Audit Objection is merely ‘Information’: Delhi High Court quashes Re-Assessment [Read Judgment]

The Delhi High Court has recently held that the audit objection is merely an ‘information’ based on which, re-assessment under section 147/ 148 of the Income Tax Act, 1961 cannot be made.

The Assessing Officer initiated re-assessment proceedings against the assessee on the ground that an audit objection was received in this office in which it was stated that in the computation of income the assessee claimed and was allowed deduction of Rs.1,37,73,528/- on account of Forex gain on Certegy (Interest Income). The department, while concluding the proceedings, disallowed the forex gain on interest income by holding that the income being revenue nature was not an allowable deduction.

The petitioner contended that the Revenue is doing no more than re-visiting the merits of the original scrutiny assessment which it was especially barred from conducting afresh. In the case of Carlton and Torrent, have stated that a subsequent audit objection or audit reports of the Income Tax Department does not constitute objective material.

The bench comprising Justices Ravindra Bhatt and Prateek Jalan, based on the above decision of the Court, expressed an opinion that Carlton concludes the issue in the present case, the audit objection merely is an information.

“As reiterated in Kelvinator by the Supreme Court, change of opinion is impermissible. The Revenue was clearly barred by provisions of Section 147/148 of the Act. In the present case, the reassessment notice is solely based on an audit opinion. Having regard to the fact that the assessee’s challenge to the previous year’s re-assessment orders was successful – in FIS Global Business Solutions India Pvt. Ltd. v. ACIT 2018 (408) ITR 75 (Del), the reassessment proceedings are unsustainable. In view of the above discussion, the impugned re-assessment notice dated 31.03.2018, cannot be sustained. It is hereby quashed; all consequential proceedings issued and conducted pursuant to the said reassessment notice are also hereby quashed,” the bench said.