We find that the arguments on behalf of the petitioner are well founded and it must succeed. The audit report merely gives an opinion with regard to the non-availability of the deduction both under section 80-IA was not deducted from the profits of the business while computing deduction under section 80HHC. Clearly, therefore, there was no new or fresh material before the Assessing Officer except the opinion of the Revenue audit party. Since it is settled law that mere change of opinion cannot form the basis for issuing of a notice under section 147/148 of the Act, therefore, we do not propose to burden out judgment with the said judgments
The decision of the Apex Court in Liberty India (Supra) was rendered on 31st August 2009 and the notice seeking to reopen the Assessment year for Assessment Year 2004-05 was issued on 18th March 2009. Therefore, at the time when the reasons for issue of reopening notice was recorded by the Assessing Officer, he could not have had any reasonable belief on the basis of Apex Court decision in Liberty India (Supra) to come to a prima facie view that income chargeable to tax has escaped assessment. In this appeal we are concerned with the issue of jurisdiction of the Assessing Officer to issue the reopening notice and not with the merits of the dispute. Thus when the reopening notice was issued in March 2009, the Apex Court decision was not available and there was a divergence of views. This has to be read in the context of the Assessing Officer’s response to the audit objection on the above issue duly supported by case law
Nevertheless, if we see entire sequence, it becomes clear that the Assessing Officer was clearly acting under the dictates of the audit party. Even after issuing the notice, he still maintained an opinion that no income chargeable to tax had escaped assessment. If that be so, he ought to have dropped the assessment proceedings, at least at that stage when the petitioner raised the objections which even without such objections, the Assessing Officer was convinced, were valid
There are a catena of judgments of this Court holding that assessment proceedings can be reopened if the audit objection points out the factual information already available in the records and that it was overlooked or not taken into consideration. Similarly, if audit points out some information or facts available outside the record or any arithmetical mistake, assessment can be re-opened. The contention whether finding the information from the very facts that were already available on record amounts to information for the purpose of Section 19 of the State Act, it would be sufficient to refer to a judgment of this Court in Anandjiharidas & Co. vs. S.P. Kasture AIR 1968 SC 565 wherein it was held that a fact which was already there in records doesn’t by its mere availability becomes an item of “information” till the time it has been brought to the notice of assessing authority. Hence, the audit objections were well within the parameters of being construed as ‘information’ for the purpose of section 19 of the State Act
The law on the point laid down by the Supreme Court in judgement in case of Commissioner of Income-tax v. P.V.S. Beedies Pvt. Ltd. reported in (1999) 237 ITR 13 and in case of Indian and Eastern Newspaper Society v. Commissioner of Income-tax reported in (1979) 119 ITR 996 is well settled. We also have the decision of this Court in case of Adani Exports v. Deputy Commissioner of Income Tax reported in (1999) 240 ITR 224(Guj) on this issue. In case of Indian and Eastern Newspaper Society (supra), the Supreme observed that the opinion of the audit party on a point of law could not be regarded as information enabling the Assessing Officer to initiate reassessment proceedings. This aspect was elaborated by Division Bench judgement of this Court in case of Adani Exports (supra) observing that it is the satisfaction of the Assessing Officer for the purpose of reopening which is subjective in nature but when the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficient of the material to such a belief is not open to be scrutinised. However, the decision of the Supreme Court would indicate that though audit objection may serve as an information, the basis on which the ITO can act, ultimate action must depend directly and solely on the formation of belief by ITO on his own, where such information passed on to him by the audit party that income has escaped assessment. In the said case, it was held that Assessing Officer had acted at the behest of audit party and that notice for reopening was therefore, bad in law
One of the key sources of dispute is the existing arrangement for follow up on audit objections by Internal Audit Party and the Revenue Audit Party. In terms of the existing arrangement, the AO is required to take corrective steps following audit objections. The corrective measures take the form of rectification or reassessment (by reopening the case under section 147 or revision by the Principal Commissioner or Commissioner under section 263). In the case of rectification, these are general in the nature of correction for arithmetical errors and other mistakes which are apparent from the record. The problem arises when the AO seeks to take corrective measures by invoking the provisions of section 147 or 263 of the Income tax Act. Since the audit object ions are based on mater ial on record and there is no occasion for new mater ial to be brought on record in the course of audit, any reopening of assessment or review by the Pr incipal Commissioner constitutes “change of opinion” in the eyes of the law. This being so, the corrective measure under section 147 or section 263 of the Income tax Act is held to be invalid by Courts.
The Court holds instruction No. 9 of the CBDT dated 7th November, 2006 cannot possibly override the statutory powers to be exercised by an AO in terms of Section 147 of the Act. In other words the said instruction has to be read consistent with proviso (a) to Section 119 (1) of the Act and cannot, as was erroneously understood by the Respondent, compel the AO to issue the notice u/s 148. If the CBDT Instruction No. 9/2006 is read to the contrary, it would fall foul of Section 119 of the Act.
The logic in not sustaining the initiation of reassessment on the basis of interpretation of law by the audit party is that the internal auditor cannot be allowed to perform functions of judicial supervision over the Income-tax authorities by suggesting to the Assessing Officer about how a provision should be interpreted and whether the interpretation so given by the AO to a particular provision of the Act is right or wrong
To satisfy ourselves, whether the reassessment proceedings have been initiated at the instance of the audit party and solely on the ground of audit objections ….. On a perusal of the files, the noting made therein and the relevant documents, …
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