2019 (12) TMI 1339 - AT - Income Tax

Validity of reopening of assessment - reopening on the basis of audit objections raised by the Department audit office r - non Independent application of mind - no interest was charged on debit balance of the partner s (Shri Apurva Jagdish Nanavati) capital account - CIT-A quashed reopening notice - HELD THAT - CIT(A) has passed a very reasoned and detailed order wherein it has been stated that AO himself has not accepted the audit objection and thus on the basis of same reason the AO could not have reason to believe that income has escaped assessment. CIT(A) has held that AO has acted at the behest of the audit party without applying his own mind and thus quashed the assessment on the technical and legal issue. In the case of ICICI Home Finance Co. Ltd. vs. ACIT 2012 (8) TMI 312 - BOMBAY HIGH COURT has held that there was no application of mind by the AO as the reasons recorded by the AO were identical to objections of the audit party and existing material was already on record and accordingly notice under section 148 was held to be without jurisdiction. Supreme Court in the case of Pr. CIT vs. S. Chand Co. Ltd. 2018 (11) TMI 1067 - SC ORDER has held that reassessment proceedings based on the audit objection can not be sustained - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 147/148 of the Income Tax Act.
2. Non-charging of interest on the debit balance of the partner's capital account.
3. Discrepancy in income declared during survey and income offered in the return.
4. Allowing additional ground of appeal without providing opportunity to the Assessing Officer (AO) to rebut the same.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:
The primary issue raised by the Revenue was the validity of the reopening of the assessment by the AO. The assessee had filed the return of income which was processed under section 143(1) and subsequently assessed under section 143(3). The assessment was reopened under section 147 based on audit objections, which the AO had initially rejected. The CIT(A) quashed the reassessment proceedings, holding that the AO had no independent reason to believe that income had escaped assessment and had acted solely on the audit objections, which he had previously dismissed. The Tribunal upheld the CIT(A)'s order, emphasizing that reopening an assessment based on audit objections without the AO's independent application of mind is invalid. The Tribunal cited several judicial precedents supporting this view, including the cases of Sunil Gavaskar vs. ITO, Elecon Engineering Co Ltd vs. ACIT, and others, concluding that the AO's action was a mere change of opinion and not permissible under the law.

2. Non-charging of Interest on the Debit Balance of the Partner's Capital Account:
The AO had reopened the assessment partly on the ground that the assessee had not charged interest on the debit balance of the partner's capital account, which was contrary to the partnership deed. The CIT(A) found that the AO had already considered and accepted the assessee's explanation regarding this issue during the original assessment proceedings. The Tribunal agreed with the CIT(A) that reopening the assessment on this ground constituted a change of opinion, which is not a valid reason for reopening under section 147.

3. Discrepancy in Income Declared During Survey and Income Offered in the Return:
The AO also reopened the assessment on the ground that there was a discrepancy between the income declared during the survey and the income offered in the return. The CIT(A) noted that this issue was thoroughly examined during the original assessment, and the AO had accepted the assessee's reconciliation and explanation. The Tribunal upheld the CIT(A)'s finding that reopening the assessment on this ground was not justified, as it was based on the same facts and issues already considered in the original assessment.

4. Allowing Additional Ground of Appeal Without Providing Opportunity to the AO:
The Revenue contended that the CIT(A) erred in allowing an additional ground of appeal without providing an opportunity to the AO to rebut the same. The Tribunal did not specifically address this issue, as it had already quashed the reassessment proceedings on the ground of invalid reopening under section 147. Consequently, the Tribunal dismissed this ground as well.

Conclusion:
The Tribunal upheld the CIT(A)'s order quashing the reassessment proceedings, holding that the reopening of the assessment was invalid as it was based solely on audit objections without the AO's independent application of mind. The Tribunal emphasized that reopening an assessment on the basis of a mere change of opinion or audit objections without new material or information is not permissible under the law. Consequently, the appeal of the Revenue was dismissed.