Adani Power Rajasthan Limited vs Assistant Commissioner Of Income ...
2023 Latest Caselaw 1669 Guj

      C/SCA/18824/2021                                      ORDER DATED: 20/02/2023




             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

              R/SPECIAL CIVIL APPLICATION NO. 18824 of 2021

==========================================================
                 ADANI POWER RAJASTHAN LIMITED
                             Versus
       ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1),
                          AHMEDABAD
==========================================================
Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 1
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     CORAM:HONOURABLE THE CHIEF JUSTICE MS. JUSTICE
           SONIA GOKANI
           and
           HONOURABLE MR. JUSTICE SANDEEP N. BHATT

                                 Date : 20/02/2023

                        ORAL ORDER

(PER : HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI)

1. By way of the present petition under Article 226 of the Constitution of India, the challenge is to

notice issued by the respondent under under Section 148

of the Income Tax Act (`IT Act' hereinafter) dated

21.3.2021 directing the petitioner to furnish the return

of income for the assessment year 2016-17 on the ground

that the same is contrary to law and without

jurisdiction.

1.1 The order disposing of the objections passed by

C/SCA/18824/2021 ORDER DATED: 20/02/2023

the respondent dated 10.11.2021 also has been

challenged.

2. The petitioner is a limited company which has

filed its return of income for A.Y.2016-18 declaring total

loss on 27.11.2016 under normal provisions and the book-

laws as well.

2.1 The return of the petitioner was processed and

his case was selected for scrutiny under CASS. The

detailed scrutiny was undertaken and the assessment

order under Section 143(3) was passed on 17.12.2019

accepting the returned total loss of the petitioner for

A.Y.2016-17 without making any addition or disallowance

of any expenses. The respondent issued notice under Section 148 asking the petitioner to file return of income

for A.Y.2016-17. The petitioner, without prejudice, filed

the return of income in compliance with the notice and

sought for the reasons recorded for reopening and

approval obtained under Section 151 of the Act.

2.2 The petitioner had been provided with the copy

of the reasons and approval on 17.5.2021. In response

to the same, the objections were raised on 9.7.2021

C/SCA/18824/2021 ORDER DATED: 20/02/2023

challenging the validity of the notice. The respondent

disposed of the objections on 10.11.2021.

2.3 The notice impugned dated 21.3.2021 under

Section 148 is challenged in the present petition with

the following prayers:

"7(a) quash and set aside the impugned notice dated 21.03.2021 at Annexure-`A' to this Petition;

(b) quash and set aside the impugned order dated 10.11.2021 at Annexure-`G' to this Petition;

(c) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notice at Annexure-`A' to this petition and stay further proceedings for assessment for A Y 2016-17;

(d) any other and further relief deemed just and proper be granted in the interest of justice;

(e) to provide for the cost of this petition "

2.4 Essential thrust on the part of the petitioner is

that the reopening is on the basis of the audit party

objection and it is a settled law that the reason to

C/SCA/18824/2021 ORDER DATED: 20/02/2023

believe needs to be that of the Assessing Officer alone,

the same cannot be substituted by objection received

from the audit department. The Assessing Officer

himself had objected to the audit party's communication

and hence the reasons recorded are not in accordance

with the law, the reassessment proceedings under Section

147 is not permissible. Reliance is placed on some of

the decisions of this Court, where on the similar

grounds, the Court had entertained the petition and had

quashed the notice.

2.5 This Court issued the notice on 14.12.2021 and

directed the respondent authority that the proceedings

may continue, but the final order of assessment may not

be passed without prior permission of the Court.

2.6 In response to the notice, the affidavit-in-reply

is filed by the Assistant Commissioner of Income-tax,

Circle 1(1)(1), Ahmedabad denying all averments and

allegations.

2.7 According to the respondent, the petition is

filed at a pre-mature stage as only the notice under

Section 148 read with Section 147 of the I.T. Act has

C/SCA/18824/2021 ORDER DATED: 20/02/2023

been issued. There is an alternative remedy available

by preferring the appeal before the CIT, Appeals and

thereafter the matter can be challenged before the

Tribunal.

