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TMI Blog2015 (9) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 of the Act. He must, on its own wisdom, come to a conclusion and hold a belief that an income had escaped assessment to tax. Since this belief was not recorded by the Assessing Officer the issuance of the notice was done mechanically without any application of mind. Such action amounts to change of opinion, which is not permissible. Since the foundational requirement for issuance of a notice was lacking and the condition precedent for initiating a valid reassessment proceedings were not existing, we are of the opinion that the impugned notice issued under Section 148 of the Act initiating reassessment proceeding for the assessment year 2007-08 could not be sustained and is quashed. The order dated 19.09.2011 rejecting the objections is also quashed. - Decided in favour of assessee. - Civil Misc. Writ Petition No. 1587 of 2011 - - - Dated:- 8-9-2015 - Hon'ble Tarun Agarwala And Hon'ble Surya Prakash Keserwani, JJ. ORDER (Per: Tarun Agarwala, J.) The petitioner has challenged the reassessment proceeding under Sections 147 and 148 of the Income Tax Act (hereinafter referred to as the Act). For the said assessment year 2007-08, the assessee filed a return dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned counsel submitted that reopening of assessment proceedings on the basis of an audit report amounts to a change of opinion. In support of his submission, the learned counsel has placed reliance upon the decisions in Indian And Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, 1979 AIR SC 1960, Commissioner of Income Tax Vs. Lucas T.V.S.Ltd, 234 I.T.R. 296 (Mad.), Commissioner of Income Tax Vs. Lucas T.V.S. Ltd., 249 I.T.R. 306 SC and Indian Oil Corporation Limited Vs. Income Tax Officer, Central Circle V, Calcutta, AIR 1987 SC 1897. On the other hand, the learned counsel for the Department submitted that the condition precedent for initiating reassessment proceedings existed in the instant case and that the Assessing Officer had reasons to believe that the income had escaped assessment, which was based on the audit report. It was also submitted that in the instant case, it was not the internal audit report but the report given by the Comptroller and Auditor General. The learned counsel further submitted that the decisions cited by the petitioners are not applicable as they relate to the interpretation of Section 147 of the Act, which ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act is read as referring to information as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which because it issues from a competent legislature or a competent judicial or quasi-judicial authority, influence the course of the assessment and decides any one or more of those matters which determine the assessee's tax liability. 10. In determining the status of an internal audit report, it is necessary to consider the nature and scope of the functions of an internal audit party. The internal audit organisation of the Income Tax Department was set up primarily for imposing a check over the arithmetical accuracy of the computation of income and the determination of tax, and now, because of the audit of income-tax receipts being entrusted to the Comptroller and Auditor-General of India from 1960, it is intended as an exercise in removing mistakes and errors in income tax records before they are submitted to the scrutiny of the Comptroller and Auditor-General. Consequently, the nature of its work and the scope of audit have assumed a dimension co-extensive with that of Receipt Audit. The nature and scope of Recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an internal audit report the status of a declaration of law binding on the Income Tax Officer. Whether it is the internal audit party of the Income Tax Department or an audit party of the Comptroller and Auditor- General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi-judicial acts of income tax authorities. The Income Tax Act does not contemplate such power in any internal audit organisation of the Income Tax Department; it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions. Nor does section 16 of the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971 envisage such a power for the attainment of the objectives incorporated therein. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to information within the meaning of section 147(b) of the Income Tax Act, 1961. 12. But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the Income Tax officer to it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, where a Bench of two learned Judges of this Court observed that a case where income had escaped assessment due to the oversight, inadvertence or mistake of the Income Tax officer must fall within section 34 (1) (b) of the Indian Income Tax Act,1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income Tax officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this Court in Kamal Singh v. Commissioner of Income Tax (supra), Commissioner of Income Tax v. Raman and Company (supra) and Bankipur Club Ltd. v. Commissioner of Income Tax, 1971 82 ITR 831 SC, and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji Co. v Commissioner of Income Tax (supra) suggesting the contrary do not, we say wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the audit report has opined that certain expenses were not allowable under Section 36(1)(viia) does not entitle the Assessing Officer to issue a notice under Section 148 of the Act. We find from a perusal of the reasons to believe that the Assessing Officer had not applied its own mind and has not considered as to what would be the effect of the audit report nor had come to any conclusion which he could reasonably believe that an income had escaped assessment. Consequently, merely on the basis of the opinion rendered by the audit party, the Income Tax Officer could not assume jurisdiction to issue a notice under Section 148 of the Act. He must, on its own wisdom, come to a conclusion and hold a belief that an income had escaped assessment to tax. Since this belief was not recorded by the Assessing Officer the issuance of the notice was done mechanically without any application of mind. Such action amounts to change of opinion, which is not permissible. Since the foundational requirement for issuance of a notice was lacking and the condition precedent for initiating a valid reassessment proceedings were not existing, we are of the opinion that the impugned notice issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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