2016 (12) TMI 1197 - HC - Income Tax

Court quashes reassessment based on audit objections alone, ruling officer's independent belief necessary.

The court quashed the notice dated 04.10.2010 and the reassessment proceedings for AY 2006-07, ruling that they were initiated solely based on audit ... Validity of reopening of assessment - audit objections raised by the audit party relied upon - Held that:- On considering the audit objections raised by the audit party and the reasons recorded to reopen the assessable it appears that on the same ground on which the audit party raised the objection, the assessment for AY 200607 is sought to be reopened Assessee is justified in submitting that the Assessing Officer on the date of issuance of the notice under Section 148 of the IT Act could not have formed a belief that any income has escaped the assessment. Under the circumstances, on the aforesaid ground alone i.e. on the ground that the impugned reassessment proceedings are initiated solely on the audit objections raised by the audit party to which the Assessing Officer was not agreeable, the impugned reassessment proceedings deserves to be quashed and set aside. - Decided in favour of assessee Issues Involved:1. Legality and jurisdiction of the notice dated 04.10.2010 under Section 148 of the Income Tax Act, 1961.2. Whether the reassessment proceedings were initiated solely based on audit objections.3. Validity of issuing a second notice under Section 148 when an earlier notice was pending.Detailed Analysis:1. Legality and Jurisdiction of the Notice Dated 04.10.2010:The petitioner challenged the notice dated 04.10.2010 under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2006-07. The petitioner argued that the notice was 'absolutely illegal, without jurisdiction and bad in law.' The petitioner contended that the reassessment proceedings were initiated solely based on audit objections, without any independent belief by the Assessing Officer that income had escaped assessment. The court noted that the Assessing Officer had communicated to the Deputy Accountant General that the audit objections should be dropped, indicating that the Assessing Officer did not independently believe that income had escaped assessment.2. Reassessment Proceedings Initiated Solely Based on Audit Objections:The petitioner argued that the reassessment proceedings were based solely on audit objections and not on any independent formation of opinion by the Assessing Officer. The court examined the reasons recorded for reopening the assessment and the audit objections. It was found that the reassessment was initiated on the same grounds as the audit objections. The court observed that even after the issuance of the impugned notice, the Assessing Officer had objected to the audit objections in a detailed communication, indicating that the reassessment proceedings were initiated solely on the audit objections. The court concluded that the reassessment proceedings were initiated under the pressure of the audit party, without any independent belief by the Assessing Officer.3. Validity of Issuing a Second Notice Under Section 148:The petitioner also contended that the impugned notice dated 04.10.2010 was a second notice for reopening the assessment, while an earlier notice dated 20.03.2009 was already issued and pending determination. The petitioner argued that a second notice could not be issued unless the first notice was disposed of. The court did not specifically address this issue in its judgment, as it quashed the reassessment proceedings on the grounds that they were initiated solely based on audit objections.Conclusion:The court quashed the impugned notice dated 04.10.2010 and the reassessment proceedings for AY 2006-07, stating that the proceedings were initiated solely based on audit objections, without any independent formation of opinion by the Assessing Officer. The court emphasized that reassessment proceedings should be based on the independent belief of the Assessing Officer that income had escaped assessment, and not merely on audit objections. The rule was made absolute, and the petition succeeded.