2.8 The assessee filed its return of income for

A.Y.2016-17 on 27.11.2016 is not being disputed. The

process under Section 143(1) of the I.T. Act and

subsequently Section 143(3) also is accepted. According

to the respondent, from computation of income, the

Income from Business or Professions as well as ITR has

not been added back while computing the taxable income

as per the I.T. Act. According to the respondent, any

expenditure incurred by an assessee on the activities

related to Corporate Social Responsibility referred to in section 135 of the Companies Act shall not be deemed to

be an expenditure incurred by the assessee for the

purpose of business or profession. Section 37(1) provides

for those expenses which are incurred wholly and

exclusively for the purpose of the business of the

assessee are allowable. On other issues, the objections

raised are, according to the respondent, rightly not

sustained and the same have been disposed of in

C/SCA/18824/2021 ORDER DATED: 20/02/2023

accordance with the guidelines laid down by the Apex

Court in the case of GKM Driveshaft (India) Ltd V/s ITO(2003) 259 ITR 19 (SC).

2.9 It is also denied that the case of the assessee

has been reopened without any independent application

of mind by the Assessing Officer. The opinion has been

formed on the basis of the correct facts/law and

procedural requirement of the Act. All other contentions

with regard to the absence of new tangible material and

absence of independent opinion have been denied

categorically.

3. We have heard learned advocate Mr Bandish

Soparkar for the petitioner and learned Senior Standing Counsel Ms Maithili Mehta who represents the

respondent.

3.1 According to Mr.Soparkar, the two decisions of

this Court cover the issue in 2013(37) Taxmann com 158

Vodafone West Ltd V/s Assistant Commissioner of Income Tax, this Court has held that the Assessing Officer, when had no reason to believe that the income

had escaped the assessment and on the contrary, when

C/SCA/18824/2021 ORDER DATED: 20/02/2023

his opinion is that there was inconsistent stand adopted

by the audit on the identical ground, there is a notice

for reopening at the instance of the Assessing Officer

despite his unwillingness, the petition needs to succeed.

He has also further argued that wherever audit party

raising the objection may provide the information,

however, eventually, it is the Assessing Officer who

should be satisfied himself. Another decision of this

Court in the case of Commissioner of Income-Tax, Ahmedabad-IV V/s Shilp Gravures Ltd, (2013)40 Taxmann.com 309 (Gujarat) is relied on. That was a

case where the Assessing Officer had initiated the

reassessment proceedings solely at the instance of the

audit party by recording of reasons for which he had no conviction. It is further pointed before this Court that

these decisions hold the field as reliance is also placed

on the decision of the Apex Court in the case of

Commissioner of Income-Tax V/s Lucas T.V.S. Ltd.

(2001) 117 Taxman 366 (SC).

3.2 Ms.Mehta has strenuously objected to this on

the ground that merely because the audit party

objections had come and the Assessing Officer issues

C/SCA/18824/2021 ORDER DATED: 20/02/2023

notice, would not make the notice bad-in-law. Even

these decisions, according to her, would not come to the

rescue of the assessee. She has relied on the decision of

the Apex Court in the case of Commissioner of Income-

tax V/s P.V.S. Beedies (P) Ltd, reported in 237 ITR 13 (SC) and further relied on the decision of the Lucas

T.V.S. Ltd. (supra).

3.3 According to her, the opening of the case

under Section 147(b) on the basis of the factual

information given by the internal audit party would be

valid in law.

4. Having heard both the sides and having also

considered the material on the record, we notice that the applicant had requested for certain information vide

application under Section 6(3) of the RTI Act and the

same had been received by Ministry of Finance, Income

Tax Department on 10.12.2021. The applicant's

information was with regard to the following queries:

           Information sought                   Information given

1          1    Whether any query was This                 Circle          is         having

           raised with respect to the jurisdiction               as     mentioned          in






      C/SCA/18824/2021                                          ORDER DATED: 20/02/2023




          assessment            completed       for order    No        PCIT-1/ABD/Order

          AY     2016-17         by    the     CIT u/s120/01/2020-21                    dated

          (Audit)/Addl            /JCIT(Audit), 03.09.2020             of     Pr       CIT-1,

