AXIS BANK LTD vs. DEPUTY COMMISSIONER OF INCOME-TAX

This petition under Article 226 of the Constitution of India is directed against the notice dated 25th March, 2013 issued by the first respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen the assessment of the petitioner assessee for assessment year 2008-09. Having regard to the view that the court is inclined to take in the matter as delineated herein below, it is not necessary to refer to the facts and contentions in detail.

The petitioner, a public limited company and a scheduled Bank, filed its return of income for assessment year 2008-09 on 24th September, 2008 along with statement of income and relevant annexures thereto including the Tax Audit Report. The petitioner’s return was selected for scrutiny assessment. During the course of assessment, the Assessing Officer issued notice under section 142(1) of the Act and called for certain details from the petitioner from time to time, pursuant to which, explanation came to be furnished by the petitioner. The Assessing Officer framed assessment under section 143(3) of the Act on 21st December, 2010 after making several additions/disallowances including certain portion of bad debt written off whereby claim under section 36(1)(vii) came to be disallowed. The assessee carried the matter in appeal before the Commissioner (Appeals) inter alia on the issue pertaining to disallowance of claim of bad debts written off on non-performing assets. By an order dated 1st December, 2011, the Commissioner (Appeals) decided the particular issue against the petitioner against which the petitioner’s appeal before the Tribunal is pending. In the meanwhile, by the impugned notice dated 25th March, 2013, the assessment for assessment year 2008-2009 is sought to be reopened, which has given rise to the present petition.

Mr. R.K. Patel, learned advocate for the petitioner assailed the impugned notice by submitting that the assessment of the petitioner is sought to be reopened solely on the basis of the remarks of the Audit Department without the requisite belief having been formed by the Assessing Officer, under the circumstances, in the absence of Assessing Officer having formed the belief that income chargeable to tax has escaped assessment, the requirements for reopening the assessment under section 147 of the Act are not satisfied and consequently, the assumption of jurisdiction by the Assessing Officer by issuance of notice under section 148 of the Act is without any authority of law. In support of such submission the learned counsel placed reliance upon the decision of this court in the case of Adani Exports v. Deputy Commissioner of Income-tax (Assessment), (1999) 240 ITR 224. Various other submissions were also advanced, however, for the reasons that follow, it is not necessary to refer or deal with the same.

In response to the oral directions issued by this court, Mr. M.R. Bhatt, Senior Advocate, learned counsel for the respondents has produced the original record relating to the proceedings under section 147 of the Act for the perusal of this court. A perusal of the file shows that the Audit Officer had raised certain objections as recorded in the reasons for reopening the assessment and had called upon the Assessing Officer to submit his remarks thereon. The Assessing Officer by a communication dated 3rd June, 2011 had opined that the objection raised was based on incorrect appreciation of facts and position of law and has requested the Audit Officer to drop the said objection. By a communication dated 4th July, 2011 addressed to the Deputy Accountant General (ITRA), the second respondent had requested that the objection raised by the Audit Department be dropped. However, the Audit Department persisted with the objection whereafter, by a communication dated 5th August, 2011, the Assessing Officer once again opined that the objection was based upon incorrect appreciation of facts and position of law and requested to drop the said objection. The Audit Department, however, still persisted with the objection and by a communication dated 29th August, 2011, called upon the Assessing Officer to reconsider the reply and report remedial action taken, if any. In response thereto, the first respondent, by a communication dated 31st August, 2012, submitted that the objection raised by Audit is not acceptable, however, to settle the objection, a remedial action may be taken under section 263 of the Act. By another communication dated 13th September, 2012 addressed to the Audit Officer, the first respondent once again reiterated that the objection raised by the Revenue Audit is not accepted in view of the fact that on the same issue, in the assessment year 1998-99, in the assessee’s own case, this High Court has decided in favour of the assessee after considering the CBDT Instruction No.17/2008 dated 26th November, 2008. It was again reiterated that the objection raised by the Audit is factually wrong and the same may kindly be dropped. Since the Audit Department still persisted with the audit objection, the second respondent by a communication dated 21st January, 2013 addressed to the Additional Commissioner of Income-Tax, called upon him to direct the Assessing Officer to initiate proceedings under section 147 after obtaining prior sanction under section 151 of the Act. Ultimately, with a view to comply with the audit objection, the Assessing Officer initiated proceedings under section 147 by recording the reasons (Annexure ‘L’) and issued notice under section 148 of the Act.

In the aforesaid factual background, it is evident that the reasons recorded for reopening assessment are not based upon the formation of any belief on the part of the Assessing Officer that any income chargeable to tax has escaped assessment. The assessment is sought to be reopened merely on the insistence of the Audit Department. At this juncture, it may be germane to refer to the decision of this court in the case of Adani Exports v. Dy. CIT (Assessments), (1999) 240 ITR 224 (Guj.) wherein it has been held thus:- “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 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 at any time that income has escaped assessment on account of erroneous computation of benefit under s. 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

Thus, while it is an accepted position that the Assessing Officer is not prohibited from acting upon remarks of the Audit Department and reopening the assessment; however, it is for the Assessing Officer to determine for himself as to whether on the basis of the objections raised by the Audit Department it can be said that any income chargeable to tax has escaped assessment. It is only after he independently forms the requisite belief as contemplated under section 147 that the Assessing Officer can assume jurisdiction under section 147 of the Act and issue notice under section 148 thereof. In the present case, the facts as revealed from the original record relating to the proceedings as recorded hereinabove, make it amply clear that insofar as the first respondent - Assessing Officer is concerned, he has, in the communications referred to hereinabove, given a clear opinion that no case has been made out for reopening of the assessment and that the objection raised by the Audit was not acceptable. However, it is only on account of the persistence of the Audit Department, that the Assessing Officer has reopened the assessment for the assessment year under consideration by issuing notice under section 148 of the Act. Clearly, therefore, the Assessing Officer has not formed any belief that income chargeable to tax has escaped assessment and on the contrary, is of the opinion that there is no cause for reopening the assessment; however, he has sought to reopen assessment only upon the insistence of the Audit Department. Under the circumstances, the primary requirement for reopening the assessment under section 147 of the Act, namely that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment has clearly not been satisfied. The assumption of jurisdiction on the part of the Assessing Officer by reopening assessment for the year under consideration by issuance of notice under section 148 of the Act is, therefore, without any authority of law. Resultantly, the impugned notice under section 148 of the Act cannot be sustained.

For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 25th March, 2013 issued by the first respondent under section 148 of the Act (Annexure ‘J’ to the petition) is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. ( Harsha Devani, J. ) ( A.G. Uraizee, J. ) hki