S. 147/148: Reopening of assessment due to revenue audit’s compulsion is void

Vijay Rameshbhai Gupta vs. ACIT (Gujarat High Court)

The AO passed a s. 143(3) assessment order in which he allowed the assessee’s claim for business expenses. The Revenue Audit raised an objection that as the assessee’s business had ceased, the income had to assessed as “other sources” and the expenditure disallowed. The AO replied to the Audit stating that the objection was not correct and that the assessment order was correct. The Revenue Audit thereafter wrote to the CIT that the AO’s stand was not correct. Based on this, the AO issued a s. 148 notice (within 4 years from the end of the AY) to reopen the assessment and disallow the expenditure. The assessee challenged the reopening on the basis that the AO was compelled by the audit party to re-open the assessment though he was of the belief that no income had escaped assessment. HELD by the High Court upholding the plea:

If the audit party brings certain aspects to the notice of the AO, he is entitled to reopen the assessment after forming his own belief. However, if the AO acts under compulsion of the audit party and not independently, the action of re-opening would be vitiated. On facts, it is clearly established that the AO was under compulsion from the audit party to issue notice for reopening because after the audit party brought the controversial issue to the notice of the AO, he did not agreed to the proposal for re-examination of the issue and wrote a letter and gave elaborate reasons why the assessment order was correct. The s. 148 notice was issued only after the Revenue Audit wrote to the CIT reiterating its stand that income had escaped assessment. Consequently, the s. 148 notice had to be quashed (Cadila Healthcare 65 DTR (Guj) 385 followed; P.V.S Beedies 237 ITR 13 (SC) referred).