          Ahmedabad?                                 Ahmedabad

2         Extract of audit query and The                    information           sought     for

all communication between under the purview of RTI Act

assessing officer and is provided herewith

CIT(Audi)/Addl /JCIT(Audit),

Ahmedabad including reply

if any made by the

assessing officer

5. The audit objection raised in the course of

audit scrutiny is in relation to computation of income

and the assessee has disallowed the donation amount

while computing the total income of the relevant

assessment year. Again, on going through the

computation of income, the audit party had found that

the assessee has disallowed the amount of CSR expenses

and therefore, the objections were raised as under:

"4. In view of the details it is clear that the assessee has only disallowed Rs.1,38,72,567/- (Rs.50,00,000/- + Rs.88,72,567/-) out of CRS expenses instead of disallowing the whole amount of Rs.2,21,68,297/-. Thus, the disallowance

C/SCA/18824/2021 ORDER DATED: 20/02/2023

is less by Rs.82,95,730/- in computation of total income for A.Y. 2016-17. As per Sec.37(1) explanation (2), any expenditure incurred by an assessee on the activities relating to corporation social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession. In Sec.37(1) expenses which are incurred wholly and exclusively for the purpose of the business of the assessee are allowable. As such the CSR expenses are not allowable. The A.O. therefore should have disallowed the same while computing the taxable income u/s. 143(3) of the Act. The wrong allowance of CSR expenses has resulted into under assessment to the extent of Rs.82,95,730/-. Notional tax effect on this account is worked out at Rs.27,42,817/-.

5. The Assessing Officer is requested to take necessary/appropriate remedial action and submit the action taken report through proper channel, within the stipulated time as prescribed in the Audit Manual and under instruction No.06 of 2017 of new Internal Audit System prescribed vide F.No.240/08/2015-A&PAC-II dated 21/07/2017."

6. On 02.11.2020, while addressing the

communication to the Principal Commissioner of Income

Tax, the Assessing Officer, had in clear terms stated

C/SCA/18824/2021 ORDER DATED: 20/02/2023

that the objections raised by the audit party have been

examined carefully and found to be not acceptable. It

further reads thus:

"3. The objections raised by the audit party have been examined carefully and found to be not acceptable. 3.1 Verification of case records reveal that the real nature of such expenses incurred is connected with business expediency. Besides, as per Section 37(1) explanation (2) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in Section 135 of the Companies Act, 2013 should not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. In this regard the attention is drawn to Note No.46 of notes forming part of financial statements (encl.) in which it has been stated that : as per Section 135 of the Companies Act, 2013, a Corporate Social Responsibility (CSR) committee has been formed by the company. The company is not required to incur any CSR expenses as per requirement of Section 135 of the Companies Act, 2013. Even for the assessment year under consideration (A.Y.2016-17), provisions for CSR are not applicable to assessee.

4. In view of the above it is crystal clear that the provisions of Section 135 of the Companies Act is nto applicable to the assessee company. It has incurred the CSR

C/SCA/18824/2021 ORDER DATED: 20/02/2023

expenses voluntarily. Section 37(1) says that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession of the assessee. In the instant case, the expenses incurred are wholly and exclusively for business purposes and is not in nature of capital expenses or personal nature and hence the same is allowable item of expenses u/s.37 of the Act.

5. In the instant case, since there is no onus or liability of the assessee to spend any expense under Section 135 of the Companies Act, 2013, the CSR provisions are not applicable and consequently Explanation 2 of Section 37 is not applicable. The only test which is to be seen as to whether the item of expense is wholly and exclusively for business purpose or not and that the same is not capital expense or personal expenses in nature.

5.1 The expenses in the instant case are neither capital in nature nor personal in nature and are expended wholly and exclusively by the assessee for the purpose of its business and hence the same is allowable item of expense. Besides even the tax auditor in form 3CD in column 21a has not

C/SCA/18824/2021 ORDER DATED: 20/02/2023

made any adverse comments regarding the same.

6. Therefore, the objection raised by the Audit is not acceptable and it is requested that the same may kindly be dropped."

