Gujarat High Court
Adani Power Maharashtra Limited vs Assistant Commissioner Of Income Tax, ... on 20 February, 2023
Author: Sonia Gokani
Bench: Sonia Gokani
C/SCA/347/2022 ORDER DATED: 20/02/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO 347 of 2022
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ADANI POWER MAHARASHTRA LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1)
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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 2017-18 on the ground that the same is contrary to law and without jurisdiction.
1.1 The order disposing of the objections passed by Page 1 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 the respondent dated 25.10.2021 also has been challenged.
2. The petitioner is a limited company which has filed its return of income for A.Y.2017-18 declaring total loss on 28.11.2017 under normal provisions and the book- loss as well.
2.1 The tax 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 21.12.2019 accepting the returned total loss of the petitioner for A.Y.2017-18 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.2017-18. 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 Page 2 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 to the same, the objections were raised on 16.8.2021 challenging the validity of the notice. The respondent disposed of the objections on 25.10.2021. 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 25.10.2021 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 2017-18;
(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 Page 3 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 objection and it is a settled law that the reason to 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 10.1.2022 (Coram:J.B.Pardiwala, J (as His Lordship then was) and Nisha Thakore, J), and protected by way of ad-interim relief in terms of paragraph 7(c).
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 Page 4 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 Section 148 read with Section 147 of the I.T. Act has been issued. There is an alternative remedy available by way of 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.2017-18 on 28.11.2017 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 Page 5 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 sustained and the same have been disposed of in 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, that the issue involved in the present petition is covered by the decision of this Court which is reported in 2013(37) Taxmann com 158 Vodafone West Ltd. V/s Assistant Commissioner of Income Tax, this Court has held that Page 6 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 the Assessing Officer, when had no reason to believe that the income had escaped the assessment and on the contrary, when 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 whereever 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.Maithili Mehta, learned senior standing Page 7 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 counsel for the respondent has strenuously objected to this on the ground that merely because the audit party objections had come and the Assessing Officer issues 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 informations vide application under Section 6(3) of the RTI Act and the same had been received by Ministry of Finance, Income Tax Department on 21.12.2021. The applicant's information was with regard to the following queries: Page 8 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023
C/SCA/347/2022 ORDER DATED: 20/02/2023 Information sought Information given 1 1 Whether any query was This Circle is having raised with respect to the jurisdiction as mentioned in assessment completed for order No PCIT-1/ABD/Order AY 2017-18 by the CIT u/s120/01 2020-21 dated 03 (Audit)/Addl /JCIT(Audit), 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:
"2. Audit scrutiny of the case revealed that in the Annual Page 9 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 report for the relevant F Y 2016-17 of the assessee company at None no 32, `Other Expenses' the assessee has debited CSR (Corporate Social Responsibility) expenses of Rs. 2,12,00,000/- It is seen from the computation of income, `Income from Business or Professions' as well as ITR, Part A-OI Sr No 7(h) for A Y 2017-18 bu the same has not been added back while computing the Taxable Income as per the Income Tax Act, 1961. As per sec 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 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 2,12,00,000/-. The tax effect on this account is worked out as at Rs 70,42,110/- (notional).
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 Page 10 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 prescribed vide F No 240/08/2015-A & PAC-II dated 21/07/2017."
6. On 16.9.2020, while addressing the communication to the Principal Commissioner of Income Tax, the Assessing Officer, had in clear terms stated 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. On verification, it is seen that the assessee has debited an amount of Rs.2,12,00,000/- as Corporate Social Responsibility (CSR) expenses. However, 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.44 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 Page 11 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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. However, for a noble cause, it has incurred expenses of Rs.2.12 crores on the activities which are specified in Schedule VII of the Companies Act, 2013.
3.1 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 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.
3.2 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. The expenses in the instant Page 12 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 #CD in column 21a has not made any adverse comments regarding the same (enclosed).
4. Therefore, the objection raised by the audit is not acceptable and the same may kindly be dropped, if approved."
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 Page 13 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 14 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 15 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 16 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 (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 Page 17 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 18 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 19 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 20 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 other information for reopening the assessment.
(ii) Agricultural Produce Market Committee vs ITO (2011) 63 DTR (Guj ) 7: (2011) 15 Taxmann com 170 (Guj ) 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 Page 21 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 22 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 note on 8th Feb, 1997 that he has reason to believe is a mere pretence 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 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 Page 23 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 24 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 25 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 26 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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 Page 27 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 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 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. In paragraph 3 and paragraph 6, it has said that after carefully examining, 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 Page 28 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023 C/SCA/347/2022 ORDER DATED: 20/02/2023 background, it is a settled law that any notice of reopening issued by the Assessing Officer without any independent application of mind would laid the validity. Accordingly, this petition is allowed. Notice dated 21.3.2021 along with the order dated 25.10.2021 are quashed and set aside.
(SONIA GOKANI,CJ) (SANDEEP N BHATT,J) SRILATHA Page 29 of 29 Downloaded on : Fri Feb 24 20:37:44 IST 2023