TMI Blog2023 (2) TMI 1080X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ] 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. Therefore also, in this background, 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. 18824 of 2021 - - - Dated:- 20-2-2023 - HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI And HONOURABLE MR. JUSTICE SANDEEP N. BHATT MR B S SOPARKAR ( 6851 ) FOR THE PETITIONER ( S ) NO. 1 MS MAITHILI D MEHTA ( 3206 ) FOR THE RESPONDENT ( S ) NO. 1 ORDER ( PER : HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI ) 1. By way of the present petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 14.12.2021 and directed the respondent authority that the proceedings may continue, but the final order of assessment may not be passed without prior permission of the Court. 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 only the notice under Section 148 read with Section 147 of the I.T. Act has been issued. There is an alternative remedy available by preferring the appeal before the CIT, Appeals and thereafter the matter can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf. 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.Mehta 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. She has relied on the decision of the Apex Court in the case of Commissioner of Incometax V/s P.V.S. Beedies (P) Ltd, reported in 237 ITR 13 (SC) and further relied on the decision of the Lucas T.V.S. Ltd. (supra). 3.3 According to her, the opening of the case under Section 147(b) on the basis of the factual information given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed 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.82,95,730/-. Notional tax effect on this account is worked out at Rs.27,42,817/-. 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 02.11.2020, while addressing the communication to the Principal Commissioner of Income Tax, the Assessing Officer, had in clear terms stated that the objections raised by the audit party have been examined carefully and found to be not acceptable. It further reads thus: 3. The objections raised by the audit party have been examined carefully and found to be not acceptable. 3.1 Verification of case records reveal that the real nature of such expenses incurred is connected with business expediency. Besides, as per Section 37(1) explanation (2) any expenditure incurred by an assessee on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot acceptable and it is requested that the same may kindly be dropped. 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 initiation of reassessment proceedings only when the Assessing Officer has a reason to believe that income has escaped the assessment. Whenever the audit party raises objections, it may provide information, however, eventually it is the Assessing Officer who should be satisfied himself form a belief of this own that taxable income escaped the assessment. He cannot abdicate his decision making power by choosing to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Section 35AB, the assesee was eligible for a deduction of 1/3rd of the R D expenditure in the previous year and the balance amount in equal installments immediately in two succeeding previous years. The Assessing Officer replied to the audit party that these expenses were rightly claimed as revenue expenditure and were correctly allowed. However, he issued the notice under Section 148 of the instance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 be re-opening of the assessment under Section 147 of the Act. 7.4 These communications are clearly indicative of the fact that the Assessing Officer was not satisfied with the audit party having pointed to it the issue of allowability in respect of the R D expenses The Assessing Officer having reason to believe that the income chargeable for any assessment year is sine qua non for initiating the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 information passed on to him by the audit that income has escaped assessment. In the present case, by scrupulously analysing the audit objection in great detail, the AO has demonstrably shown to have held the belief prior to the issuance of notice as well as after the issuance of notice that the original assessment was not erroneous and so far as he was concerned, he did not believe any any time that income ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer by recording the reasons for which he obviously had no conviction, had initiated the reassessment proceedings solely at the instance of the audit party which cannot be sustained. 9. This Court made it quite clear that the Assessing Officer himself initiated the reassessment proceedings without his own conviction and only at the instance of the audit party which was termed to be a couloura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 had expressed the opinion on a question of law. It had also pointed out to the Assessing Officer and that information which had been given was on question of law. This has been dealt with in Lucas T.V.S. Ltd. and even otherwise, the facts of the instant case clearly make out that when the audit party had pointed out to the Assessing Officer, it not only was disagreeing with the information given on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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