TMI Blog2023 (3) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... completely disagreed after examining the objections raised by the audit party. AO without any conviction, when has issued the notice, this surely is not a case where the reopening of the case is on the basis of any factual error pointed out by the audit party so as to be covered by the decision of the P.V.S.Beedies (P) Ltd [ 1997 (10) TMI 5 - SUPREME COURT] . It is covered by those decisions which have been discussed in reopening on the part of the Assessing Officer essentially on the audit party opinion and not on the basis of his own conviction. There is no material worth the name emerging that to indicate any independent application of mind could be noticed. On the contrary, there are glaring facts which have been pointed out that the Assessing Officer had no subjective satisfaction while issuing the notice of reopening. It is a settled law that any notice of reopening issued by the Assessing Officer without any independent application of mind would laid the validity. Accordingly, this petition is allowed - R/Special Civil Application No 347 of 2022 - - - Dated:- 20-2-2023 - Honourable The Chief Justice Ms Justice Sonia Gokani And Honourable Mr Justice Sandeep N Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of justice; (e) to provide for the cost of this petition 2.4 Essential thrust on the part of the petitioner is that the reopening is on the basis of the audit party objection and it is a settled law that the reason to believe needs to be that of the Assessing Officer alone, the same cannot be substituted by objection received from the audit department. The Assessing Officer himself had objected to the audit party s communication and hence the reasons recorded are not in accordance with the law, the reassessment proceedings under Section 147 is not permissible. Reliance is placed on some of the decisions of this Court, where on the similar grounds, the Court had entertained the petition and had quashed the notice. 2.5 This Court issued the notice on 10.1.2022 (Coram:J.B.Pardiwala, J (as His Lordship then was) and Nisha Thakore, J), and protected by way of ad-interim relief in terms of paragraph 7(c). 2.6 In response to the notice, the affidavit-in-reply is filed by the Assistant Commissioner of Income-tax, Circle 1(1)(1), Ahmedabad denying all averments and allegations. 2.7 According to the respondent, the petition is filed at a pre-mature stage as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instance of the Assessing Officer despite his unwillingness, the petition needs to succeed. He has also further argued that where ever audit party raising the objection may provide the information, however, eventually, it is the Assessing Officer who should be satisfied himself. Another decision of this Court in the case of Commissioner of Income-Tax, Ahmedabad-IV V/s Shilp Gravures Ltd, (2013)40 Taxmann.com 309 (Gujarat) is relied on. That was a case where the Assessing Officer had initiated the reassessment proceedings solely at the instance of the audit party by recording of reasons for which he had no conviction. It is further pointed before this Court that these decisions hold the field as reliance is also placed on the decision of the Apex Court in the case of Commissioner of Income-Tax V/s Lucas T.V.S. Ltd. (2001) 117 Taxman 366 (SC). 3.2 Ms.Maithili Mehta, learned senior standing counsel for the respondent has strenuously objected to this on the ground that merely because the audit party objections had come and the Assessing Officer issues notice, would not make the notice bad-in-law. Even these decisions, according to her, would not come to the rescue of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation (2), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession. In sec 37(1) expenses which are incurred wholly and exclusively for the purpose of the business of the assessee are allowable. As such the CSR expenses are not allowable. The A.O. therefore should have disallowed the same while computing the taxable income u/s 143(3) of the Act. The wrong allowance of CSR expenses has resulted into under assessment to the extent of Rs 2,12,00,000/-. The tax effect on this account is worked out as at Rs 70,42,110/- (notional). 5. The Assessing Officer is requested to take necessary/appropriate remedial action and submit the action taken report through proper channel, within the stipulated time as prescribed in the Audit Manual and under instruction No 06 of 2017 of new Internal Audit System prescribed vide F No 240/08/2015-A PAC-II dated 21/07/2017. 6. On 16.9.2020, while addressing the communication to the Principal Commissioner of Income Tax, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal expenses in nature. The expenses in the instant case are neither capital in nature nor personal in nature and are expended wholly and exclusively by the assessee for the purpose of its business and hence the same is allowable item of expense. Besides even the tax auditor in form #CD in column 21a has not made any adverse comments regarding the same (enclosed). 4. Therefore, the objection raised by the audit is not acceptable and the same may kindly be dropped, if approved. 7. This Court, in Vodafone West Ltd., had considered the decision of Lucas T.V.S. Ltd. and other decisions to hold that the Assessing Officer had no reason to believe that the income had escaped assessment. He was, on the contrary, of the opinion that there was inconsistent stand adopted by the audit. As for the A Y 2008-09, it had accepted the say of the Assessing Officer that the income had not escaped the tax and yet identical grounds were raised for the A.Y. 2007-08 and the Assessing Officer chose to go ahead with the reopening proceedings only at the instance of the audit party objections despite its unwillingness. 