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2024 (2) TMI 1343 - HC - Income TaxReopening of assessment u/s 147 - reason to believe - Reliance on audit objection - assessee had debited an amount under the head ‘Employee benefit expenses’ on account of reimbursement of proportionate expenses paid to the ultimate holding company, for ESOP granted to the assessee’s employees and break-up of income from arbitrage business shown under the head ‘Other Operating Revenues’ on account of delivery based purchase and sale of shares - HELD THAT:- In the reason to believe itself, it has been admitted that Assessee had filed a copy of audited Profit and Loss Account and Balance-sheet along with return of income where information/ material was disclosed. Reason to believe does not, however, disclose the fact that these two items mentioned in the reason to believe, i.e., the debit under the head ‘Employee Benefit Expenses’ and the break-up of income from arbitrage business shown under the head ‘Other Operating Revenues’ on account of delivery based purchase and sale of shares were subject of consideration during the assessment proceedings. Petitioner had received a communication dated 11th January 2016 calling upon Petitioner to produce the accounts and/or documents specified in the annexure to said notice. As regards, the employee benefit expenses on account of Employee Stock Option (“ESOP”), there is no discussion in the assessment order. As held by this Court in Aroni Commercials Limited [2014 (2) TMI 659 - BOMBAY HIGH COURT] once a query is raised during the assessment proceedings and Assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. The Court held that only requirement is that AO ought to have considered the objections now raised in the grounds for issuing notice under Section 148 of the Act during the original assessment proceedings. If that has been done, it would follow that the reopening of assessment by impugned notice will merely be on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and that change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Since both the issues raised in the reason to believe for reopening the assessment have been subject matter of consideration during the assessment proceedings, it can be based only on change of opinion which is not permissible. Reopening as based on audit objections - It is settled law as laid down in Indian & Eastern Newspaper Society [1979 (8) TMI 1 - SUPREME COURT] that in every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has come to his notice, he can reasonably believe that income has escaped assessment - the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. Therefore, the AO cannot reopen the assessment relying on audit objections. Moreover, there is nothing on record to indicate that the AO had applied his mind afresh without being influenced by the audit objections. The reason to believe should be of the AO and he cannot be acting on the dictates of other parties. Decided in favour of assessee.
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