Income Tax Reassessment Notices Quashed Due to Lack of Independent Belief by Assessing Officer.

The HC quashed the notice issued under Section 148 of the Income Tax Act and the subsequent order rejecting the objections, citing a lack of subjective satisfaction by the assessing officer. The court determined that the reassessment proceedings were improperly initiated based on audit objections without independent belief by the assessing officer, rendering the action a colorable exercise of jurisdiction. Consequently, the petition was allowed, and both the notice dated 21.03.2021 and the order dated 25.10.2021 were annulled.

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Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Application of mind and subjective satisfaction in granting approval under Section 151 of the Income Tax Act.
3. Reopening of assessment based on audit objections.

Summary:

1. Validity of the Notice Issued under Section 148:
The petitioner challenged the notice dated 21.03.2021 issued under Section 148 of the Income Tax Act, arguing that it was fundamentally erroneous. The main reason cited for reopening the assessment was the disallowance of CSR expenses amounting to Rs. 4,05,629/-, which the petitioner claimed were incurred voluntarily and exclusively for business purposes. The petitioner contended that as per Section 135 of the Companies Act, they were not obligated to spend any amount towards CSR due to an average net loss in the preceding three financial years. Therefore, the disallowance under explanation 2 to Section 37(1) of the Act was erroneous.

2. Application of Mind and Subjective Satisfaction:
The petitioner argued that the sanction required under Section 151 of the Act was granted without proper application of mind, reflecting a mechanical exercise of power. The petitioner emphasized that the higher authority must be satisfied with the reasons recorded by the assessing officer before issuing a notice under Section 148. The petitioner pointed out that the approval lacked subjective satisfaction, making the action impermissible in law.

3. Reopening of Assessment Based on Audit Objections:
The petitioner contended that the reopening was based on information provided by the audit party, which is impermissible as per settled legal positions. The petitioner cited various judgments, including Vodafone West Ltd vs. Assistant Commissioner of Income Tax and Commissioner of Income-Tax vs. Shilp Gravures Ltd, to support the argument that reassessment proceedings initiated solely on audit objections without the assessing officer's independent belief are invalid.

Court's Observations:
The Court noted that the reassessment proceedings were initiated at the instance of the audit party without the assessing officer having an independent reason to believe that the income had escaped assessment. The Court referred to previous judgments, including Cadila Health Care Ltd vs. Assistant Commissioner of Income Tax, which held that reassessment based solely on audit objections is not maintainable.

Conclusion:
The Court concluded that the subjective satisfaction of the assessing officer was lacking, and the reopening was a colorable exercise of jurisdiction. The notice issued for reopening the assessment and the order rejecting the objections were quashed and set aside. The petition was allowed, and the impugned notice dated 21.03.2021 and the order dated 25.10.2021 were annulled.

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