Case Law Details
ACIT Vs Adani Power Rajasthan Limited (Supreme Court of India)
The proceedings originated from a notice dated 21 March 2021 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year (AY) 2016-17, reopening the assessment of the petitioner company. The petitioner also challenged the order dated 10 November 2021 rejecting its objections to the reopening. The petitioner had originally filed its return declaring a total loss, which was processed and subsequently scrutinized under Section 143(3). By an assessment order dated 17 December 2019, the Assessing Officer (AO) accepted the returned loss without making any additions or disallowances. After receiving the reopening notice, the petitioner filed a return under protest, sought the recorded reasons and approval under Section 151, and challenged the reassessment proceedings.
Read HC Judgment in this case: Section 148 Notice Quashed for Lack of Independent Application of Mind: Gujarat HC
Before the Gujarat High Court, the petitioner contended that the reopening had been initiated solely on the basis of an audit party objection. It argued that the statutory “reason to believe” required under Section 147 must be that of the Assessing Officer and cannot be substituted by the audit party’s opinion. The petitioner relied upon earlier decisions of the High Court and the Supreme Court. The Revenue opposed the petition, contending that it was premature, that an alternative appellate remedy was available, that the AO had independently formed his opinion, and that the notice complied with the statutory requirements. It also relied on Supreme Court decisions including Commissioner of Income-tax v. P.V.S. Beedies (P) Ltd. and Commissioner of Income-tax v. Lucas T.V.S. Ltd..
The High Court examined the material obtained under the Right to Information Act, including the audit objection and the correspondence between the audit authorities and the Assessing Officer. The audit objection alleged that the assessee had not disallowed the entire Corporate Social Responsibility (CSR) expenditure and requested remedial action. However, the AO, in his communication dated 2 November 2020 to the Principal Commissioner of Income Tax, expressly recorded that the audit objections had been carefully examined and were “not acceptable.” The AO stated that Section 135 of the Companies Act, 2013 was not applicable to the assessee, that the CSR expenditure had been incurred voluntarily, and that the expenditure was allowable under Section 37(1). He therefore requested that the audit objection be dropped.
The High Court referred to its earlier decisions, including Vodafone West Ltd. and Shilp Gravures Ltd., which held that while an audit party may provide information, the Assessing Officer must independently form the belief that income has escaped assessment. The Court reproduced portions of those judgments emphasizing that reassessment proceedings initiated solely at the instance of audit objections, without the AO’s own subjective satisfaction, are unsustainable. The Court also discussed decisions including Lucas T.V.S. Ltd., P.V.S. Beedies (P) Ltd., Adani Exports v. Dy. CIT, Agricultural Produce Market Committee v. ITO, and Cadila Health Care Ltd. v. Assistant Commissioner of Income Tax. It distinguished cases where an audit party merely pointed out a factual error from cases where the audit party expressed an opinion on a question of law.
Applying these principles to the facts, the High Court held that the audit party had expressed an opinion on a question of law and that the Assessing Officer had repeatedly disagreed with the audit objection after examining it. The Court found that there was no material indicating any independent application of mind by the Assessing Officer while issuing the notice under Section 148. Instead, the record showed that the Assessing Officer had no subjective satisfaction that income had escaped assessment and had initiated reassessment proceedings solely at the instance of the audit party. The High Court held that the notice was issued without the Assessing Officer’s independent conviction and that the reopening proceedings could not be sustained. Accordingly, the petition was allowed, and both the notice dated 21 March 2021 under Section 148 and the order dated 10 November 2021 disposing of the objections were quashed and set aside.
The Revenue challenged the High Court judgment before the Supreme Court by filing a Special Leave Petition. The Supreme Court condoned the delay and stated that it was not inclined to interfere with the impugned judgment and order of the High Court. The Special Leave Petition was dismissed, and the pending interlocutory application(s), if any, were disposed of. As a result, the High Court judgment quashing the reopening notice and the order rejecting the objections remained undisturbed.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. We are not inclined to interfere with the impugned judgment and order of the High Court; hence, the special leave petition is dismissed.
3. Pending interlocutory application(s), if any, shall stand disposed of.
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