reopening of assessment u/s 147 Based on audit objections

www.carajput.com; Company Registration

NEW UPDATE ON LEGALITY OF REOPENING OF ASSESSMENT U/S 147/263 BASED ON AUDIT OBJECTIONS

One of the key sources of dispute is the existing arrangement for follow up on audit objections by Internal Audit Party and the Revenue Audit Party.

In terms of the existing arrangement, the AO is required to take corrective steps following audit objections.

The corrective measures take the form of rectification or reassessment (by reopening the case under section 147 or revision by the Principal Commissioner or Commissioner under section 263).

In the case of rectification, these are general in the nature of correction for arithmetical errors and other mistakes which are apparent from the record.

The problem arises when the AO seeks to take corrective measures by invoking the provisions of section 147 or 263 of the Income tax Act.

  • Since the audit objections are based on material on record and there is no occasion for new material to be brought on record in the course of audit, any reopening of assessment or review by the Principal Commissioner constitutes “change of opinion” in the eyes of the law.
  • This being so, the corrective measure under section 147 or section 263 of the Income tax Act is held to be invalid by Courts.
  • In spite of several court judgments to this effect, the CBDT had issued a circular to the effect that in all cases of audit objections the AO should initiate corrective steps irrespective of whether the objection is valid or not in the eye of law.
  • Consequently, steps are initiated by the AO to reopen the completed assessment or by the Principal Commissioner for revision of assessment orders.
  • These steps give rise to several rounds of litigation:
  • first the assessee challenges the very act of reopening or revision, as the case may be, and upon losing, the Department files appeal before the higher Courts thereby clogging the judicial system.
  • While this process is on, the AO proceeds to complete the assessment on merit leading to another round of litigation.
  • In large number of cases, the assessments on merit are completed even though the Department is in disagreement with the audit objection.
  • The very issue has also been considered by the Income-Tax Simplification Committee constituted by the Govt. of India against such mechanical reopening .
  • In a recent judgment in case of Sunil Gavaskar vs. ITO, the Hon’ble bench of ITAT Mumbai considered the legality of such reassessments based on audit objections.
  • Primarily reopening merely on the basis of audit objections and in absence of any new material indicating escapement of income, amounts to change of opinion and creates uncertainties for taxpayers.
Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

Recent Posts

New cheque clearing process starting from Oct 4, 2025

New cheque clearing process in India starting from October 4, 2025 Existing System (Until Oct 3, 2025) : Clearing Method:… Read More

2 days ago

Overview on Tax Treatment on Gratuity in India

Overview on Tax Treatment on Gratuity in India What is Gratuity? Gratuity is a lump sum paid by an employer… Read More

2 days ago

Taxation Comparison: Gold Coin vs Gold Jewellery

Taxation Comparison: Gold Coin vs Gold Jewellery Tax Aspect Gold Coin Gold Jewellery ITR Reporting Treated as a capital asset.… Read More

5 days ago

Crypto Taxation & ITR Reporting Guide for India

Crypto Taxation & ITR Reporting Guide Tax on Profits from Crypto (Virtual Digital Assets)- Taxation U/s 115BBH Applicability on Virtual… Read More

5 days ago

Savings Account Rules for Transactions to Avoid Tax Scrutiny

Savings Account – