2020 (7) TMI 571 - HC - Income Tax

Reopening of assessment u/s 147 - mandation of formation of belief by the Income Tax Officer - reference to views and objections of the audit party - HELD THAT - Gujarat High Court in Adani Exports 1998 (12) TMI 51 - GUJARAT HIGH COURT wherein it has been held that though the audit objection may serve as information, the basis of which the Income Tax Officer can act, the ultimate action must depend directly and solely on the formation of belief by the Income Tax Officer on his own, where such information passed on to him by the audit that income has escaped assessment. Underlying legal principles is that the independence of the Assessing Officer cannot be interfered or questioned. No person can advice the AO to proceed with the assessment in a particular fashion. It is for the Assessing Officer to assess the books of accounts of the assessee and to frame the assessment. On the other hand, if the AO relies upon the borrowed material, it would be amounting to abdicating his duty as an AO. Thus, we find that the decision taken by the CIT(A) as affirmed by the tribunal, does not call for any interference. - Decided against revenue.

Summary

Issues:
1. Reopening of assessment based on audit objection as bad in law.
2. Cancelling the reopening of assessment without considering income escapement from forward contracts.

Analysis:
1. The appeal was filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal canceling the reopening of assessment based on audit objection. The main issue was whether the objection communicated by the audit party could be a valid reason for reopening the assessment. The Assessee argued that reopening the assessment solely based on the audit objection was not justified as it was not a valid reason under the Income Tax Act. The CIT(A) and the tribunal found in favor of the Assessee, citing legal precedents that the report of the audit party alone cannot be considered as sufficient reason to reopen an assessment. The tribunal emphasized that the Assessing Officer must form an independent opinion based on his own belief that income has escaped assessment.

2. The second issue revolved around the cancellation of forward contracts and claiming it as a business loss. The revenue contended that the income escapement from the cancellation of forward contracts should have been considered in the assessment. However, the CIT(A) and the tribunal ruled in favor of the Assessee, stating that the reopening of assessment was not justified and that the Assessing Officer's reliance on the audit objection alone was not sufficient to reopen the assessment. The tribunal referred to legal principles emphasizing the independence of the Assessing Officer in forming his beliefs and conducting assessments.

In conclusion, the High Court upheld the decisions of the CIT(A) and the tribunal, dismissing the appeal filed by the revenue. The Court found that the reopening of assessment based solely on the audit objection was not valid under the Income Tax Act. The Court emphasized the importance of the Assessing Officer forming an independent opinion and not relying solely on external suggestions. The judgment favored the Assessee, and the substantial Questions of Law were answered against the revenue, resulting in the appeal being dismissed with no costs incurred.