7. This Court, in Vodafone West Ltd., had

considered the decision of Lucas T.V.S. Ltd. and other

decisions to hold that the Assessing Officer had no

reason to believe that the income had escaped

assessment. He was, on the contrary, of the opinion

that there was inconsistent stand adopted by the audit.

As for the A Y 2008-09, it had accepted the say of the

Assessing Officer that the income had not escaped the

tax and yet identical grounds were raised for the A.Y. 2007-08 and the Assessing Officer chose to go ahead

with the reopening proceedings only at the instance of

the audit party objections despite its unwillingness.

"11. We need to note at this stage that Section 147 of the Act permits initiation of reassessment proceedings only when the Assessing Officer has a reason to believe that income has escaped the assessment. Whenever the audit party raises objections, it may provide information, however, eventually it is the Assessing Officer who should be satisfied

C/SCA/18824/2021 ORDER DATED: 20/02/2023

himself & form a belief of this own that taxable income escaped the assessment. He cannot abdicate his decision making power by choosing to solely rely on the audit objection or follow such direction without his subjective satisfaction. In the instant case, therefor, the petitioner has succeeded on this ground alone and notice of reopening does need to be quashed.

12. At this stage, we must hold that both these grounds raised by the respondent in the impugned notice have been duly scrutinized & we are backed by the record placed before us.

12.1 The amount paid for prepaid service was contended to be the outright purchase of `Recharge' by Prepaid Connection Customers and not an advance to be appropriated against the future use of services. The petitioner followed mercantile system of accounting and yer recognized the revenue only when the services were rendered by the prepaid customers.

12.2 It was the stand of the petitioner that as long as no services were rendered by the assessee to the customers, income cannot be recognized by the assessee. It is only at the time of actual use made of the network of the assessee by the customers that he would be required to render the services. Such issue was threadbare examined by the

C/SCA/18824/2021 ORDER DATED: 20/02/2023

Assessing Officer and therefore also, it cannot be said that the assessee failed to disclose fully and truly all material facts.

12.3 As far as the second question was concerned, Section 35ABB provides for amortization of license fees paid for operating telecommunication services. Petitioner's claim for the Assessment Year 2008-2009 was disallowed to the extent of Rs 98,29,17,915/- charged to P & L account but one eleventh (1/11th) of which was allowed as deduction for considering the same for amortization. It is the stand of the petitioner that the royalty paid to the Wireless Planning Commission of Government of India is not paid for obtaining the license & this being revenue expenditure & not capital expenditure for obtaining license, is not amortizable under Section 35ABB. The respondent-Assessing Officer thus, already had raised the said issue of amortization of royalty paid to the Wireless Planning Commission of Government of India while framing the assessment under Section 143(3) of the Act.

13. Heavy reliance is placed on the decision in case of CIT v Kelvinator India Ltd [2010]320 ITR 561/187 Taxman 312 (SC) by the petitioner to insist that the Assessing Office has no right to reopen on changing his mind. Not only there is absence of element of non-disclosure of relevant materials fully and truly necessary for assessment, but, both

C/SCA/18824/2021 ORDER DATED: 20/02/2023

the grounds appear to have been, on scrutiny finalized.

14 In view of above discussion, the impugned notice of reopening dated 07.03.2012 fails with all consequential reliefs Other grounds on merit, therefore, deserves no further elaboration.

Resultantly, petition stands disposed of in the above terms."

8. Subsequently, in Shilp Gravures Ltd (supra), during the scrutiny assessment, the Assessing Officer had

allowed the R & D expenses incurred by the assessee in

respect of in house research as revenue expenditure,

however, the audit party raised objections that allowance

of deduction for entire expenditure on R & D resulted in

an under assessement of income as according to Section

35AB, the assesee was eligible for a deduction of 1/3rd

of the R & D expenditure in the previous year and the

balance amount in equal installments immediately in two

succeeding previous years. The Assessing Officer replied

to the audit party that these expenses were rightly

claimed as revenue expenditure and were correctly

allowed. However, he issued the notice under Section

148 of the instance of the audit party and applied

Section 35AB(2) and Section 32A(2B). The Commissioner

C/SCA/18824/2021 ORDER DATED: 20/02/2023

(Appeals) quashed the reassessment proceedings and the

Tribunal also confirmed the order of the Commissioner

(Appeals) On further appeal, when it approached this

Court, it held thus :

