There are various instances where the reopening of assessment is initiated on the basis of the opinion of the internal audit party.

Even in respect of an issue wherein a conscious decision is taken by the AO during the course of the assessment proceeding, the case is reopened for difference of opinion of the internal audit department.  Here is a case decided by Bombay HC wherein it has been held that the opinion of the internal audit party of the income tax dept. can’t be treated as information for the purpose of reopening of assessment.

The case detail is as under:

Yes Bank Ltd

[2022] 135 taxmann.com 161 (Bombay)

The main issue in the case was with regard to section 36(1)(viia) read with section 147, of the Income-tax Act, 1961in respect of deduction towards Bad debts in case of banks during Reassessment proceeding.

Assessment of assessee-bank was already completed under section 143(3) & thereafter audit scrutiny revealed that assessee created provision for standard asset advances under general loan loss provision excluding provision for NPA and claiming deduction under section 36(1)(viia) and in that way assessee was putting aside money by creating provision for standard asset advances to meet unascertained liability.

 The Assessing Officer reopened assessment on the basis of audit objection.

The issue before Court was whether the opinion of the internal audit party of income-tax department cannot be recorded as information within the meaning of section 147(b) for the purpose of reopening assessment and, therefore, reopening of assessment in instant case was bad in law?

The court analyzing the provisions of section 148 of the Act decided it in affirmative and in favour of assessee.

The court concluded that the opinion of internal audit party of income-tax department cannot be recorded as information within meaning of section 147(b) for purpose of reopening assessment; therefore, reopening of assessment on basis of audit objection that assessee-bank created provision for standard asset/advances under general loan loss provision excluding provision for NPA and claiming deduction under section 36(1)(viia) and in that way assessee was putting aside money by creating provision for standard asset/advances to meet unascertained liability, was bad in law