Commissioner of Income Tax vs Indian Sugar and General Industry Export Import Corporation Ltd.

Madan B. Lokur, J.—The revenue is aggrieved by an order dated 24-2-2006, passed by the Income Tax Appellate Tribunal (herein after referred to as ''the Tribunal''), Delhi Bench ''B'' in ITA No. 3244/Del/2001 relevant for the assessment year 1995-96.

The only question that has been considered by the Tribunal is with regard to reopening the assessment in respect of the assessee u/s 147/148 of the Income Tax Act, 1961 (herein after referred to as the Act'').

It may be mentioned that the Commissioner (Appeals) (Commissioner (Appeals) as well as the Tribunal have come to the conclusion that it was a case of a mere change of opinion and, therefore, the action taken by the assessing officer was not justified.

The reasons recorded by the assessing officer for reopening the assessment have been filed before us at p. 23 of the paper book and they read as follows:

In the case of M/s Indian Sugar General Industry Export Import Corporation Ltd., the assessment was finalised for the assessment year 1995-96 on a total income of Rs. 5,78,61,570 on 5-12-1997. In this case deduction of Rs. 10,49,417 being prior period expenses debited to Profit and Loss a/c under the head sundry adjustment a/c was allowed.

Under the Income Tax Act, 1961, income under the head "profits and gains of business or profession" is computed in accordance with the method of accounting regularly employed by the assessee. Where the assessee follows mercantile system of accounting, the profits are worked out on due or accrual basis, i.e., after providing for all expenses for which a legal liability has arisen and taking credit of all receipts that have become due regardless of their actual receipt. The omission to do so resulted in excess allowance of 1/5th for repair amounting to Rs. 10,49,417 as above pertaining to prior period expenses which were not to be allowed during the period under consideration.

In view of the assessment finalised it is apparent the excess relief has been allowed and underassessment of income of Rs. 10,49,417 involving potential tax effect of Rs. 8,01,335.

On the basis of the facts above I have reasons to believe that the income chargeable to tax of Rs. 10,49,417 has escaped assessment for the assessment year 1995-96 and accordingly, notice u/s 148 read with Section 147 is issued to bring to tax such amount.

Sd/-

(Rajib Hota)

Jt. CIT, S.R.20. New Delhi

31-3-1999

Note

The notice u/s 148 has been issued keeping in view the objection raised by the RAP vide audit para No. 7 circulated vide letter No. 532 dated 17-11-1998. Remedial action is in consonance with Board''s Instruction No. 1598 dated 1-2-1985. Reply to the audit has been sent vide letter No. 446 dated 31-3-1999, and copy endorsed to CIT, Delhi-III.

Sd/-

(Rajib Hota)

Jt. CIT, S.R.20. New Delhi

31-3-1999

A perusal of the above reasons would show that there is absolutely no mention about any application of mind by the assessing officer to the objections raised by the audit. The reasons disclose nothing but a change of opinion on the admitted facts.

Learned Counsel for the revenue has, however, relied upon the note which is appended to the reasons where it has been mentioned that the notice u/s 148 of the Act has been issued keeping in view the objection raised by the audit. She has also relied upon a decision of this court in New Light Trading Co. Vs. Commissioner of Income Tax, ) to contend that where the audit party points out a factual error or omission in the assessment, reopening the case on the basis of the factual error or omission pointed out is permissible in law.

Having gone through the decision of this court, we find that it has been held that there must, nevertheless, be an independent examination of the materials collected by the audit party in its report and it is only thereafter that the assessing officer must come to an independent conclusion that there was an escapement of income.

Insofar as the present case is concerned, there is nothing to suggest anything in the reasons or note recorded by the assessing officer that there is an independent examination of the material collected by the audit party nor is there any independent conclusion arrived at by the assessing officer. In fact, as noted above, the reasons itself do not make any reference to the objection of the audit but it is only the note that makes a reference - and the note merely states a fact that an objection has been raised. There is nothing to suggest from the language of the note that the assessing officer had applied his mind to the contents of the audit objection before issuing a notice u/s 148 of the Act. On the contrary, the note suggests that the notice was issued mechanically as a result of the audit objection.

Learned Counsel for the assessce points out that all the facts were before the assessing officer at the time when the assessment was made and that being the position, it cannot be said that there was any error or omission committed by the assessing officer while framing the original assessment and that the impugned action is nothing but a mere change of opinion.

In our view, the decision relied upon by learned Counsel for the revenue does not come to her assistance. On the facts of the case, we find that there is no independent application of mind by the assessing officer for the