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2016 (8) TMI 1550 - AT - Income TaxReopening of assessment u/s 147 - validity of audit objections in re-opening of assessments - disallowance of Provision on investment, under section 14A and disallowance u/s. 35D - reliance on Audit scrutiny of computation of income - HELD THAT:- As the part of the note of an audit party, which mentions the law that escaped the notice of the AO constitutes "information" and the part which emboides the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the AO. A completed scrutiny assessment should not be disturbed in a light manner. If an audit objection points out some mistake in the original order provisions of section 154 have to be invoked and not of section 147. Both the sections find place in the Act for specific purposes. Similarly, if the order passed by an AO is found to be erroneous and prejudicial to the interest of Revenue, a notice u/s.148 should not be issued. Section 147 is not panacea for all the ills. We would like to discuss the limitations of an audit objection in subsequent parargraphs. But, at present it is sufficient to say that re-opening should be done only in certain circumstances, as envisaged by the section. The entire approach of the AO and the FAA, in the background of the present case, is misconceived. The re-assessment order is based on allowability of provision of bad and doubtful debts. Perusal of the assessment order reveals that such details were called for by the AO. It is further found that the details of the provisions for bad and doubtful debts furnished by the assessee were scrutinized during the original assessment proceedings. In the notes accompanying the return of income the assessee had specifically mentioned the fact and basis of treating the amount in question in a particular manner - there does not appear to the tangible material/reason for the AO to reopen the assessment proceedings in the facts of the present case. He himself admits that ‘scrutiny of the records revealed’ that there was escapement of income. So, the reasons, recorded by him, have to be analysed considering the post scrutiny events. AO was not convinced about the reasons given by the audit party for disallowing the claim. Not only he stated that claim was sustainable as per the provisions of the Act, but, also indirectly questioned the validity of the objection. But, it is a fact that he had issued a notice u/s.148 of the Act.A comparison of the audit objection raised by the audit party and the notice issued by the AO as per the provisions of section 148 clearly prove that it was solely based on the audit objecttions. Thus, the AO has taken two diagonally opposite stands in the original assessment/ in the reply sent to the audit party and while issuing the notice u/s.148 of the Act. There is not an iota of doubt that it is a clear case of change of opinion. Audit authorities, an outside agency, definitely has an important role to point out irregularities of assessment orders. But, a Laxamn-Rekha has to be there for audit party. It is not the job of an audit party to interpret the law with regard to facts of a case. Act does not give mandate to the audit personnel to hold that the provisions should be interpreted in a particular manner or to assess the income of an assessee in a particular manner. It is the prerogative of an AO. In the case under consideration the it was not the case of the audit that the AO, while completing the scrutiny assessment, had ignored the judgment of the Hon’ble Apex Court or the Hon’ble jurisdictional High Court resulting in under assessment of the taxable income. No arithmetical mistake or calculation error was also pointed out by the audit party. It had interpreted the law with regard to provisions of section 35D and 36(viiia)of the Act in a particular manner and held taxable income had escaped assessment. In our opinion, such an observation is beyond the power of any audit party and same cannot be termed information for the purposes of section 147 of the Act. Such an observation is not a reliable material-leave apart the tangible material that can be legally relied upon for disturbing a scrutiny assessment. - Decided in favour of assessee.
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