2014 (9) TMI 1112 - AT - Income Tax

Tribunal Invalidates Reassessment Based on Audit Objection

The Tribunal quashed the reassessment under section 147 read with section 143(3) of the Income Tax Act, as it was initiated based on an audit objection, ... Reopening of assessment - reassessment proceedings initiated on the basis of the audit objection - non application of independent mind by AO - Held that:- The original assessment was framed u/s. 143(3) of the Act all the material was available on the record and the Assessing Officer applied his mind by making a deep scrutiny while framing the assessment u/s. 143(3) of the Act. The reassessment proceedings were initiated on the basis of the audit objection which cannot form the basis for the Assessing Officer to reopen the closed assessment. Thus the notice issued by the Assessing Officer on the basis of the audit party was not valid and accordingly, reassessment framed u/s. 147 read with sec. 143(3), on the basis of the aforesaid notice issued u/s. 148 of the Act is quashed. - Decided in favour of assessee. Issues Involved:1. Legality of the order passed by the Assessing Officer and sustained by the Ld. CIT(A).2. Legality of the action taken under sections 147/148 of the Income Tax Act by the Assessing Officer and sustained by the Ld. CIT(A).3. Legality of the action taken on the basis of audit objection by the Assessing Officer and sustained by the Ld. CIT(A).4. Legality of the addition of Rs. 6,00,000 made and confirmed by the Ld. CIT(A).Issue-wise Detailed Analysis:1. Legality of the order passed by the Assessing Officer and sustained by the Ld. CIT(A):The assessee contended that the order passed by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)] was illegal and against the law. The assessment was initially completed under section 143(3) of the Income Tax Act, 1961, at an income of Rs. 7,62,140. Subsequently, the AO initiated proceedings under section 147 by issuing notice under section 148. The assessee argued that the reopening of the assessment was based on a change of opinion, which is not permissible under the law. The CIT(A) upheld the AO's decision, leading to the present appeal.2. Legality of the action taken under sections 147/148 of the Income Tax Act by the Assessing Officer and sustained by the Ld. CIT(A):The assessee challenged the reopening of the assessment under sections 147/148, arguing that all necessary details, including the gift deed of Rs. 6,00,000 from Smt. Sudha Sachdeva, were furnished during the original assessment. The AO had applied his mind to these details and did not make any addition for the gift in the original assessment. The assessee cited several judicial decisions, including CIT vs. Eicher Ltd. (2007) 294 ITR 310 (Del.), which held that if the AO had considered all material facts during the original assessment, reopening on the same facts amounts to a change of opinion and is not permissible.3. Legality of the action taken on the basis of audit objection by the Assessing Officer and sustained by the Ld. CIT(A):The assessee argued that the action taken by the AO was based solely on an audit objection, which is not a valid ground for reopening an assessment. The assessee cited the case of Indian and Eastern Newspaper Society Vs. CIT, New Delhi [119 ITR 996], where the Supreme Court held that the opinion of an internal audit party on a point of law cannot be regarded as 'information' within the meaning of section 147(b) for reopening an assessment. The CIT(A) rejected this plea, relying on the judgment of the Hon'ble Gujarat High Court in Vasant Chunnilal Patel Vs. ACIT (236 ITR 832), and upheld the AO's decision to initiate proceedings under section 147.4. Legality of the addition of Rs. 6,00,000 made and confirmed by the Ld. CIT(A):The AO made an addition of Rs. 6,00,000, which was confirmed by the CIT(A). The assessee contended that this addition was illegal as the gift was already scrutinized and accepted in the original assessment. The reassessment proceedings were initiated solely based on an audit objection, which cannot form a valid basis for reopening an assessment. The Tribunal, considering the submissions and judicial precedents, including the case of Cadila Healthcare Ltd. Vs. ACIT (355 ITR 393), held that the reassessment framed under section 147 read with section 143(3) on the basis of an audit objection was not valid.Conclusion:The Tribunal quashed the reassessment framed under section 147 read with section 143(3) of the Income Tax Act, as it was based on an audit objection, which is not a valid ground for reopening an assessment. The appeal of the assessee was allowed, and the reassessment proceedings were held to be invalid.