Audit Objections can be basis for reopening but mere quoting audit objection ignoring reply of assessee is non application of mind – SLP dismissed
In a recent judgment Hon’ble Supreme Court dismissed the Special Leave Petition of the Revenue upholding High Court order quashing of order u/s 148A(d) with observation that though as per amended Section 148 even the audit objection can be considered for reopening. However merely producing of audit objection in the order ignoring reply of assessee is non application of mind.
ABCAUS Case Law Citation:
4831 (2025) (11) abcaus.in SC
In the instant case, the assessment u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (the Act) for the AY 2017-18 and AY 2018-19 was completed. Subsequently, the Assessing Officer issued notice under section 148A(b) of the Act on the basis of the audit objections on the issue of depreciation claimed on account of goodwill while computing the total income of the assessee.
In response to the notice issued under Section 148A(b) of the Act, the assessee filed a detailed reply contending that the case of the assessee was selected for scrutiny assessment and return income was accepted.
The assessee also contended that the show cause notice was issued only on the basis of the audit objections which was incorrect and invalid, as audit objections contained various factual mistakes.
It was also pointed out by the assessee that the petitioner was granted depreciation on the goodwill from preceding two Assessment Years and therefore, for the year under consideration, the notice could not have been issued on the ground that the income has escaped assessment only on for disallowance of the depreciation of the goodwill.
However, the AO passed the impugned orders for both the years under Section 148A(d) of the Act rejecting the explanation tendered by the petitioner on the basis of audit objections.
Further, with respect to assessee’s request for personal hearing before issuance of notice u/s. 148 of the Act, the AO stated that as per the provisions of section 148A of the Act, which relate to conducting enquiry, providing opportunity before issue of notice u/s. 148, personal hearing was not possible in the case of the assessee as a notice u/s. 148A(b) was sufficient enough before issuance of notice u/s. 148 of the Act.
Aggrieved, the assessee filed writ petition(s) before the Hon’ble High Court with a prayer to quash and set aside the notice issued under Section 148A(b) of the Act and the order passed under Section 148A(d) of the Act and the consequent notice issued under Section 148 of the Act.
The Hon’ble High Court observed that it was apparent that the Assessing Officer had not taken into consideration the reply filed by the assessee stating in no uncertain terms that the assessee had claimed the depreciation from Assessment Year 2015-16 and the same had been accepted during the course of the regular assessment for the Assessment Years 2015-16 and 2016-17 and therefore, the Assessing Officer could not have reopened the assesssment for the Assessment Years in question on the same facts which were earlier available with the Assessing Officer during the previous two years of 2015-2016 and 2016-2017.
The Hon’ble High Court observed that the Assessing Officer had conveniently ignored such facts and had only reiterated what was stated in the audit objections. Thus, there was total non application of mind on behalf of the Assessing Officer.
The Hon’ble High Court held that in the given circumstances, the impugned notice and order passed under Section 148 and Section 148A(d) of the Act were not tenable as the Assessing Officer could not have assumed jurisdiction in view of the audit objection which was contrary to the facts and evidence on record, more particularly when the department itself had accepted and granted depreciation on the goodwill claimed by the assessee for the earlier years. No reassessment proceedings could have been initiated by the Assessing Officer on the basis such audit objection
The Hon’ble High Court pointed out that it is true that as per provision of Section 148 as amended from 1.4.2021 even the audit objection can be considered for reopening the assessment as part of “information”. However, it does not mean that merely because the audit objection is raised, the Assessing Officer is bound to issue notice under Section 148 of the Act merely by reiterating what is stated in the audit objection ignoring the facts of the case and contents of the reply filed by the assessee pursuant to the notice issued under section 148A(b) of the Act.
The Hon’ble High Court held that merely producing of audit objection in the order under Section 148A(d) of the Act ignoring the reply filed by the assessee was nothing but non application of mind on the part of the Assessing Officer. The Assessing Officer merely reproduced the contents of the reply filed by the assessee without dealing with the same, which was apparent from the extract of the order reproduced hereinabove without considering the facts that the audit objection contained various factual mistake which was pointed out by the petitioner to the effect that the depreciation on the goodwill was being granted from the Assessment Year 2015-16 onwards to the petitioner and therefore, there was no question of escapement of income for the year under consideration by holding that the petitioner wrongly claimed the depreciation for the Assessment Year 2018-2019.
Accordingly, the impugned order u/s 148A(d) was quashed and set aside.
Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition. However, the Apex Court dismissed the SLP with the following observations,
“In the facts and circumstances of the case, we are satisfied that it is not a case for re-opening assessment and as such, the High Court has not erred in quashing the show cause notices. The Special Leave Petition is, accordingly, dismissed.”
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