Assessment Can Be Reopened Based On Audit Objections Under New Reassessment Regime: Kerala High Court

The Kerala High Court has held that assessments can be reopened based on audit objections under a new reassessment regime.

The bench of Justice Dinesh Kumar Singh has observed that the provisions have been drastically changed with effect from April 1, 2022, and the audit objection is one of the reasons for re-opening the assessment. If the revenue audit raises an objection that the assessment was not completed in accordance with the provisions of the Act, it cannot be treated as a change of opinion because this is the statutory prescription and statutory ground for re-opening the assessment.

The petitioner/assessee is a trust registered under Section 12A of the Income Tax Act and filed returns for the assessment year 2016–17 on October 15, 2016, declaring 'Nil' income. The assessment was completed under Section 143(3) on December 21, 2018 at 'Nil' income.

The revenue audit party, however, objected to the finalization of the return of the petitioner at 'Nil' for the reason that 'During the assessment year, the assessee received a corpus donation of Rs. 10,30,00,000/-. Corpus donations were not included in the income for the application under Section 11. So the corpus donation received to the extent of Rs. 9,05,00,000 should have been reduced from the current year application. Expenditure of earlier years of Rs. 8,29,89,369/- considered in the current year should also have been disallowed from the claim of application.' The revenue audit worked out the income of Rs. 1,60,39,464 to have escaped assessment.

After receipt of the revenue audit objection, a notice was issued to the petitioner on December 5, 2022, with the prior approval of the Principal Commissioner of Income Tax (Exemption), Kochi. The petitioner was asked to show cause why notice under Section 148 should not be issued. The petitioner submitted a detailed explanation.

The petitioner, in his reply, submitted that the returns filed by the petitioner were subjected to complete scrutiny before the assessment was finalized at 'nil' income. There could not be any scope for fresh information that has come to the notice of the Assessing Authority, and, on that basis, notice under Section 148A(b) has been issued to the petitioner.

The petitioner stated that it had already furnished all the information required for completion of the assessment under Section 143(3) of the Act. Therefore, the notice issued under Section 148A(b) was merely a change of opinion, which would not warrant re-opening of the assessment completed.

The Income Tax Department contended that, with effect from April 1, 2022, Section 148 has been amended, and clause (ii) of Explanation 1 has been inserted, which provides that any audit objection to the effect that the assessment in the case of an assessee for the relevant assessment year has not been made in accordance with the provisions of the Act would be a ground for re-opening of the assessment. He, therefore, submits that the impugned order, recording the satisfaction for re-opening of the assessment in the case of the petitioner, is perfectly in accordance with the statutory prescription as provided under Clause (ii) of Explanation 1 of Section 148. Therefore, there is no error of law or jurisdiction for this Court to interfere with the impugned order passed under Section 148A(d).

The court held that the assessing authority has proceeded strictly in accordance with the provisions of Clause (ii) of Explanation 1 to Section 148 of the Act. Therefore, the bench found no error of law or jurisdiction in the order and dismissed the writ petition.

Counsel For Petitioner: Bijoy Chandran, A.S.Sriraman, Rajesh Nair, Nikhil Viswam

Counsel For Respondent: Christopher Abraham

Case Citation: 2024 LiveLaw (Ker) 219

Case Title: M/S Sree Narayana Guru Memorial Educational And Cultural Trust Versus The Assistant Commissioner Of Income Tax

Case No.: WP(C) NO. 11891 OF 2023

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