Audit Objection cannot be a ‘Reason’ to Re-Open Assessment: Madras HC [Read Order]

Audit - Assessment - Madras HC - taxscan

The Madras High Court, in a significant ruling, held that the audit objection cannot be a “reason to believe” that income has escaped assessment for the purpose of re-opening of assessment under section 147 of the Income Tax Act, 1961.

The petitioner, M/s. EIH Associated Hotels Ltd, is a company assessed to income tax on the file of the sole respondent in terms of the provisions of the Income Tax Act, 1961. In respect of assessment year (AY) 2012-13, a return of income had been filed disclosing income both under the regular provisions as well as under the provisions of Minimum Alternate Tax (MAT).

The petitioner, being aggrieved with the impugned proceedings of re-assessment, contended that the same are based on an audit objection though none of the documents on record would evidence this position. However, there is an averment in the affidavit to this effect and the counter filed by the respondent does not specifically deny this.

Justice Anita Sumant observed that there is no allegation in the reason itself to the effect that there has been any incomplete disclosure or false statement made at the time of assessment that would justify the assumption of jurisdiction beyond the period of four years.

The Court, holding the assessment bad in law, observed that “the reasons proceed on the basis that the methodology for computation is erroneous which premise, as noticed earlier, does not appear to be correct as the financials disclose the availability of depreciation. In such circumstances, the assumption of jurisdiction under Section 147 is held to be bad in law.”

“Thus even on this score and following the settled position that an audit objection does not satisfy the requirement of the Assessing Officer having an independent ‘reason to believe’ that income has escaped assessment, that too after the elapse of nearly six years from the end of the relevant assessment year, the impugned proceedings are vitiated,” the Court said.

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