In the present case, from the audit para it emerges that upon the audit department bringing the above two issues to the notice of the AO, the AO did not agree with the objections raised by the audit department and expressed the opinion that the original assessment was not erroneous. It appears that on the insistence of the audit department, which found that the reply of the Assessing Officer was not tenable, AO has reopened the assessment. In the aforesaid premises, it is evident that the AO did not form the requisite belief that income chargeable to tax has escaped assessment, but the reasons have been recorded on the basis of borrowed satisfaction of the audit department and not that of the Assessing Officer. Basic requirement for assumption of jurisdiction u/s 147 namely the formation of belief on the part of the Assessing Officer that income chargeable to tax has escaped assessment, is not satisfied in the present case. The assumption of jurisdiction by the AO u/s 147 of the Act is, therefore, invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained. Petition succeeds and is, accordingly, allowed.

Issues Involved:
1. Validity of reopening assessment under section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose material facts necessary for assessment.
3. Whether reopening is based on a mere change of opinion.
4. Whether reopening is based on audit objections.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 23.03.2018 issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2012-13. The petitioner argued that the notice was issued beyond four years from the end of the relevant assessment year, and there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment.

2. Alleged Failure to Disclose Material Facts Necessary for Assessment:
The petitioner contended that all relevant facts were duly placed before the Assessing Officer during the original assessment proceedings. The Assessing Officer had specifically called upon the petitioner to explain the provision for future development expenses and the gain on retirement from a partnership firm. The petitioner provided detailed explanations, which were accepted by the Assessing Officer, and no additions were made in respect of these issues in the original assessment under section 143(3) of the Act.

3. Whether Reopening is Based on a Mere Change of Opinion:
The court examined whether the Assessing Officer had applied his mind to the issues during the original assessment. It was found that the Assessing Officer had indeed called for explanations regarding the provision for future development expenses and the gain on retirement from the partnership firm. The petitioner had provided detailed explanations, which were accepted by the Assessing Officer. The court referred to the decision in Cliantha Research Ltd. v. Deputy Commissioner of Income-tax, which held that merely examining an issue from a different angle does not justify reopening the assessment. The court also referred to the Supreme Court's decision in Income Tax Officer, Ward No.16(2) v. TechSpan India (P.) Ltd., which held that reassessment based on a change of opinion on the same facts and circumstances is invalid.

4. Whether Reopening is Based on Audit Objections:
The petitioner obtained a copy of the audit para under the Right to Information Act, 2005, which revealed that the audit department had raised objections regarding the provision for future development expenses and the gain on retirement from the partnership firm. The Assessing Officer did not accept the objections and provided explanations, but the audit department found the replies untenable. The court referred to the decision in Adani Exports v. Deputy Commissioner of Income Tax (Assessments), which held that the formation of belief must be that of the Assessing Officer and not based on the borrowed satisfaction of the audit department. The court concluded that the reopening of the assessment was based on the borrowed satisfaction of the audit department and not on the independent belief of the Assessing Officer.

Conclusion:
The court held that the reopening of the assessment was invalid as it was based on a mere change of opinion and the borrowed satisfaction of the audit department. The impugned notice dated 23.03.2018 issued under section 148 of the Act was quashed and set aside. The petition was allowed, with no order as to costs.

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