"7. We have heard learned Counsel Mr Varun Patel for the revenue and also deemed it fit to call for the files for our satisfaction. It could be noticed from the correspondence dated 09/02/2009 addressed to the Commissioner of Incometax while seeking the permission for taking remedial action under Section 147 of the Act that an objection had been raised by the auditor in the following manner;

GIST OF AUDIT OBJECTION:

The assessee-company engaged in the business of manufacturing and job work in electronically engraved copper rollers filed its return of income for assessment year 2004-05 declaring total income of Rs 1,54,66,000/-. The case was taken under scrutiny under Section 143(3) of the Act on 29/12/2006 and scrutiny was completed determining total income of Rs 1,74,89,890/-.

The audit has found that the assessee has debited an amount of expenses of Rs 54.07 lakhs in Profit & Loss

C/SCA/18824/2021 ORDER DATED: 20/02/2023

Account treating it as revenue expenditure However, according to Section 35AB of the Act the assessee was eligible for a deduction of 1/3rd of Rs 54.07 lakhs paid in the previous year on research and development and the balance amount in equal installments immediately in two succeeding previous years for which the working is given below:

  Total amount spent on R & D                            Rs 54 07 lakh
  Less : 1/3rd (eligible deduction)                     Rs 18 02 lakh
                                                        Rs 36 05 lakh

Thus the allowance of deduction for entire expenditure of Rs 54.07 lakh against Rs 18.02 lakh resulted in an under assessment of income of Rs 36.05 lakh with consequential short levy of tax of Rs. 25,78,929/-.

7.1 The Assessing Officer maintained the stand that the R & D expenses incurred by the Company on inhouse research, being in the nature of consumption of raw material on test production and salary / wages of personnel deployed for R & D activities, have been rightly claimed as revenue expenses. It also maintained the stand that the objections raised by the audit party is not acceptable.

7.2 However, such reply was not found acceptable by the audit party and, therefore, the only remedial action available

C/SCA/18824/2021 ORDER DATED: 20/02/2023

was to initiate the action under Section 147 of the Act and, therefore, the permission was sought of the Commissioner of Income-tax.

7.3 Another communication dated 10/02/2009 by the Additional Commissioner of Income-tax), Range-8, Ahmedabad referring to the order passed by the Assistant Commissioner of Income-tax (OSD) Circle - 8 also says that in view of the detailed facts mentioned by the Assistant Commissioner of Income-tax (OSD) Circle-8 the audit objection is not acceptable, however the remedial action as per the Board's instruction No 9/2006 is required to be initiated and, therefore, it agreed with the view of the Assessing Officer that appropriate remedial action would be re-opening of the assessment under Section 147 of the Act.

7.4 These communications are clearly indicative of the fact that the Assessing Officer was not satisfied with the audit party having pointed to it the issue of allowability in respect of the R & D expenses The Assessing Officer having reason to believe that the income chargeable for any assessment year is sine qua non for initiating the proceedings for reassessment, which as rightly held by both the CIT(A) and the tribunal is glaringly missing from the very record. In other words at the time of issuance of the notice under Section 148 of the Act and initiating the process under Section 147 of the Act the Assessing Officer

C/SCA/18824/2021 ORDER DATED: 20/02/2023

must have a reason to believe that the income chargeable to tax for any particular assessment year has escaped the assessment and as the notice is being issued by the Assessing Officer it should be his subjective satisfaction, which the law has made obligatory.

7.5 Any reassessment proceedings initiated at the instance of the audit party objection, without the Assessing Officer himself having reason to believe that the income chargeable to tax has escaped the assessment must fail and such issue is no longer res integra and requires no further elaboration except by reproducing relevant findings of this Court, in the case of Cadila Health Care Ltd Vs Assistant Commissioner of Income Tax & Anr reported in (2012) 65 DRT (Guj ) 385, wherein it is held that any such initiation of reassessment proceedings solely at the instance of the audit objection would not be maintainable

"(i) CIT Vs Lucas T V S Ltd (2001) 168 CTR (SC) 311 : (2001) 249 ITR 306 (SC) in which the apex Court upheld the decision of the High Court in which the High Court had quashed the reopening proceedings wherein apart from the information furnished by the audit party, the ITO had no other information for reopening the assessment.

