Change of opinion as a result of audit objection is permissible for opening of the case for reassessment?
When the specific query was raised in the original assessment which was answered by the assessee and the then AO is satisfied. Can an AO reopen the assessment again? On the same basis, Can an AO rely on an Audit objection to reopen the case? Whether it is necessary that an assessment order should contain reference and or discussion to disclose his satisfaction in respect of the query raised?
All these are duly discussed in one judgement by Bombay High Court. In the case of Bakhtawar Construction Co. Pvt. Ltd Vs DCIT. The case was ultimately decided in favour of the Assessee.
Similar issue was discussed by me in the last month in one of my case before Nagpur Bench of Bombay HC wherein the appeal was allowed the hefty demand raised was deleted by the Hon’ble High Court. The link for the same is accessible at – https://thetaxtalk.com/2023/09/reopening-on-the-basis-of-change-of-opinion-is-impermissible-bombay-high-court/
The key observation in the case of Bakhtawar Construction Co. Pvt. Ltd Vs DCIT were as under:
- Once a query is raised during the assessment proceeding and assessee has replied to it, it follows that the query raised was a subject of consideration of the assessing officer while completing the assessment and it is not necessary that an assessment order should contain reference and or discussion to disclose his satisfaction in respect of the query raised.
- The reopening could not have been on the basis of audit objection which was informed to petitioner when petitioner went to enquire about the refund. It is not even mentioned in the reasons for reopening. The reopening based on audit objection is not permissible unless new facts came to notice through the audit objection. The expression ‘opinion’ used in Section 147(b) of the Act could only mean factual material and cannot include any opinion on point of law as held in judgment of the Apex Court in Indian & Eastern Newspapers Society Vs. Commissioner of Income Tax.
- This court in Commissioner of Income Tax-II Vs. Jet Speed Audio (P) Ltd. 5 has held that during the original assessment proceedings, once a query was made with regard to the same issue which was responded to by the assessee and on satisfaction of the same, the assessing officer has passed an assessment order, reopening would be purely on the basis of change of opinion. Moreover, the court has held that the tangible material urged should emanate from the reasons recorded for issuing reopening notice under Section 148 of the Act. The tangible material as stated in the affidavit in reply and by counsel for revenue are the audit objections received by the assessing officer. But there is no mention of this in the reasons recorded for issuing reopening notice under Section 148 of the Act. Therefore, the audit objection cannot be termed as tangible material.
- It is apparent that the applicability of Section 50C was a subject of consideration of the assessing officer while completing the assessment. A Division Bench of this court in Aroni Commercials Ltd. Vs. Deputy Commissioner of Income Tax-2(1) 6 has held that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act.
- There can be no doubt in the facts of this case that the reopening of the assessment by the impugned notice is merely on the basis of change of opinion of the assessing officer from that held earlier during the course of assessment proceedings leading to the assessment order dated 30th September 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.
- It is settled law that the reopening notice can be sustained only on the basis of the ground mentioned in the reasons recorded. It is not open to the revenue to add and/or supplement later the reasons recorded at the time of reopening notice.
- The information passed on by the audit party can be only as regards the factual error or omission in the assessment. Reopening of the case on the basis of factual error pointed out by the audit party is permissible under law.
- Apex Court has held that the assessing officer may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information.
The copy of the order is attached herewith as under:
