SC upheld that merely producing audit objection in order u/s 148A(d) ignoring reply of assessee is non application of mind
In a recent judgment, the Hon’ble Supreme Court upheld the judgment of Gujarat High Court in holding that merely producing of audit objection in the order under Section 148A(d) of the Income Tax Act ignoring the reply filed by the assessee is nothing but non application of mind on the part of the respondent-Assessing Officer.
ABCAUS Case Law Citation:
4940 (2025) (12) abcaus.in SC
In the instant case, the assessment was completed under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (the Act) by accepting return income. Subsequently, the Assessing Officer issued notice under Section 148A(b) of the Act on the basis of the audit objections regarding claim of depreciation on goodwill created on amalgamation of its sister concern.
In response to the above notice, the petitioner submitted 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-petitioner that the petitioner is granted depreciation on the goodwill from last three Assessment Years and therefore, for the year under consideration, the AO could not have issued the notice for reassessment on the ground that the income had escaped assessment only for disallowance of the depreciation of the goodwill.
The AO however, passed the impugned orders under Section 148A(d) of the Act rejecting the explanation of the assessee.
Aggrieved, the assessee filed a Petition before the Hon’ble High Court under Article 226 of the Constitution of India with a prayer to quash and set aside the notices issued under Section 148A(b) of the Act, 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 last two Assessment Years and the same had been accepted during the course of the regular assessment for the Assessment Years, nd therefore, the Assessing Officer could not have reopened the assesssment for the subsequent years on the same facts which were earlier available with the Assessing Officer during the previous two years.
The Hon’ble High Court opined that the Assessing Officer had conveniently ignored such facts and had 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 opined that in the given circumstances, the impugned notice as well as the 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 is 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 respondent-Assessing Officer on the basis such audit objection.
The Hon’ble High Court added that though 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.
As a result, the Hon’ble High Court quashed and set aside the impugned notice.
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 observing that their Lordships were satisfied that the instant case was not for reopening assessment and as such, the High Court had not erred in quashing the show cause notices.
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