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Mehsana District Central Co-op Bank Ltd vs. ACIT (Gujarat High Court)
June, 30th 2017

S. 147/148: Law on validity of reopening of assessment when the AO is acting on the dictates of the audit party and is not applying his own mind explained

(i) The very action of the Assessing Officer to deal with the objections of the petitioner in the final order of reassessment, runs contrary to the judgment of the Supreme Court in case of GKN Driveshafts (India) Ltd. v. ITO and Ors. reported in [2003] 259 ITR 90 (SC). However, there is yet another weighty reason why we cannot permit the process of reopening of assessment to stand. Such reason is that apparently, the Assessing Officer was acting under the compulsion of the audit party.

(ii) As noted, the audit party raised its objections on 16.01.2012. While issuing notice for reopening on 26.03.2012, the Assessing Officer had cited these three very reasons. Subsequently on 24.05.2012, he sent a detailed note to the audit party, justifying why the audit objections should be dropped. It is true that in the present case such resistance from the Assessing Officer came after the notice for reopening.

(iii) Nevertheless, if we see entire sequence, it becomes clear that the Assessing Officer was clearly acting under the dictates of the audit party. Even after issuing the notice, he still maintained an opinion that no income chargeable to tax had escaped assessment. If that be so, he ought to have dropped the assessment proceedings, at least at that stage when the petitioner raised the objections which even without such objections, the Assessing Officer was convinced, were valid.

(iv) In case of Jagat Jayantilal Parikh v. Deputy Commissioner of Income Tax reported in [2013] 355 ITR 400 (Guj), Division Bench of this Court had observed as under:

“Under the circumstances, it clearly emerges from the record that the Assessing Officer was of the opinion that no part of the income of the assessee has escaped assessment. In fact, after the audit party brought the relevant aspects to the notice of the AO, she held correspondence with the assessee. Taking into account the assessee’s explanation regarding nonrequirement of TDS collection and ultimately accepted the explanation concluding that in view of the Board’s circular, tax was not required to be deducted at source. No income had therefore escaped assessment. Despite such opinion of the Assessing Officer, when ultimately the impugned notice came to be issued the only conclusion we can reach is that the Assessing Officer had acted at the behest of and on the insistence of the audit party. It is well settled that it is only the Assessing Officer whose opinion with respect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, of course true, as held by the decisions of the Apex Court in the case of P.V.S.Beedies Pvt. Ltd. (supra) and Indian & Eastern Newspaper Society (supra), if the audit party brings certain aspects to the notice of the Assessing Officer and thereupon, the Assessing Officer forms his own belief, it may still be a valid basis for reopening assessment. However, in the other line of judgment noted by us, it has clearly been held that mere opinion of the Audit Party cannot form the basis for the Assessing Officer to reopen the closed assessment that too beyond four years from the end of relevant assessment year.

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