Rajni Dua Vs ITO (ITAT Delhi)
Summary: The appeal was preferred by Rajni Dua against the order dated 21.11.2025 passed by the Commissioner of Income Tax (Appeals), Delhi under section 250 of the Income-tax Act, 1961, whereby the appeal of the appellant was dismissed. The appeal concerned Assessment Year 2005-06.
The return of income was filed on 31.10.2005 declaring total income of Rs.10,25,309/-. Subsequently, the Assessing Officer noticed differences between the amounts of trade discount and cash discount debited in the Profit & Loss account and the amounts appearing in the respective ledger accounts. The Assessing Officer also noticed that bonus of Rs.1,66,397/- debited in the Profit & Loss account had not actually been paid till the date of filing of the return. On this basis, the Assessing Officer formed the view that income of Rs.1,51,11,690/- had escaped assessment and initiated reassessment proceedings under section 147 by issuing notice under section 148 dated 22.03.2012.
The reassessment was completed on 25.03.2013 under sections 147/143(3), assessing total income at Rs.1,62,27,150/- after making an addition of Rs.1,51,11,690/- on account of the differences in trade discount, cash discount and bonus allegedly not paid before filing of the return.
Before the Tribunal, the learned Authorised Representative submitted that the reassessment deserved to be quashed because it had been initiated solely on the basis of an objection raised by the Revenue audit party and represented a review or re-appraisal of the same assessment records, without any fresh tangible material coming into the possession of the Assessing Officer after the original assessment. It was submitted that the original assessment had been completed on 16.08.2011 under sections 143(3)/154, assessing income at Rs.11,15,455/-.
The Departmental Representative relied upon the orders passed by the lower authorities.
The Tribunal examined the assessment order and found that the case had been reopened only on the basis of the audit objection raised by the Revenue audit party. In considering the legal position, the Tribunal referred to the Delhi High Court decision in FIS Global Business Solutions India (P.) Ltd. v. Asst CIT, [2019] 102 taxmann.com 471 (Delhi-HC). The Tribunal reproduced the relevant observations concerning the earlier decision in Carlton Overseas (P.) Ltd. v. ITO, [2010] 188 Taxman 11 (Delhi), under which a subsequent audit report was held not to constitute tangible material where it merely expressed an opinion regarding the availability of a deduction.
The Tribunal also considered the principle stated in CIT v. Kelvinator of India Limited, [2010] 320 ITR 561 (SC), as referred to in the extracted portion of the Delhi High Court decision. The principle considered was that reassessment cannot be founded upon a mere change of opinion and that reopening must be based upon tangible material.
The Tribunal found substance in the appellant’s contention that the Assessing Officer had reopened the assessment solely on the basis of the audit party objection and that there was no fresh tangible material. It observed that, where reassessment was initiated solely on an audit objection without new facts and on issues already examined in the original assessment, the initiation constituted a mere change of opinion and was invalid.
The Tribunal accordingly held that the Assessing Officer had erred in making the addition of Rs.1,51,11,690/- in the reassessment order under sections 147/143(3) dated 25.03.2013. The addition was directed to be deleted.
The appeal of the assessee was consequently allowed. The order was pronounced in the Open Court on 20.08.2026.
Cases Discussed
- FIS Global Business Solutions India (P.) Ltd. v. Asst CIT, [2019] 102 taxmann.com 471 (Delhi-HC) — relied upon for the proposition that an audit objection merely constitutes information and that reassessment based solely on such objection is not sustainable.
- Carlton Overseas (P.) Ltd. v. ITO, [2010] 188 Taxman 11 (Delhi) — considered through the extract reproduced from the FIS Global decision, concerning the absence of fresh or tangible material where the Assessing Officer relied only upon the Revenue audit party’s opinion.
- CIT v. Kelvinator of India Limited, [2010] 320 ITR 561 (SC) — referred to in the reproduced Delhi High Court extract for the principle that reassessment cannot be based upon a mere change of opinion and requires tangible material.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal has been preferred by the appellant against the order of the learned Commissioner of Income Tax (Appeals) Delhi [“Learned CIT(A)”, for short] dated 21.11.2025 passed u/s 250 of the Income Tax Act, 1961 (for short ‘the Act’) by which the appeal of the appellant was dismissed.
2. Facts of the case may be summarized as that the appellant company filed its return of income for AY 2005-06, on 31.10.2005 showing total income at Rs. 10,25,309/-. Subsequently, the Learned AO noticed that in the Profit & loss a/c for the year under consideration the appellant has debited trade discount of Rs. 1,69,94,870/- and cash discount of Rs. 17,00,110/- whereas in the ledger account of these two expenses, the amount of expenditure shown is of Rs.24,50,901/- and Rs. 12,98,786/- respectively. Accordingly, the appellant booked inflated expenditure amounting to Rs.1,45,43,969/- and Rs.4,01,324/- respectively. The Learned AO further noticed that an amount of Rs.1,66,397/- debited in the Profit & Loss account as bonus paid, has not been actually paid till the date of filing of return. On the basis of information as above, the Learned AO had reasons to believe that income to the extent of 1,51,11,690/- has escaped assessment and accordingly the assessment was reopened u/s 147 of the Act by issuing notice u/s.148 dated 22.3.2012, which was completed on 25.3.2013 assessing total income at Rs. 1,62,27,150/-, by adding of Rs.1,51,11,690/- on account of difference in trade discount, cash discount and of bonus not paid before the filing of return of income.