(ii) Agricultural Produce Market Committee vs ITO (2011) 63 DTR (Guj ) 7: (2011) 15 Taxmann com 170 (Guj )

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wherein Division Bench of this Court was pleased to quash the notice for reopening where the only basis was the revenue audit objection as regards the eligibility of the assessee for exemption.

(iii) Adani Exports Vs Dy CIT (1999) 153 CTR (Guj ) 308: (1999) 240 ITR 224 (Guj ) wherein Division Bench of this Court held as under;

"It is true that satisfaction of the AO for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to be scrutinised. 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

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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 erroneous and so far as he was concerned, he did not believe any any time that income has escaped assessment on account of erroneous computation of benefit under Section 80HHC. He has been consistent in his submission of his report to the superior officers. The mere fact that as a subordinate officer he added the suggestion that if his view is not accepted, remedial actions may be taken cannot be said to be belief held by him. He has no authority to surrender or abdicate his function to his superiors, nor the superiors can arrogate to themselves such authority. It needs hardly to be stated that in such circumstances conclusion is irresistible that the belief that income has escaped assessment was not held at all by the office having jurisdiction to issue notice and recording under the office note on 8th Feb, 1997 that he has reason to believe is a mere pretense to give validity to the exercise of power In other words, it was a colourable exercise of jurisdiction by the AO by recording reasons for

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holding a belief which in fact demonstrably he did not held that income of assessee has escaped assessment due to erroneous computation of deduction under Section 80HHC, for the reasons stated by the audit. The reason is not far to seek."

12. Under the circumstances, it clearly emerges from the record that the AO was of the opinion that no part of the income of the assessee has escaped assessment In fact, after the audit party brought the relevant aspects to the notice of the AO, she held correspondence with the assessee. Taking into account the assessee's explanation regarding non- requirement of TDS collection and ultimately accepted the explanation concluding that in view of the Board's circular, tax was not required to be deducted at source. No income had therefore escaped assessment. Despite such opinion of the AO, when ultimately the impugned notice came to be issued the only conclusion we can reach is that the AO had acted at the behest of and on the insistence of the audit party. It is well-settled that it is only the AO whose opinion with respect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, ofcourse true, as held by the decisions of the apex Court in the case of P V S Beedies (p) Ltd (Supra) and Indian & Eastern Newspaper Society (Supra), if the audit party brings certain aspects to the notice of the AO and thereupon, the AO form his own belief, it may

C/SCA/18824/2021 ORDER DATED: 20/02/2023

still be a valid basis for reopening assessment. However, in the other line of judgment noted by us, it has clearly been held that mere opinion of the audit party cannot form the basis for the AO to reopen the closed assessment that too beyond four years from the end of relevant assessment year"

8. As is amply made clear in the instant case from the discussion hereinabove that the subjective satisfaction of the Assessing Officer for the purpose of reopening of the assessment is lacking in the instant case and, therefore, the Officer having the jurisdiction to issue notice on the belief that the income has escaped the assessment in fact had no belief while issuing notice and, therefore, as held in the case of Adani Exports Vs Dy CIT (supra) it was a colourable exercise of jurisdiction by the Assessing Officer by recording the reasons for which he obviously had no conviction, had initiated the reassessment proceedings solely at the instance of the audit party which cannot be sustained."

9.             This       Court          made       it     quite      clear       that        the

Assessing          Officer        himself         initiated        the      reassessment

proceedings without his own conviction and only at the

instance of the audit party which was termed to be a

coulourable exercise of jurisdiction and the same was not

C/SCA/18824/2021 ORDER DATED: 20/02/2023

sustained.

