By TIOL News Service

CHENNAI, JAN 04, 2018: THE ISSUE is - Whether when the CBDT itself has not accepted the audit objection, the verbatim reproduction of the same constitutes a valid ground for the AO to resort to re-assessment. - NO is the answer.

Facts of the case

The Assessee-company, engaged in the business of offering vehicle finance, home loans, home equity loans, SME loans, investment advisory services, stock broking and a variety of other financial services, had filed its return for the relevant AY. During the assessment proceeding, the AO found that the Assessee had credited provisions amounting to Rs. 223.53 crore in AY 2009-10. The same represented unascertained liabilities. However, in the AY 2010-11, the Assessee decided to withdraw a portion of the said provisions. Since, the original provision was disallowed by the AO, the reversed provisions were considered as a part of taxable income. The AO thereby, issued a notice u/s 148 and initiated the re-assessment proceeding on the ground that the amount has escaped assessment to tax. The re-opening proceedings was on the basis of an audit objection, which was communicated to the Department.

In Writ, the High Court held that,

++ the reasons for re-opening is verbatim repetition of the audit objections filed by the audit party. This position was clearly demonstrated by the Counsel by comparing the audit objection and the reasons for re-opening. Thus, it is clear that the AO did not have any independent material to re-open the assessment, but merely proceeded to re-open the assessment on the ground that there was an audit objection. Thus, two issues arise for consideration. Firstly, whether the re-opening proceedings have been made solely based upon the audit objection. Secondly, when CBDT had taken a stand that they do not accept the audit objection whether the Revenue could proceed to initiate re-opening proceedings;

++ by applying the law laid down by the High Courts and Apex Court, it has to be held that the said re-opening proceedings is clearly a change of opinion and liable to be set aside. That apart, in the Assessee's own case for the AY 2009- 10, the CIT(A), taking note of the objections filed by the CBDT to the audit report has held in favour of the Assessee and the appeal has been allowed. As on date, it appears that no further appeal has been preferred by the Department;

++ the stand taken by the Revenue in the counter affidavit as well as the submission of the Counsel could not in any manner improve the case, as it has been clearly demonstrated that the reasons for re-opening are verbatim repetition of the audit objection, which procedure has been struck down in various decisions of both Apex Court and several High Courts. The issue, which is subject matter of re-opening, was dealt with by the AO while completing the assessment u/s 143(3) and during the course of hearing on 13.06.2012, additional details/clarifications were called for. Thus, after obtaining the requisite details and the clarification, the assessment was completed u/s 143(3). Thus, all materials were available in the hands of the AO and the said re-assessment proceedings is clearly a case of change of opinion and on the facts noted and by applying the law laid down in the said decisions, the re-opening proceedings are illegal and not sustainable.

(See 2018-TIOL-26-HC-MAD-IT)