Court rules that audit objections cannot justify reopening assessments when issues were previously examined and accepted
In a significant judgment, the Telangana High Court has quashed the reopening of completed assessment proceedings against Piramal Swasthya Management and Research Institute by the Assistant Commissioner of Income Tax. The case revolved around the reopening of the assessment for the year 2017-18 based on audit objections concerning the electronic submission of Form 10, which the court found impermissible.
The judgment, passed by a division bench comprising Justices P. Sam Koshy and Suddala Chalapathi Rao, addressed the core issue of whether an audit objection can constitute valid grounds for reopening an assessment. The court held that reopening amounts to a review of the original assessment order by the same authority, which is prohibited under law.
Piramal Swasthya, a society registered under the AP Societies Registration Act, 2001, and under Section 12A of the Income Tax Act, 1961, had filed its return of income declaring nil income for the assessment year 2017-18. The organization had manually filed Form 10 to claim exemption under Section 11(2) of the Act. However, due to a new requirement introduced in the financial year 2016-17, Form 10 was supposed to be submitted electronically.
Despite the manual submission, the assessing authority had examined and accepted the Form 10 during the original assessment proceedings, which concluded with an order dated July 26, 2019. The subsequent audit raised objections, leading to a notice under Section 148A(b) issued on February 27, 2023, stating that certain income had escaped assessment due to the non-electronic filing of Form 10.
In the judgment, the court emphasized that the issues raised in the audit objection were already considered and adjudicated in the original assessment. The court referenced the Supreme Court's decision in CIT v. Nagpur Hotels Owners Association, highlighting that once the requirements under the Act are fulfilled, the petitioner is entitled to claim benefits under Sections 11(2) and 11(5).
The court ruled that reopening the assessment based on audit objections amounts to reviewing the original order, which is not permissible. The authority had no jurisdiction to revisit its previous decision after a lapse of four years from the end of the relevant assessment year.
Ultimately, the court set aside the impugned orders dated March 31, 2023, which attempted to reopen the assessment. The ruling reinforces the principle that audit objections do not constitute valid "information" for reopening assessments when the issues have been previously scrutinized and accepted.
Bottom line:-
Income Tax - Reopening of completed assessment based on audit objection is impermissible when the issues raised in the audit objection were already examined and accepted in the original assessment order.
Statutory provision(s): Sections 11(2), 11(5), 143(3), 147, 148, 148A(d), 149(1)(b) of the Income Tax Act, 1961; Rule 17(2) & (3) of the Income Tax Rules, 1962