10. The two decisions of the Apex Court which are

heavily relied upon will need to be considered at this

stage. It is to be noted that this Court in Vodafone

West Ltd (supra), has already referred to the Lucas

T.V.S. It was a case where the auditor's opinion in

regard to the interpretation of law was questioned to be

treated by the Assessing Officer as information. The

Court, while considering the submissions of both the

sides, has held that apart from the information furnished

by the audit party, the Assessing Officer had no other

information for reopening under Section 147B. The

opinion expressed by the audit party in the matter before the Apex Court showed that they had pointed out

to the Assessing Officer that he failed to apply the

provision contained in Section 35. This, according to the

Apex Court, would amount to pointing out the law and

the interpretation of the provisions contained in Section

35, which is barred by the decision of the Apex Court in

Indian & Eastern Newspaper Society V.CIT [1979] 119 ITR 996. It was a case where the Tribunal has

cancelled the order of reassessment and on reference, the

C/SCA/18824/2021 ORDER DATED: 20/02/2023

High Court held that apart from the information

furnished by the audit party, the Assessing Officer had

no other information for reopening. The views taken by

the Tribunal and the High Court, both were upheld by

the Apex Court and the appeals had been dismissed.

This would, on the contrary, help the cause of the

assessee.

11. So far as the P.V.S.Beedies (P) Ltd. (supra) is

concerned, it was a case of reopening of assessment

because in the original assessment, the donation made to

a charitable trust were held by the Assessing Officer to

be eligible for deduction under Section 80G. It was

pointed out by the internal audit party that the recognition which had been granted to the trust had

expired on 22.9.1972. Since it had expired before

1.4.1973, for the assessment year 1974-75 and 75-76, the

trust was not recognized charitable trust and therefore,

the donation to the trust did not qualify for deduction

under Section 80G as a donation made to a recognized

charitable trust. The audit party had pointed out a fact

that had been overlooked by the Assessing Officer in the

assessment. When the Tribunal and the High Court

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held that the information given by the internal audit

party could not be treated as information within the

meaning of Section 147B, the Court held that the factum

of the recognition granted to the charitable trust since

had expired on 22.9.1972 was not noticed by the

Assessing Officer. It was not a case of information of

question of law. The dispute as to whether the reopening

is permissible after audit party expresses an opinion on

a question of law was considered by a larger Bench of

the Apex Court in the case of Lucas T.V.S.Ltd. (supra)

wherein, the Court held that the reopening of the case

on the base of a factual error pointed out by the audit

party is permissible under the law and there can be no

dispute that the audit party is entitled to point out such factual error or omission in the assessment.

12. Here is a case where, admittedly, audit party

had expressed the opinion on a question of law. It had

also pointed out to the Assessing Officer and that

information which had been given was on question of

law. This has been dealt with in Lucas T.V.S. Ltd. and

even otherwise, the facts of the instant case clearly

make out that when the audit party had pointed out to

C/SCA/18824/2021 ORDER DATED: 20/02/2023

the Assessing Officer, it not only was disagreeing with

the information given on the law point, it had completely

disagreed after examining the objections raised by the

audit party. Twice at paragraph 3 and paragraph 6, it

has said that on examining carefully, the objections are

not acceptable and they need to be dropped. The

Assessing Officer, without any conviction, when has

issued the notice, this surely is not a case where the

reopening of the case is on the basis of any factual error

pointed out by the audit party so as to be covered by

the decision of the P.V.S.Beedies (P) Ltd. On the

contrary, it is covered by those decisions which have

been discussed in reopening on the part of the Assessing

Officer essentially on the audit party opinion and not on the basis of his own conviction. There is no material

worth the name emerging that to indicate any

independent application of mind could be noticed. On

the contrary, there are glaring facts which have been

pointed out that the Assessing Officer had no subjective

satisfaction while issuing the notice of reopening.

Therefore also, in this background, it is a settled law

that any notice of reopening issued by the Assessing

Officer without any independent application of mind

C/SCA/18824/2021 ORDER DATED: 20/02/2023

would laid the validity. Accordingly, this petition is

allowed. Notice dated 21.3.2021 along with the order

dated 10.11.2021 are quashed and set aside.

(SONIA GOKANI,CJ)

(SANDEEP N BHATT,J) M.H. DAVE