3. Heard rival submissions and carefully scanned the materials available on record.
4. Reiterating the grounds of appeal, the Learned AR submitted that the assessment order dated 25.03.2013 was passed u/s 147/143(3) of the Act assessing therein the income at Rs.1,62,27,150/- for the assessment year 2005-06 deserved to be quashed only on this logic that the reassessment was initiated solely on the basis of audit party objection being inherently based on review/re-appraisal of same assessment records without their being any fresh tangible material unearthed subsequent to conclusion of original assessment being framed vide order dated 16th Aug., 2011 u/s 143(3)/154 of the Act assessing the income at Rs. 11,15,455/-.
5. Per Contra, the Learned DR relied on the orders passed by both lower authorities.
6. A bare perusal of the assessment order, it is clearly manifested that the case was reopened only on the basis of audit objection raised by the Revenue audit party, on the reasons mentioned in the assessment order itself and Learned AR submitted that it is established principle of law that audit objections being only an information and reassessment notice based on said audit objection only, is not sustainable in the eyes of law and for this purpose, the Learned AR relied upon the judgment passed by the Hon’ble Delhi High Court in the case of FIS Global Business Solutions India (P) Ltd. v. ACIT, 408 ITR 75 (Del), of which relevant extract of para 5 & 6 reads as under:
“5. Carlton overseas (P.) Ltd. (supra) emphasizes reliance by the revenue on a subsequent audit report, cannot be considered as tangible material. The relevant extracts of that decision are as follows:
“8. Ms. Prem Lata Bansal, learned counsel appearing for the Revenue has contended that audit party can on factual basis ask for reassessment and which has, therefore, been done in the present case. It is, however, admitted by her that a mere change of opinion does not permit action under section 147/148 of the Act.
9. We find that the arguments on behalf of the petitioner are well founded and it must succeed. The audit report merely gives an opinion with regard to the non-availability of the deduction both under section 80-IA was not deducted from the profits of the business while computing deduction under section 80HНС. Clearly, therefore, there was no new or fresh material before the Assessing Officer except the opinion of the Revenue audit party.
10. Since it is settled law that mere change of opinion cannot form the basis for issuing of a notice under section 147/148 of the Act, therefore, we do not propose to burden out judgment with the said judgments. In fact, as stated above, counsel for the Revenue does not dispute this principle of law.”
6. This Court is of the opinion that Carlton overseas (P.) Ltd. (supra) concludes the issue in the present case, the audit objection merely is an information. As reiterated in Kelvinator of India Ltd. (supra) by the Supreme Court, change of information is impermissible. Revenue clearly barred by provisions of Section 147/148 of the Act.”
7. The Hon’ble High Court of Delhi in the case of Carlton Overseas (P.) Ltd. v. ITO [2010] 188 Taxman 11 (Delhi), held as under:
“9. We find that the arguments on behalf of the petitioner are well founded and it must succeed. The Audit Report merely gives an opinion with regard to the non-availability of the deduction both under section 80-JA and under section 80HHC and that the deduction under section 80-IA was not deducted from the profits of the business while computing deduction under section 80HHC. Clearly, therefore, there was no new or fresh material before the Assessing Officer except the opinion of the revenue Audit Party.”
8. On the basis of above, there is materials substance in the argument advanced on behalf of the appellant and it is established that the Learned AO simply reopened the assessment on only and solely basis of the audit party objection and there was no any fresh tangible material before the Learned AO to reopen the same. In the reasons for re-opening, it is specifically mentioned that in the year under consideration the return of income was processed u/S 143(1) of the Act and scrutiny assessment u/s 143(3) of the Act was completed on 03-12-2007 and thereafter proceedings u/s 147 of the Act was initiated, on further verification of assessment records only and assessment opened solely on the audit objection and addition without there being any iota of fresh material for re-opening the assessment and it is also argued before us by the Learned AR that there is no any stipulation to the effect that there has been any failure on the part of appellant in disclosing fully and truly all materials facts necessary for the purpose of assessment. It is settled legal position that section 147 of the Act does not postulate conferment of power upon the Learned AO to initiate reassessment proceedings upon mere change of opinion and reassessment validly ordered should necessarily be based on tangible material which an Learned Assessing Officer comes by after the original assessment and necessarily, such material is outside the record. We find material substance in the submission advanced on behalf of appellant that where reassessment was initiated solely based on an audit party objection, without any new facts and on issues already examined in original assessment, such initiation is a mere change of opinion and thus invalid. On the basis of foregoing discussions, settled legal position and by respectfully following binding judicial pronouncement mentioned hereinbefore, there is no any hesitation to infer that the Learned AO manifestly erred in making addition of Rs. 1,51,11,690/- on merits of the case vide the impugned assessment order u/s 147/143(3) of the Act Dated 25th March, 2013 and the same deserves to be deleted.
9. Consequently, the appeal is hereby allowed as indicated above.
Order is pronounced in the Open Court on 20.08.2026
