If we compare the audit objections and the reasons recorded, we find that the Assessing Officer has included all objections pointed out by the audit party but has also included one more ground namely, of the escaped capital gain on sale of land by the petitioner to Shri Ashwin Kumar B. Patel. This ground was not part of the audit objection. In our opinion, this would indicate that the Assessing Officer had independently applied his mind and formed a belief that on the grounds mentioned by the audit party in its objection letter and additional ground which is recorded in the reasons, the income chargeable to tax in case of assessee had escaped assessment.
Relevant Extract of the Judgment
21………………. However, as is well settled, even if one ground succeeds, as in the present case, reopening would have to be permitted. It is in this context, the question of notice of reopening having been issued by the Assessing Officer at the behest of the audit party assumes significance. The law on the point laid down by the Supreme Court in judgement in case of Commissioner of Incometax v. P.V.S. Beedies Pvt. Ltd. reported in (1999) 237 ITR 13 and in case of Indian and Eastern Newspaper Society v. Commissioner of Incometax reported in (1979) 119 ITR 996 is well settled. We also have the decision of this Court in case of Adani Exports v. Deputy Commissioner of Income Tax reported in (1999) 240 ITR 224(Guj) on this issue. In case of Indian and Eastern Newspaper Society (supra), the Supreme observed that the opinion of the audit party on a point of law could not be regarded as information enabling the Assessing Officer to initiate reassessment proceedings. This aspect was elaborated by Division Bench judgement of this Court in case of Adani Exports (supra) observing that it is the satisfaction of the Assessing Officer for the purpose of reopening which is subjective in nature but when the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficient of the material to such a belief is not open to be scrutinised. However, the decision of the Supreme Court would indicate that though audit objection may serve as an information, the basis on which the ITO can act, ultimate action must depend directly and solely on the formation of belief by ITO on his own, where such information passed on to him by the audit party that income has escaped assessment. In the said case, it was held that Assessing Officer had acted at the behest of audit party and that notice for reopening was therefore, bad in law.
22. In case of V.S. Beedies Pvt. Ltd.(supra), the Supreme Court held and observed as under:
“We are of the view that both the Tribunal and the High Court were in error in holding that the information given by internal audit party could not be treated as information within the meaning of Section 147(b) of the Income Tax Act. The audit party has merely pointed out a fact which has been overlooked by the Income Tax Officer in the assessment. The fact that the recognition granted to this charitable trust had expired on 2291992 was not noticed by the Income Tax Officer. This is not a case of information on a question of law. The dispute as to whether reopening is permissible after audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under Section 147(b) in the facts of this case was on the basis of factual information given by the internal audit party and was valid in law. The judgment under appeal is set aside to this extent.”
23. Thus there is clear distinction between a situation where the Assessing Officer acts on an information supplied by the audit party and issues a notice for reopening the assessment. In some cases, we have also noticed that the Assessing Officer is himself convinced that the audit objection do not form valid reasons to form a belief that income chargeable to tax has escaped assessment. He nevertheless, issues a notice for reopening clearly indicating compulsion to do so. In such cases, decision in case of Indian and Eastern Newspaper Society (supra) and Adani Exports (supra) would squarely apply. However, situations may also arise where the audit party merely brings to the notice of Assessing Officer, a certain element having relation to the income of the assessee. If the Assessing Officer on the basis of such information forms an independent belief that income chargeable to tax has escaped assessment, there is nothing preventing him from exercising power of reassessment, as was held by the Supreme Court in case of P.V.S. Beedies Pvt. Ltd.(supra) and also noted in judgement in case of Adani Exports (supra). It would therefore, be necessary for us to ascertain in which category the present case would fall. The petitioner has been contending from the outset that the entire exercise was undertaken by the Assessing Officer at the instance of audit party. The denials on these aspects by the Assessing Officer while rejecting the objections and in the reply to this petition were rather muted. Instead of therefore, relying on the pleadings, we had called for the original files to satisfy ourselves. We notice that the audit party had raised several objections to the assessment carried out in case of the assessee and these objections were brought to the notice of the Assessing Officer. The file shows that this was followed by the reasons recorded by the Assessing Officer for issuing the notice. If we compare the audit objections and the reasons recorded, we find that the Assessing Officer has included all objections pointed out by the audit party but has also included one more ground namely, of the escaped capital gain on sale of land by the petitioner to Shri Ashwin Kumar B. Patel. This ground was not part of the audit objection. In our opinion, this would indicate that the Assessing Officer had independently applied his mind and formed a belief that on the grounds mentioned by the audit party in its objection letter and additional ground which is recorded in the reasons, the income chargeable to tax in case of assessee had escaped assessment. We may recall the issue of capital gain tax on sale of land was referred in the letter dated 24.10.2003 by the Assessing Officer of Shri Ashwin Kumar B. Patel. In our opinion therefore, on this ground also, petition must fail.