2026 (2) TMI 814 - HC - Income Tax

Reopening assessments: audit opinion alone cannot sustain reassessment; AO must form an independent, reasoned belief under the law.

Reopening of income-tax assessments on the sole basis of an audit party's objection that presents only a different opinion on facts already considered is ... Reopening of assessment - ‘reason to believe’ - reliance on objection raised by the audit party on the issue of adding back the corporate expenses qua some of the combined cycle gas power plants - disallowance on exemption u/s 80-IA - HELD THAT:- There is no gainsaying the fact that the reassessment proceedings have been kick-started pursuant to the objection raised by the audit party on the issue of adding back the corporate expenses qua some of the combined cycle gas power plants and also the fact that during scrutiny proceedings and reassessment proceedings under Section 143(3) AO had already conducted threadbare inquiry and disallowed the exemption. Although, he disallowed the exemption under Section 80-IA of the Act of 1961 on different counts and maybe he did not think it appropriate to disallow the exemption on the ground of corporate expenses being added back as opined by the audit party, but in any case the same was an opinion of the audit party. The initiation of the reassessment proceedings on the basis of audit party’s objection or opinion can at the best be construed to be an opinion of expert. The audit objection is, therefore, nothing but an opinion and consequently, the initiation of reassessment proceedings too is nothing more than a change of opinion. Having gone through the first assessment order and taking note of the fact that the issue of allowability of exemption under Section 80-IA of the Act of 1961 had been thoroughly examined by the AO from various angles rather all angles which the AO could conceive, if for one reason or the other, the AO could not envisage this fact or had omitted to consider it while rejecting or partially rejecting respondent’s claim, the same cannot confer a right upon the AO to invoke provisions of Section 147/148 of the Act of 1961. The Income Tax Department could have perhaps taken recourse to proceedings under Section 263 of the Act of 1961 on such count subject of course to the statutory inhibitions, but resorting to the provisions of Section 147/148 of the Act of 1961 was impermissible in law. Revenue appeal dismissed. Issues: Whether reassessment proceedings under Section 147/148 of the Income Tax Act, 1961 can be validly initiated by the Assessing Officer on the basis of an audit party's objection/opinion.Analysis: The question requires examination of the distinction between an audit objection that points out a new fact and an audit objection which merely expresses an opinion on the tax treatment of facts already considered in assessment proceedings. The statutory test for reopening under Section 147/148 requires a 'reason to believe' that income has escaped assessment, and that satisfaction must be that of the Assessing Officer himself and based on sound reasoning. Jurisprudence establishes that where the audit party discovers or points out a factual omission overlooked by the AO, reopening may be permissible if the AO forms his own independent belief. Conversely, where the audit party's objection only reflects a different view or opinion on the same material already examined by the AO, such objection does not constitute new information entitling reassessment.Conclusion: Reassessment proceedings initiated solely on the basis of an audit party's opinion or objection that does not disclose a new fact but only a different view on already-considered material amount to a mere change of opinion and are impermissible. The appeals filed by the Revenue are dismissed, leaving the Tribunal's allowance of the assessee's appeals intact.