Income Tax Reassessment Based Solely on Audit Objection After Scrutiny is Change of Opinion: Delhi HC [Read Order]
The High Court quashed reassessment for AY 2016–17, holding that reopening based only on audit objection after scrutiny is change of opinion
In a recent ruling, the Delhi High Court held that income tax reassessment initiated solely on the basis of an audit objection, after the issue was already examined in a scrutiny assessment, amounts to a change of opinion and is not permissible in law.
Sapphire Foods India Ltd. filed a writ petition challenging the order passed under Section 148A(d) of the Income Tax Act, 1961 and the reassessment notice issued under Section 148 dated 31.03.2023 for Assessment Year 2016-17.
For AY 2016-17, the petitioner had filed its return declaring a loss of Rs. 10.24 crore. The case was selected for scrutiny and assessment under Section 143(3) was completed on 09.12.2018, where the income was assessed at Rs. 14.56 crore. During the original assessment, additions were made including on share premium under Section 56(2)(viib).
The petitioner filed an appeal before the CIT(A), which partly allowed the appeal and deleted the addition under Section 56(2)(viib). The Revenue filed an appeal before the ITAT, which was pending.
Later, on the basis of audit objections, the Assessing Officer tried to reopen the case saying that expenditure of Rs. 9.80 crore was wrongly allowed. The petitioner argued that all details were already examined in original assessment and reopening is only a review of earlier order.
After considering the petitioner’s reply, the Assessing Officer dropped the share premium issue but proceeded with reopening only on the second audit objection relating to the expenditure of Rs. 9.80 crore. The Assessing Officer then passed the order under Section 148A(d) and issued the notice under Section 148.
The petitioner’s counsel argued that during the original scrutiny assessment, the Assessing Officer had already raised specific queries about these payments through notices under Section 142(1). They argued that it had furnished agreements, details of TDS and financial statements and the Assessing Officer had all relevant material.
They argued that reopening on the same material was only a change of opinion, which is not allowed. The petitioner’s counsel also argued that there was no failure to disclose fully and truly all material facts. It was submitted that since the original assessment was completed under Section 143(3), reopening after four years from the end of AY 2016-17 was barred by the proviso to Section 147 as it stood earlier.
Read More: ICAI UDIN Update: New Validation Parameters and Generation under GST, Tax, Audit and Assurance
Justice V. Kameswar Rao and Justice Vinod Kumar observed that the Assessing Officer was aware of these transactions during original assessment and had all material before him. The Court observed that reopening on the same material is a change of opinion, which is not permitted.
The court also observed that since there was no failure to disclose facts, reopening beyond four years from the end of AY 2016-17 was barred by limitation. Accordingly, the High Court set aside the order under Section 148A(d) and the notice under Section 148, and quashed the reassessment proceedings.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
