ACIT, NCC-22,, TAMBARAM vs. SHRI KAMAL CHILAKA,, KANATHUR

This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)-10, Chennai in dated 22.10.2019. The assessment was framed by the ACIT, Non Corporate Circle 22, Chennai for the assessment year 2014-15 u/s.147 of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 18.12.2018.

Brief facts are that original assessment was completed by ACIT, Non-Corporate Circle-11, Tambaram, Chennai for the relevant assessment year 2014-15 u/s.143(3) of the Act vide order dated 21.11.2016. The assessee’s case was selected for complete scrutiny under CASS for the reason “delayed payment of tax and return filed late, large long term capital gain & no entry is Schedule Asset and Liabilities”. The assessee produced books of accounts, furnished details and written submissions and accordingly assessment was completed u/s.143(3) of the Act. Subsequently, the AO issued notice u/s.148 of the Act to reopen the completed assessment and for that the AO recorded reasons vide dated 12.03.2018 and the relevant reasons read as under:- 2 Reasons for the belief that income has escaped assessment The assessee an individual, deriving income from Photography, filed his return of income electronically on 30.09.2014, declaring total income of Rs.13,59,90,61 8/-. The assessee has shown income under the heads 'Salaries, Long Term Capital Gain and Income from other sources'. On selection for scrutiny under CASS the assessment was completed vide order u/s.143(3) of the Act dated 21.11.2016 accepting the income returned.

Before CIT(A), the assessee challenged reopening on change of opinion and CIT(A) held that there is change of opinion and hence, he observed in para 5 as under:- “5. It is hence clear from the basic facts of the case that reassessment made under section 148 of the IT act 1961 docs not stand the test of law as the assessing officer was unable to bring forth any new information which has come to the possession of the Department subsequent completion of 1st assessment under section 143(3) of the act) It is apparent from record that the assessing officer has drawn up good reasons for reopening which have been duly approved by his joint Commissioners acting in his capacity as a range head. The only procedural flaw with seems to have occurred is that having discovered that one alternative view as to valuation of shares was possible which was indicative of a possibility that income has been taxed at a lower rate, the assessing officer and the JCIT should have immediately revised the assessment under section 263 of the IT act instead of which they have in their wisdom resorted to reopening assessment under section 148 of the act which however is does not pass the test of change of opinion. While strict interpretation of taxing statutes is called for it is also true that due procedure as laid down in the law has to be strictly followed this casts a duty on tax authorities to be seen as fair and just and to uphold natural justice and all the tax proceedings.”

Before us the ld.Senior DR argued that the CIT(A) in his appellate order held that there was no new information with the AO for reopening of assessment and it is merely change of opinion. He argued that notice u/s.148 of the Act has been issued within four years and there is no requirement for the AO to demonstrate any failure to disclose on the part of the assessee and further from the records, it is seen that during the course of original assessment proceedings the AO has directed the assessee to file information as per Rule 11UA(2) of the Rules on various days. He also stated that the reopening is on the basis of audit objection but from the very reasons recorded as noted above, the AO has applied his mind while recording reason and formed a reasonable belief for reopening of assessment and this view is affirmed by Jurisdictional High Court in the case of CIT vs. First Leasing Co. of India Ltd., 241 ITR 248 (2000), wherein Hon’ble High Court has held as under: “However, if the audit party has merely drawn the attention of the ITO to the existence of the law, the opinion of the audit party would be regarded as information”…. If the statutory conditions prescribed under section 147(b) are satisfied, it is permissible for the department to invoke the reassessment proceedings, notwithstanding the fact that other remedies are available to the department under other provisions of the statute.”

On the other hand, the ld.Counsel for the assessee argued that this reopening is merely on the basis of audit objection and the AO recorded the reasons which is just copying the audit objection and the AO has not applied independent mind while recording reasons or reopening of assessment. He stated that the department paper- book clearly reveals the fact that reading of the audit query which triggered the reassessment proceedings confirms the fact. He argued that audit parties scope should be understood as restricted and they cannot act as an assessing authority in as much as getting into the shoes of the AO, which is completely prohibited and same would not constitute valid information for the purpose of reopening of assessment u/s.147 of the Act. The ld.counsel for the assessee relied on the decision of Hon’ble Supreme Court in the case of Indian & Eastern Newspaper Society vs. CIT, 119 ITR 996 (1979), wherein it is held that audit objection cannot be considered as valid information for the purpose of reassessment proceedings and the relevant portion of the judgment reads as under:- “Therefore, whether considered on the basis that the. nature and scope of the functions of the internal audit organisation of the Income Tax Department are co-extensive with that of Receipt Audit or on the basis of the provisions specifically detailing its functions in the Internal Audit Manual, we hold that the opinion of an internal audit party of the Income Tax Department on a point of law cannot be regarded as "information" within the meaning of section 147(b) of the Income Tax Act, 1961.”

We have heard rival contentions and gone through facts and circumstances of the case. We noted from the order of CIT(A) that he has simply quashed the assessment by a cryptic order as his decision is noted in above para 4, wherein he has simply noted that the AO has not passed the test of change of opinion but he did not elaborate how there is opinion formed by the AO in the original assessment proceedings. Another aspect of approval by JCIT, the prima facie argument made by assessee seems to be correct but this needs to be verified because the records are not produced before us. As regards to change of opinion, the CIT(A) has not recorded the factual finding and hence, this issue needs reconsideration by the CIT(A) afresh, who will reconsider the issue of reopening as well as approval granted by JCIT whether satisfactory or not. In term of the above, we restore this issue back to the file of the CIT(A). Needless to say if the CIT(A) is not with assessee on reopening, he has to deal with merits also. In term of the above, the appeal of the Revenue is allowed for statistical purposes.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.