ICICI Home Finance Co. Ltd vs. ACIT (Bombay High Court)

S. 147 reopening based solely on audit department’s objection is void

For AY 2006-07, the AO passed an assessment order. The revenue audit raised an objection that the AO had wrongly allowed the assessee’s claim on several items. Based on this, the AO reopened the assessment within 4 years from the end of the AY. The assessee challenged the reopening on the ground that (a) it was based on the audit objection and without independent application of the AO’s mind & (ii) all the facts were already on record, there was no new material and it was a case of “change of opinion“. HELD upholding the challenge:

(i) The belief u/s 147 that income has escaped assessment has to be the reasonable belief of the AO himself and cannot be an opinion and/or belief of some other authority. The AO cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief that income has escaped assessment. On facts, the recorded reasons are identical to the objection of the audit authority. The reasons do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the AO before he issued the s. 148 notice (India Eastern Newspaper Society 119 ITR 996 (SC) followed).

(ii) Further, though the power to reopen an assessment within 4 years is very wide, yet there must be “tangible material” to justify the reopening and it cannot be based on a “review“. Once all the material with regard to particular issue is before the AO and he chooses not to deal with the same, it cannot be said that he had not applied his mind to all the material before him. A presumption can be raised that he applied his mind to all the facts involved in the assessment (Idea Cellular 301 ITR 407 (Bom), Kelvinator 256 ITR 1 (Del)(FB) & Kelvinator 320 ITR 561 (SC) followed).