Section 148 of the Income-tax Act, 1961

HIGH COURT OF DELHI Commissioner of Income-tax, New Delhi v. Indian Sugar & General Industry Export Import Corporation Ltd. Madan B. Lokur and S. L. Bhayana, JJ. IT Appeal 1649 of 2006 January 30, 2008 Section 148 of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for - Assessment year 1995-96 - Assessee-company was allowed certain deduction of prior period expenses in original assessment - Assessing Officer on basis of objection raised by audit party, issued a notice under section 148 for reopening assessment stating that assessee had been allowed excess deduction - Whether since Assessing Officer had not applied his mind to contents of audit objection before issuing a notice under section 148 and had not independently examined materials collected by audit party, reopening of assessment was nothing but assessee a mere change of opinion and, therefore, action taken by Assessing Officer was not justified - Held, yes FACTS In the original assessment, the assessee-company was allowed deduction of prior period expenses debited to profits and loss accounts. The Assessing Officer issued notice under section 148 on ground that the assessee had been allowed excess allowance for repair pertaining to prior period expenses. In the notice it was stated that the same had been issued keeping in view the objection raised by the audit party. The Assessing Officer reopened the assessment. The Commissioner (Appeals) as well as the Tribunal held that it was a mere change of opinion and, therefore, the action of the Assessing Officer was not justified. On appeal under section 260A: HELD A perusal of the reasons given by the Assessing Officer for reopening the assessment showed that there was absolutely no mention about any application of mind by the Assessing Officer to the objection raised by the audit. The reasons disclosed nothing but a change of opinion on the admitted facts. [Para 5] From the decision in the case of New Light Trading Co. v. CIT [2002] 256 ITR 391/117 Taxman 741 (Delhi), it was found that there must, be an independent examination of the materials collected by the audit party in its report and it is only thereafter that the Assessing Officer must come to an independent conclusion that there was an escapement of income. [Para 7] There was nothing to suggest in the reasons or note recorded by the Assessing Officer that there was an independent examination of the material collected by the audit party nor was there any independent conclusion arrived at by the Assessing Officer. In fact, the reasons itself did not make any reference to the objection of the audit but it was only the note that made a reference and the note merely stated a fact that an objection had been raised. There was nothing to suggest from the language of the note that the Assessing Officer had applied his mind to the contents of the audit objection before issuing a notice under section 148. On the contrary, the note suggested that the notice was issued mechanically as a result of the audit objection. [Para 8] Thus, there was no independent application of mind by the Assessing Officer for the purposes of issuing a notice under section 148. [Para 10] No substantial question of law arose. The appeal was to be dismissed. [Paras 11 and 12]