(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged notice dated 3.8.2004 issued for the purpose of reopening assessment for the assessment year 2000-2001. The petition arises in the following factual background :
2. The petitioner is a company registered under the Companies Act and is regularly assessed to tax. For the assessment year 2000-2001, the petitioner filed its original return of income on
scrutiny. The Assessing Officer framed assessment under section 143(3) of the Act computing total income of the assessee at Rs.26,01,66,900/-. The petitioner carried the assessment order in appeal. With respect to such appeal and outcome thereof, we are not directly concerned in this proceeding.
3. The Assessing Officer issued impugned notice on 3.8.2004 seeking to reopen the assessment of the petitioner for the year 2000-2001. At the request of the petitioner, reasons for reopening were
penalty for non fulfillment of export obligation to be disallowed in view of decision of Delhi High Court in case of Orissa Cement Ltd (258 ITR 365)
2) The “A” has income of Insurance Claim of Rs1472186/- during the year under consideration but while working the deduction u/s.80HHC, 90% of the insurance claim has not been reduced from the profit of the business.
3) The 'A' has invested Rs.10 crores in units of Prudential ICICI Growth Plan and earned 4.27 crores as Dividend income which is exempted. On perusal of records it has been seen that the units has been purchased on 16 March and sold on 28 March and incurring huge loss of Rs.3.51 crores. This transaction entered by “A” is beyond ambit of the tax planning and indeed falls under the category of colourable devices. The decision of Mc Dowells ratio is squarely applicable here.”
4. The petitioner under communication dated 24.12.2004 raised detailed objections to such reopening of assessment. Primarily the contention of the assessee was that all three grounds on which the Assessing Officer desired to reopen the assessment were examined in the original scrutiny assessment and that therefore, reopening on such basis was not permissible. It was also contended that there was no failure on part of the assessee to make a return or disclose truly and fully all material facts necessary for assessment.
5. Such objections were rejected by the Assessing Officer by an order dated 28.12.2004. At that stage the petitioner filed the present petition challenging the notice for reopening of assessment itself.
6. Learned senior counsel Shri Soparkar submitted that reasons were not recorded by the Assessing Officer before issuance of notice for reopening. He submitted that recording of reason being sine- qua-non for assuming jurisdiction for reopening the assessment, issuance of notice without recording such reasons would be wholly impermissible. Our attention was drawn to an order dated 7.2.2005 passed in present petition, wherein the Court had an occasion to peruse the original files in the context of this controversy.
6.1) Counsel further submitted that the Assessing Officer held no independent belief that income chargeable to tax had escaped assessment. He submitted that the Assessing Officer was under compulsion by the audit party to issue notice for reopening of assessment though she herself held a firm belief that no income had escaped assessment. In this context our attention was drawn to the averments made in the petition, particularly, in para. 2.8 and 3.3 thereof. Counsel also drew out attention to the reply statement of the respondent in which while replying to such paragraphs, according to him such averments were not specifically denied.
6.2) Counsel relied on decision of the Division Bench in case of Adani Exports v. Deputy Commissioner of Income-tax (Assessments) reported in 240 ITR 224, wherein it was held that the opinion of audit party in regard to the income escaping assessment cannot be the basis of the Assessing Officer's firm opinion that income chargeable to tax had escaped assessment. In every case, the Assessing Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note.
7. On the other hand learned counsel Shri Parikh for the department opposed the petition contending that Assessing Officer had recorded proper reasons before issuing notice. Such notice was issued within a period of four years from the end of relevant assessment year. He further submitted that the Assessing Officer being satisfied that income chargeable to tax had escaped assessment, had issued such notice. Even if certain aspects were brought to her notice by the audit party, that by itself would not vitiate the notice to reopen the assessment.
8. Having thus heard learned counsel for the parties and having perused the documents on record, we may examine two principal contentions raised by the counsel for the petitioner.
9. Firstly, we may advert to the question of recording of reasons before issuing notice. Learned counsel for the Revenue has made available the original files pertaining to the reopening of the assessment. Such file starts with a document recording reasons by the then Assessing Officer. She has placed the date of 3.8.2004 on such document. Right next to such document, we find original of the notice for reopening the assessment which is also dated 3.8.2004. In such notice, it is stated that “this notice is being issued after obtaining necessary satisfaction of the Commissioner of Income-Tax(1) BARODA, the Central Board of Direct Taxes.”
10. We are intrigued to notice that such satisfaction whether required or not is stated to have been obtained before issuing the notice. Notice was issued on 3.8.2004 for which the reasons were also allegedly recorded on 3.8.2004. Shri Parikh produced before us copy of communication dated 2.8.2004 issued by the Commissioner of Income-tax Baroda granting approval for appropriate remedial action in case of the petitioner in which he had recorded that he had approved action under section 147 of the Act as the most appropriate remedial action. This letter does not obviously bear any reference to the reasons recorded by the Assessing Officer. We fail to see how on the basis of reasons recorded on 3.8.2004, the Assessing Officer had obtained approval of the Commissioner for issuing notice for reopening on 2.8.2004. We have serious doubts whether as stated before us, such reasons were recorded before issuing notice.
11. Be that as it may, it is the second contention of the petitioner which we find even more damaging to the Revenue. The petitioner has contended in the petition firmly that the Assessing Officer was not inclined to reopen the assessment holding a belief that grounds pointed out by the audit party were not sufficient. In the petition itself, it was stated as under :
“2.8 It has come to the knowledge of the petitioner that the respondent has issued the impugned notice on the basis of remarks of the Accountant General(Audit). It has further come to the knowledge of the petitioner that the respondent has, as a matter of fact, not accepted the objections raised by the audit party and immediately, on receipt of the Audit objections, raised counter objections to the said audit remarks and informed the Audit party that the view taken by her is correct in law as well as on facts and the said audit remarks are required to be dropped.
