2014 (8) TMI 598 - HC - Income Tax

High Court invalidates reassessment based on audit objections under Income Tax Act, stresses independent assessment.

Raajratna Metal Industries Ltd. Versus Assistant Commissioner of Income Tax

The High Court quashed the reassessment proceedings initiated under Section 147 of the Income Tax Act solely based on audit objections. Emphasizing the ... Reopening of assessment u/s 147 – Reopening at the instance of audit party - Held that:- The reassessment proceedings have been initiated at the instance of the audit party, the noting made and the relevant documents appears that the assessment is sought to be reopened at the instance of the audit party, solely on the ground of audit objections - as such, the AO tried to sustain his original assessment order and submitted to the audit party to drop the audit objections – Relying upon Mayur Wovens Pvt. Ltd. Versus Income Tax Officer & 1 [2014 (7) TMI 722 - GUJARAT HIGH COURT] - if the reassessment proceedings are initiated merely and solely at the instance of the audit party and when the AO tried to justify the Assessment Orders and requested the audit party to drop the objections and there was no independent application of mind by the AO with respect to subjective satisfaction for initiation of the reassessment proceedings, the reassessment proceedings cannot be sustained – reassessment proceedings set aside – Decided in favour of Assessee. Issues:Challenge to reopening of assessment under Section 147 of the Income Tax Act solely based on audit objections.Analysis:The petitioner filed a petition under Article 226 of the Constitution of India seeking to quash an impugned notice dated 11.03.2013, reopening the assessment for the A.Y. 2009-2010 under Section 147 of the Income Tax Act. The assessment for the said year was concluded on 24.12.2010, and the impugned notice was issued on 11.03.2013. The petitioner raised objections to the reopening, stating that there was no suppression on their part and the reassessment was based solely on the non-inclusion of a refund of excise duty in the total income. The petitioner contended that the treatment of the excise duty refund was explained during the original assessment proceedings, following a consistent practice from the past. The reassessment was initiated based on audit objections, which the petitioner argued was impermissible. The petitioner relied on legal precedents to support their argument, emphasizing that reassessment solely on audit objections without independent application of mind by the Assessing Officer is not sustainable.The Respondent-Revenue, represented by Mr. Varun K. Patel, produced the original file from the Assessing Officer (AO) to demonstrate that the reassessment was indeed initiated at the instance of the audit party and solely based on audit objections. Upon examining the files and relevant documents, it was evident that the AO attempted to defend the original assessment order and requested the audit party to withdraw the objections. Citing previous court decisions, the High Court noted that when reassessment proceedings are initiated solely at the behest of the audit party without the Assessing Officer independently applying their mind, such proceedings cannot be upheld. Therefore, the High Court quashed and set aside the impugned reassessment proceedings, clarifying that the decision was based solely on the ground of the assessment being reopened due to audit objections. The court made the rule absolute and declared no order as to costs in the case.In conclusion, the High Court's judgment in this case centered on the legality of reopening the assessment under Section 147 of the Income Tax Act solely based on audit objections. The court emphasized the importance of independent application of mind by the Assessing Officer in initiating reassessment proceedings, highlighting that mere reliance on audit objections without such consideration renders the reassessment unsustainable. The judgment provided clarity on the grounds for quashing the reassessment and underscored the significance of adherence to legal principles in tax assessment procedures.