PR COMMISSIONER OF IT-II JAIPUR vs. M/S JAIPUR SAHAKARI KRAYA VIKRAYA SAMITI

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ITA/296/2016HC RajasthanRJHC02065185201602 December 20163 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the initiation of reassessment proceedings under Section 147 of the Income Tax Act on the basis of an audit objection is not permissible. The Tribunal's view was that an auditor's opinion regarding the application or interpretation of law cannot be construed as information that comes to the knowledge of the Assessing Officer subsequently, justifying reassessment. The Tribunal respectfully followed the Supreme Court's judgment in CIT vs. Lucas TVS Ltd., which held that an auditor's opinion on the application or interpretation of law cannot be treated as information for reopening an assessment. Consequently, the Tribunal held that the reopening under Section 147 was invalid and the assessment framed was quashed. The High Court agreed with the Tribunal's view, finding the decision in PVS Beedies Pvt. Ltd. distinguishable and that no substantial question of law arose. The appeal was dismissed.

What were the facts?

The Revenue, Pr. Commissioner of Income Tax, Jaipur-II, Jaipur-I, has appealed the order of the Income Tax Appellate Tribunal (ITAT). The ITAT had partly allowed the appeal of the assessee, M/s. Jaipur Sahakari Kraya Vikraya Samiti Ltd., by quashing the reassessment proceedings initiated under Section 147 of the Income Tax Act. The reassessment was based on an audit objection concerning the rate of deduction under Section 80P(2)(C)(i). The Commissioner (Appeals) had noted an inadvertent error in the approval for reassessment but held it did not vitiate the proceedings. The ITAT, however, found the reopening invalid, relying on the Supreme Court's decision in CIT vs. Lucas TVS Ltd.

What were the issues?

1. Whether the initiation of reassessment proceedings under Section 147/148 of the Income Tax Act is valid on the basis of an audit objection, even after an order under Section 143(3) has been passed? (Question of law and fact, concerning Section 147/148 and Section 143(3)). - Assessee's contention: The reassessment was invalid as it was based on an audit objection, which cannot be treated as information for reopening under Section 147. The Supreme Court in CIT vs. Lucas TVS Ltd. held that an auditor's opinion on the application or interpretation of law is not information for reopening. Therefore, the reassessment is bad in law. - Revenue's contention: It is open for the Assessing Officer to reopen proceedings under Section 147/148, even after an order under Section 143(3), on the basis of an audit objection. The Revenue relied on the decision in PVS Beedies Pvt. Ltd. (2007) 237 ITR 13.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(3),Section 80P(2)(C)(i),Section 151(1)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No. 296/2016

Pr. Commissioner of Income Tax, Jaipur-II, Jaipur-I VERSUS M/s. Jaipur Sahakari Kraya Vikraya Samiti Ltd. B-34, Surajpole Mandi, Jaipur, (Rajasthan) DATE OF ORDER ::: 02.12.2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH MEHTA Mr. R.B. Mathur for the Appellant. *****

1.

The Tribunal in para 4.2 observed as under:- “We have heard the rival contentions and perused the material on record. It is fairly conceded by the ld. D/R that the reopening was made on the basis of the audit objection. Admittedly, the objection raised by the auditor is with regard to the rate of entitlement of deduction under section 80P(2)(C)(i). The question of entitlement of deduction is necessarily an issue of application or interpretation of law. Therefore, in our considered view, the ratio laid down by the Hon’ble Supreme Court in squarely applicable, wherein the Hon’ble Apex Court held that an auditor’s opinion in regard to application or interpretation of law

2 cannot be treated as information by the AO as information for re-opening of assessment. Therefore, respectfully following the judgment of Hon’ble Apex Court, we hereby hold that the reopening under section 147 is invalid and the assessment so framed is hereby quashed. Ground no.1(b) of assessee’s appeal is allowed”

3.

Counsel for the appellant Mr. R.B. Mathur has mainly contended that in spite of the order passed u/s 143(3), it will be open for the Assessing Officer to reopen proceedings u/s 147/148 of the Income Tax Act, on the basis of audit objection.

4.

The Commissioner (Appeals) in para 3.2.2 observed as under:- “However, the Assessing Officer has erroneously mentioned in the notice u/s 148 and the reasons that approval has been taken from the CIT-II, Jaipur whereas approval has been taken from the Additional Commissioner of Income Tax, Range-5, as required u/s 151(1) of the I.T. Act. This inadvertent error will not vitiate the proceedings u/s 147.”

5.

In our view after passing an order u/s 143(3), auditor’s opinion in regard to application or interpretation of law cannot be used to initiate reassessment proceedings. It has been consistent view of the courts of law that auditor’s objection or opinion is an opinion and the same cannot be construed to be a subsequent fact came to the knowledge of the AO.

6.

The view taken by the Tribunal that initiation of reassessment proceedings on the basis of audit report, is not 3 permissible and the decision relied upon by the Tribunal squarely covers the issue.

7.

Counsel for the appellant has also relied on decision in the case of PVS Beedies Pvt. Ltd. (2007) 237 ITR 13. In our view, in the facts of the present case, the decision relied upon by Mr. Mathur is clearly distinguishable as in that case, the auditor has pointed out that the recognition granted to the P.V.S. Beedies Pvt. Ltd. had expired on 22.09.1972 i.e. prior to 1st April, 1973, such information has been construed as a fact, justifying initiation of the proceedings u/s 147/148. 8. Therefore, in our view the judgment of Hon’ble Supreme Court cited by Mr. Mathur is not applicable in the facts of the case. No substantial question of law arise for consideration in this appeal.

9.

The appeal being devoid of any merit stands dismissed. (DINESH MEHTA), J. (K.S. Jhaveri), J. MohitR 7

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