M/S ADANI INFRASTRUCTURE AND DEVELOPERS PVT. LTD. vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1)

Rule. Mrs. Mauna Bhatt, learned Senior Standing Counsel waives service of notice of rule on behalf of the respondent.

Having regard to the controversy involved in the present case which lies in a very narrow compass and with the consent of the learned advocates for the parties, the matter is taken up for final hearing today.

By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 23.03.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen its assessment for assessment year 2012-

The facts stated briefly are that the petitioner is a Private Limited Company engaged in the business of real estate and development. The petitioner filed its return of income for assessment year 2012-13 on 25.9.2012 declaring total income at Rs.19,79,739/-. The case was selected for scrutiny and notices under sections 142(1) and 143(2) of the Act came to be issued upon the petitioner from time to time. In response to such notices, the petitioner furnished the requisite details. It appears that specific questions regarding disallowance under section 14A of the Act were raised vide notice dated 02.03.2015, which came to be replied vide letter dated 10.03.2015. Thereafter, vide order dated 16.03.2015, the assessment came to be framed under section 143(3) making several additions and disallowance, including disallowance under section 14A read with rule 8D of the Income Tax Rules, 1962. 5. Thereafter, by the impugned notice, the respondent sought to reopen the assessment for assessment year 2012-

At the request of the petitioner, the reasons came to be furnished. The petitioner raised various objections on merits requesting the respondent to drop the reassessment. Vide order dated 20.8.2018, the respondent rejected the objections. Being aggrieved, the petitioner has filed the present petition.

Mr. B. S. Soparkar, learned advocate for the petitioner submitted that the action of the respondent in issuing notice under section 148 of the Act is illegal and without jurisdiction. The action of the respondent was assailed on various grounds as set out in the memorandum of petition, however considering the view that the court is inclined to take in the matter it is not necessary to refer to all the grounds and deal with the same. The learned advocate for the petitioner has, inter alia, contended that the reopening of assessment is not based upon the satisfaction of the Assessing Officer, but is merely based upon the audit objection raised by the audit department. It was contended that an audit objection cannot be the basis for reopening the assessment, more so, when the Assessing Officer has not accepted such audit objection.

1 In support of his submissions, the learned advocate placed reliance upon the decision of this court in the case of Jagat Jayantilal Parikh v. Deputy Commissioner of Income Tax, [2013] 355 ITR 400 (Guj.), wherein the court has held that it is a well laid down principle that the Assessing Officer requires to form his own belief at the time of reopening the assessment and while issuing notice of reopening. However, on having noticed certain aspects from the report of the audit party, if the Assessing Officer chooses to form his opinion to reopen the assessment, the validity of reopening of such assessment cannot be challenged on the ground of such reopening of assessment being at the instance of audit party. In the facts of the said case, the court noted that the assessment was completed on scrutiny. In the post- assessment period, the audit party raised the objection and the Assessing Officer had strongly objected to such objections by communicating internally. The court held that the facts clearly established the absence of subjective satisfaction of the Assessing Officer and accepted the ground raised by the petitioner that such notice of reopening was invalid as the Assessing Officer had not formed his independent belief.

Opposing the petition, Mrs. Mauna Bhatt, learned Senior Standing Counsel for the respondent reiterated the grounds set out in the affidavit-in-reply filed on behalf of the respondent.

The learned Senior Standing Counsel also produced for the perusal of the court the original file containing the audit query. A perusal of the file reveals that the Assessing Officer has not accepted the objections raised by the audit party and has given his reasons for the same and has further stated that he had considered the applicability of provisions of section 14A of the Act and was satisfied in adopting 0.5% of average value of investment for disallowance under section 14A of the Act. He was, accordingly, of the view that the objection raised by the audit party could not be accepted and is required to be dropped.

A perusal of the reasons recorded shows that the assessment for the year under consideration is sought to be reopened on the ground that the disallowance of expenditure under section 14A of the Act read with rule 8D of the rules had not been correctly worked out. On the other hand, the Assessing Officer, after considering the audit objections, has not accepted the same has stated that after considering the applicability of section 14A of the Act, he was satisfied with the disallowance made, despite which the impugned notice has been issued seeking to reopen the assessment on the very ground to which he has objected, which is indicative of the fact that the reopening of assessment is not based on the satisfaction of the Assessing Officer but on the audit objections.

Thus, the record of the case clearly reveals that the Assessing Officer has not accepted the objections raised by the audit party and on the contrary, has objected to such objections by communicating internally as referred to hereinabove. Evidently therefore, the Assessing Officer has not formed any independent belief that the income chargeable to tax has escaped assessment and on the contrary has stated that he had considered the applicability of provisions of section 14A of the Act and was satisfied in adopting 0.5% of average value of investment for disallowance under section 14A of the Act. Evidently, therefore, the notice under section 148 of the Act has merely been issued on the basis of the audit objection without the Assessing Officer having formed the requisite belief regarding escapement of income as contemplated under section 147 of the Act. It is by now well settled that the assessment cannot be reopened merely on the basis of an audit report without the Assessing Officer independently forming the belief, may be on the basis of such report, that income chargeable to tax has escaped assessment. The above referred decision would, therefore, be squarely applicable to the facts of the present case. The impugned notice issued by the respondent under section 148 of the Act being based merely upon the audit objection and not because the Assessing Officer had reason to believe that any income chargeable to tax has escaped assessment, cannot be sustained.

For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 23.03.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 seeking to reopen its assessment for assessment year 2012-13 is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (A. P. THAKER, J) B.U. PARMAR