Delhi HC Dismisses Reopening Based Solely on Audit Objection

PCIT Vs Chand & Co. Ltd. (Delhi High Court)

The Revenue challenged two ITAT decisions holding that reopening of assessment for AY 2007-08 was unwarranted. The assessee had filed its books and declared closing stock of work-in-progress, and the original assessment was completed. The reassessment notice was issued solely on the basis of an audit objection alleging improper stock valuation, without any tangible new material. While the CIT and ITAT examined the matter on merits, the ITAT ultimately held that reopening was unwarranted, relying on CIT v. PVS Beedis Pvt. Ltd. The High Court found the Revenue’s arguments untenable in view of the Supreme Court’s decision in CIT v. Kelvinator of India Ltd. concerning the framework for issuing reassessment notices. After considering earlier decisions and amendments to Section 147, including Explanation 1, the Court held that no substantial question of law arose and dismissed the appeal.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

The Revenue is aggrieved by two decisions of the ITAT which held that the opening of the assessment was unwarranted.

The assessee had filed the books for the relevant assessment year (AY-2007-2008) and closing stock in respect of work declared to be in progress; the assessments were completed. The assessment notice was issued entirely based upon the audit objection which pointed out that the evaluation of stock was based on mere reappraisal of the same record without any tangible material or information.

The CIT and ITAT both upheld the re-assessment notice but delayed the assessment, after examining it on merits.

The ITAT affirmed the CIT’s opinion but held that the re-assessment was unwarranted and relied upon the judgment of the Supreme Court in CIT Vs. PVS Beedis Pvt. Ltd. 1998 (9) SCC 272.

This Court is of the opinion that these arguments are untenable in view of the subsequent decision of the Supreme Court in CIT Vs. Kelvinator of India Ltd, 320 ITR 561 (SC) with regard to the permissible framework within which the Revenue Authority can issue re-assessment notice.

Nevertheless, the Court has also considered all the relevant previous decisions especially in the light of the amendments to Section 147 which has also inserted Explanation 1.

For these reasons, this Court is of the opinion that no question of law arises. The appeal is dismissed.