3.3 The petitioner submits that it has come to the knowledge of the petitioner that audit party has taken some objections and instructed the assessing officer to reopen the completed assessment and therefore the impugned notice came to be issued. It has further come to the knowledge of the petitioner that the respondent has, as a matter of fact, not accepted the objections taken by the audit party and ask them to withdraw the same. In other words, when the impugned notice was issued the respondent did not hold any belief that the income of the petitioner has escaped assessment for any reason. Legally it is well settled that in case of reopening “the reason to believe” must be that of an assessing officer and it cannot be substituted with anyone else's belief, be it the superior authority of the assessing officer.”
12. The Assessing Officer in her affidavit dated 23.1.2005 in reply to such averments stated as under :
“E With reference to para 2.8 it is submitted that the allegation in this para is totally unfounded and baseless. At this juncture the deponent wants to place on record its apprehension about the possible source of so called information claimed to be with assessee Inter departmental correspondences, if any, are strictly official and does not have any bearing on the proceedings under consideration in the current case as on date. In this regard the deponent is surprised of being aware of the fact that he correspondence between the department and Accounts General which are not privy to the public are being stated as public knowledge before the Court. Further, in the reasons recorded by the deponent there is no such reference and deponent after application of her mind recorded the reasons and issued the notice as per law.
H. With reference to para 3.3 it is submitted that this issue has been adequately dealt with in reply to para 2.7”
13. The pointed averments of the petitioner to the effect that the Assessing Officer did not accept the objections raised by the audit party and in fact through further deliberation stuck to her position that she was correct in law as well as on facts and that therefore, the audit remarks were required to be dropped, were not denied by her in her said affidavit. In the affidavit what was vaguely stated was that the department was apprehensive about the source of information on basis of which such averments were made. Interdepartmental correspondence was strictly confidential. She was surprised that the petitioner was aware about any such document. The petitioner’s further elaboration of this stand taken in para3.3 of the petition met with brief answer in the reply namely that such averments were adequately dealt with in the reply to para.2.7(perhaps referring to para.2.8).
14. Not willing to decide such an issue by default and in order to give sufficient opportunity to the Revenue to contradict the petitioner’s factual averments on the basis of documents, we had previously requested learned counsel for the Revenue to make available the original files for the perusal of the Court. After couple of opportunities since such files were not produced we had on 16.7.2012 passed the following order :
“1. We had previously requested the learned counsel for the revenue orally to make available the original files of the reassessment proceedings for our perusal. This was so on account of two allegations of the petitioner which remained substantially uncontroverted. The petitioner has been contending that reasons for reopening of the assessment were not recorded by the Assessing Officer before issuance of notice. More importantly, the Assessing Officer issued notice only on the insistence of the audit party.
2. Previously, we had granted adjournments for this purpose. As a last chance, S.O. to 30th July, 2012. If on such date, files are not produced, we may proceed to hear the matter on the basis of documents on record.”
15. Even thereafter, this petition was adjourned on a couple of occasions. Today the learned counsel Shri Parikh for the Revenue made a candid statement that such file containing exchanges between the Assessing Officer and the audit party was not traceable. We were therefore, left with no alternative but to proceed on the basis of the averments made by the two sides on oath.
16. On the basis of such pleadings we have not the slightest hesitation in coming to the conclusion that the petitioner’s firm assertion that the Assessing Officer did not agree with the audit objection and stuck to her position that she was right in law as well as in facts while framing the original assessment and that therefore, audit objection should be dropped, has not been denied by the Assessing Officer though she herself filed an affidavit before this Court in response to such averments made in the petition. All that she had to state was that she was surprised that the petitioner could claim access to inter- departmental correspondence which was strictly confidential in nature. This is hardly what the Court would accept when specific factual averment has been made by the petitioner, answer to which would go to the very root of the authority of the Assessing Officer to exercise jurisdiction to
and seek to reopen the assessment, provided it is the Assessing Officer’s independent belief that income chargeable to tax has escaped assessment. Reference in this respect may be made to the decision of the Supreme Court in case of Commissioner of Income-tax v. P.V.S. Beedies Pvt. Ltd. reported in 237 ITR 13. However, it is equally well settled by several decisions particularly by Division Bench of this Court in case of Adani Exports (supra) 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 said decision, the Court had referred to and relied upon the decision of the Supreme Court in case of Indian and Eastern Newspaper Society v. Commissioner of Income-tax, New Delhi reported in 119 ITR 996. The Court observed :
“In the present case, by scrupulously analysing the audit objection in great detail, the assessing officer 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 u/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.”
17. It was in this context extremely important for us to know whether recording of the reasons and consequent issuance of notice (even if it was in that sequence in the present case) was on the basis of an independent opinion of the Assessing Officer on the question of law and facts which may have been brought to her notice by the audit party or whether she eventually held a belief that such grounds were not valid and that she was under compulsion to reopen the assessment solely under insistence of the audit party. Revenue not having either denied such clear averments of the petitioner made in the petition on oath nor having produced the original files to demonstrate the independent formation of opinion by the Assessing Officer, though sufficient time was made available, issue stands firmly concluded.
18. Under the circumstances notice for reopening cannot be sustained. Same is quashed. Petition is disposed of. Rule made absolute. No order as to costs.
(Akil Kureshi,J.) (Harsha Devani,J.) (raghu)