The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that the re-assessment cannot be made on the basis of the audit report.
The assessee`s main business is manufacturing and trading of irons. For the relevant period, the reassessment proceedings under section 147 of the Income Tax Act, 1961 was initiated with the prior approval of CIT on the basis of the audit report.
The Tribunal noted that the notice under section 147/148 in the assessee’s case was issued on the basis of the point of law raised. This by itself exposes the invalidity of the action of issuance of notice u/s 148 of the Act. It is a well-established principle of law that resort to proceedings under section 147 r.w.s 148 cannot be had to on a question of law raised by audit party.
The Tribunal further relied on the Apex Court decision in the case of CIT vs. Lucas TVS Ltd wherein it was held that “an audit opinion in regard to the application or interpretation of law cannot be treated as information for reopening the assessment under s. 147(b).”
“In view of the above position in law proceedings set in motion with the issuance of notice u/s 148 r.w.s. 147 of the Act, on the basis of audit query, are not sustainable under the law in the facts and circumstances of the case and as such the impugned assessment order is not maintainable and sustainable under law hence on this ground alone the assessment order deserves to be vacated,” the Tribunal said.
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