TaxTMI 
TaxTMI 
2016 (1) TMI 234
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.... Act, 1961 (for short, "the Act") on 22.03.2013. To reopen such assessment previously framed under scrutiny, the Assessing Officer issued the impugned notice on 28.03.2014. The reasons recorded by the Assessing Officer for issuing such notice contained three separate grounds. The first was with respect to non-deduction of TDS under section 194-A of the Act. After recording the background, the Assessing Officer noted as under: "As per the TDS returns no TDS has been made u/s 194A of the Act from interest payments made to IFCI Ltd. Though TDS of Rs. 49,988/- has been made from a payment/credit of Rs. 4,41,200/- made to IFCI Ltd. on 06.06.2009,,, the same is made u/s.194J of the Act apparently in respect of some professional services hence not from interest payment. As per Form No.26Q placed on record TDS on interest on term loan has been made of Rs. 53,02,142/- which suffices to interest payment of Rs. 5,12,01,542/-. The remaining interest expense of term loan which works out to Rs. 13,82,25,530/- (189527072 - 51301542) needs to be disallowed u/s.40a(ia) of the Act....." 2.1 The second ground was of excess claim of depreciation and read as under: "Excess claim of depreciation: ....
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.... 147 of the I.T.Act and hence notie u/s.148 of Income Tax Act is issued". 4. The petitioner raised objections under communication dated 01.07.2014 to the notice of reopening. Such objections, however, were rejected by the Assessing Officer by his order dated 20.08.2014. The petitioner has, therefore, filed this petition challenging the notice of reopening issued by the Assessing Officer. 5. Learned counsel for the petitioner drew our attention to the correspondence on record to contend that the notice for reopening has been issued only at the instance of the audit party. The Assessing Officer did not hold any independent belief that any income chargeable to tax had escaped the assessment. He contended that the action of Assessing Officer in issuing such notice under the directives of the audit party was wholly without jurisdiction. Counsel relied on the decision of Division Bench of this Court in case of Adani Exports v. Deputy Commissioner of Income-Tax (Assessments) reported in (1999) 240 ITR 224 in which on the finding that notice of reopening was issued by the Assessing Officer at the instance of the audit party, the Court held that such notice was impermissible. Counsel poin....
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....utinised. However, it is always open to question existence of such belief on the ground that what has been stated is not correct state of affairs existing on record. Undoubtedly, in the face of record, burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the AO did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be abuse of such authority. As the aforesaid decision of the Supreme Court indicates that though audit objection may serve as information, the basis of which the ITO can act, ultimate action must depend directly and solely on the formation of belief by the ITO on his own where such information passed on to him by the audit that income has escaped assessment. In the present case, by scrupulously analysing the audit objection in great detail, the AO has demonstrably shown to have held the belief prior to the issuance of notice as well as after the issuance of notice that the original assessment was not er....
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....party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under Section 147(b) in the facts of this case was on the basis of factual information given by the internal audit party and was valid in law. The judgment under appeal is set aside to this extent." 10. In view of such legal position, it will be necessary for us to examine in the present case whether reopening of assessment is ordered by the Assessing Officer on the basis of the belief that he found that the income chargeable to tax had escaped the assessment, or whether he acted solely upon the directives of the audit party. 11. It is undisputed that the entire issue arose upon scrutiny by the internal audit party. On 24.09.2013, the audit party wrote to the Assessing Officer in which following three issues were raised: (1) disallowance under section 41-A of the Act, (2) excess claim of depreciation, and (3) interest earned from associated concern. The audit party outlined its objections on these three counts. 12. In response to such c....
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....interpretation cannot be drawn that TDS was not required to be made from interest payments made to this company. 3. I am further directed to state that the A.O.'s report with regard to point No.(1)(b) & (c) of the report is accepted in view of details submitted & are hence treated as dropped. On issue (ii), AO has stated that the mistake in respect of excess depreciation allowed may be rectified by passing order u/s 154 of the I.T.Act. On issue (III) regarding interest earned from associate concern, the reply submitted in the A.O's report is not acceptable as the assessee has snot been able to prove that earning such interest was the company's normal business activity or the interest earned was incidental to the business activity carried out by the assessee company or was inextricably linked to the project. 4. I am, therefore, directed to request you to kindly direct the AO to take appropriate action and submit an action taken report on finalisation of the proceedings, with supporting evidences through proper channel, i.e. forward the same along with comments of the Addl./Jt.CIT, Range-1, Ahmedabad and the administrative CIT as required under per Para IV (4) (viii) ....
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....e Assessing Officer not only to initiate action but also to finalize the same and report finalization with supporting evidences. As if this much was not enough to hold that the Assessing Officer was being controlled by the audit party, his letter dated 20.02.2014 to the audit party left no possibility of any doubt. In such letter, he recorded the objection of the audit party at length and finally meekly stated that, in view of the above, the internal audit party has not accepted the reply on the said issues and ultimately proceeded to record that the most suitable remedial action in such case would be to reopen the assessment under section 147 of the Act which is contrary to his earlier view where on a limited ground of depreciation he had advocated measures of rectification. 15. This is a clear case where reopening of the assessment is under the directives of the audit party. The Assessing Officer has not acted merely on the opinion supplied by the audit party. He held a firm belief that there was no possibility of any further scrutiny on the count that income chargeable to tax escaped assessment. He so stated to the audit party in writing. The audit party did not accept his stan....