11. We need to note at this stage that Section 147 of the Act permits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of amortization of royalty paid to the Wireless Planning Commission of Government of India while framing the assessment under Section 143(3) of the Act. 13. Heavy reliance is placed on the decision in case of CIT v Kelvinator India Ltd [2010]320 ITR 561/187 Taxman 312 (SC) by the petitioner to insist that the Assessing Office has no right to reopen on changing his mind. Not only there is absence of element of non-disclosure of relevant materials fully and truly necessary for assessment, but, both the grounds appear to have been, on scrutiny finalized. 14 In view of above discussion, the impugned notice of reopening dated 07.03.2012 fails with all consequential reliefs Other grounds on merit, therefore, deserves no further elaboration. Resultantly, petition stands disposed of in the above terms. 8. Subsequently, in Shilp Gravures Ltd (supra), during the scrutiny assessment, the Assessing Officer had allowed the R D expenses incurred by the assessee in respect of in house research as revenue expenditure, however, the audit party raised objections that allowance of deduction for entire expenditure on R D resulted in an under assessement of income as according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer maintained the stand that the R D expenses incurred by the Company on inhouse research, being in the nature of consumption of raw material on test production and salary / wages of personnel deployed for R D activities, have been rightly claimed as revenue expenses. It also maintained the stand that the objections raised by the audit party is not acceptable. 7.2 However, such reply was not found acceptable by the audit party and, therefore, the only remedial action available was to initiate the action under Section 147 of the Act and, therefore, the permission was sought of the Commissioner of Income-tax. 7.3 Another communication dated 10/02/2009 by the Additional Commissioner of Income-tax), Range-8, Ahmedabad referring to the order passed by the Assistant Commissioner of Income-tax (OSD) Circle 8 also says that in view of the detailed facts mentioned by the Assistant Commissioner of Income-tax (OSD) Circle-8 the audit objection is not acceptable, however the remedial action as per the Board s instruction No 9/2006 is required to be initiated and, therefore, it agreed with the view of the Assessing Officer that appropriate remedial action would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to be scrutinised. However, it is always open to question existence of such belief on the ground that what has been stated is not correct state of affairs existing on record Undoubtedly, in the face of record, burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the AO did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him; in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be abuse of such authority. As the aforesaid decision of the Supreme Court indicates that though audit objection may serve as information, the basis of which the ITO can act, ultimate action must depend directly and solely on the formation of belief by the ITO on his own where such infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, ofcourse true, as held by the decisions of the apex Court in the case of P V S Beedies (p) Ltd (Supra) and Indian Eastern Newspaper Society (Supra), if the audit party brings certain aspects to the notice of the AO and thereupon, the AO form his own belief, it may still be a valid basis for reopening assessment. However, in the other line of judgment noted by us, it has clearly been held that mere opinion of the audit party cannot form the basis for the AO to reopen the closed assessment that too beyond four years from the end of relevant assessment year 8. As is amply made clear in the instant case from the discussion hereinabove that the subjective satisfaction of the Assessing Officer for the purpose of reopening of the assessment is lacking in the instant case and, therefore, the Officer having the jurisdiction to issue notice on the belief that the income has escaped the assessment in fact had no belief while issuing notice and, therefore, as held in the case of Adani Exports Vs Dy CIT (supra) it was a colourable exercise of jurisdiction by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trust was not recognized charitable trust and therefore, the donation to the trust did not qualify for deduction under Section 80G as a donation made to a recognized charitable trust. The audit party had pointed out a fact that had been overlooked by the Assessing Officer in the assessment. When the Tribunal and the High Court held that the information given by the internal audit party could not be treated as information within the meaning of Section 147B, the Court held that the factum of the recognition granted to the charitable trust since had expired on 22.9.1972 was not noticed by the Assessing Officer. It was not a case of information of question of law. The dispute as to whether the reopening is permissible after audit party expresses an opinion on a question of law was considered by a larger Bench of the Apex Court in the case of Lucas T.V.S.Ltd. (supra) wherein, the Court held that the reopening of the case on the base of a factual error pointed out by the audit party is permissible under the law and there can be no dispute that the audit party is entitled to point out such factual error or omission in the assessment. 12. Here is a case where, admittedly, audit party ..... X X X X Extracts X X X X X X X X Extracts X X X X
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