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TMI Blog2024 (7) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities in the performance of their statutory duties. It remains established that tangible material or factual information can be received from various external sources and the objections raised by an Audit Party is not absolutely barred. In Transworld International Inc.[ 2004 (9) TMI 26 - DELHI HIGH COURT] this Court has observed that factual information can come from various sources including an audit objection. But a blanket reliance should not be placed on such objection to initiate reassessment proceedings and the AO must apply its own mind. Reverting to the facts of the present case, undisputedly, the proceedings dated 30 July 2022 were firstly closed by the respondents upon being satisfied after a perusal of the audited final accounts filed by the petitioner indicating that there was no immovable property held by the petitioner as on 01 April 2016 and therefore, there was no sale undertaken by it.However, on 30 July 2022 itself i.e., hours after terminating the reassessment proceedings, the respondents again issued a corrigendum initiating the reassessment proceedings. Corrigendum issued to the order u/s 148A(d) - It is palpably observed from the extract of the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on 24.05.2022 for the relevant AY. 5. In response to the said notice, the petitioner duly filed a reply on 07 June 2022, as required under Section 148A (c) of the Act, asserting that since it had not sold any immovable property during the concerned AY, therefore, no long-term capital gains could arise from such sale. The petitioner also clarified that it had purchased an immovable property worth Rs. 1,81,00,000/- from Mr. Vinod Popli via registration deed dated 18 May 2016 and denied any transaction involving an amount of Rs. 1,16,00,000/- with Mr. Sunil. 6. After duly considering the submissions, the respondents concluded that the petitioner's claim regarding the purchase of property worth Rs. 1,81,00,000/- from Mr. Vinod Popli via registration deed dated 18 May 2016 was correct. 7. With respect to the second allegation, the petitioner denied any transaction with Mr. Sunil, which was further examined and found to be true as the petitioner did not possess any immovable property during the said year. Therefore, taking into consideration all the submissions, the respondents passed an order dated 30 July 2022 under Section 148A (d) of the Act concluding that the reassessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the survey conducted under Section 133A of the Act. 13. He contended that though the proceedings were dropped on 30 July 2022, however, upon further examination of the accounts of the petitioner, it was found that mere denial of transaction was not sufficient to terminate the proceedings. It was his contention that the transaction ought to have been fully investigated from the source and therefore, the Assessing Officer [ AO ] had sufficient reasons to believe for the issuance of the impugned notice. 14. Learned counsel also contended that the expression reason to believe cannot be read to mean that the AO had finally ascertained the fact of escapement of income, rather what is required as per law is the AO must have a prima facie opinion that a fresh tangible material is available to form a reason to believe that income had escaped assessment. He submitted that going by the settled position of law, this Court should not exercise its jurisdiction under Article 226 of the Constitution to look into the sufficiency and correctness of the reason to believe. He, therefore, contented that in the absence of a stringent requirement of an established fact of escapement of income, the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. --- 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. 19. In FIS Global Bus. Sol. India Pvt. Ltd. v. Asst. CIT 2018 SCC OnLine Del 13466, this Court has held that the audit objection constitutes merely an information and no more. Moreover, in CIT v. Simbhaoli Sugar Mills Ltd. 2011 SCC OnLine Del 1241 , it was held that audit report objections cannot be a solitary basis to initiate reassessment proceedings. In the said case, the Revenue had issued a notice under Section 148 of the Act based on an internal audit report. Based on the audit report, a review was sought to be made by the AO on the pretext of reassessment alleging escapement of income in the assessment already concluded, ignoring the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessment, review would take place. 7. One must treat the concept of change of opinion as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the assessing officer. 21. It remains established that tangible material or factual information can be received from various external sources and the objections raised by an Audit Party is not absolutely barred. In Transworld International Inc. v. Joint Commissioner of Income-tax 2004 SCC OnLine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. In the instant case, that exercise has not been done. Section 148 of the Act specifically requires the Assessing Officer to record reasons. The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the authority at the point of time of issuing the notice under section 148 of the Act. When the assessee has disclosed fully and truly all material facts necessary for the assessment and on the basis of which the assessment is made, then exercise of powers under section 148 of the Act contemplates that : (a) there must be material for the belief ; (b) circumstances must exist and cannot be deemed to exist for arriving at an opinion ; (c) reasons to believe must be honest and not based on suspicion, gossip, rumour or conjecture ; (d) reasons referred to must disclose the process of reasoning by which the Assessing Officer holds reasons to believe and change of opinion does not confer jurisdiction to reassess ; (e) there must be nexus between material and belief ; and (f) reasons recorded must show application of mind by the Assessing Officer (see Sheth Brothers case [2001] 251 ITR 270 (Guj)). 25. In the instant case, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.2016 therefore it is assumed that there is no sale of property by the assessee during the year under consideration. 7. In view of the above discussion and on the basis of material available on record, it is decided that this is not a fit case to issue a notice under section 148 of the I.T. Act, 1961. 23. However, on 30 July 2022 itself i.e., hours after terminating the reassessment proceedings, the respondents again issued a corrigendum initiating the reassessment proceedings. The relevant recitals of the said corrigendum are reproduced as under:- Regarding denial of the assessee to have sold any property to Sh. Sunil Arora amounting to Rs. 1,16,00,000/-, the same is not acceptable. On examination of the audited final accounts filed by the assessee company it is observed that though there was no immovable property held by it as on 01.04.2016 but it may be possible that the property may have been purchased by the assessee later on. Mere denial of transaction is not enough unless the transaction is fully investigated from the source. Therefore, it is assumed that there is undisclosed sale of property of Rs. 1,16,00,000/- by the assessee during the year under consideration. 24. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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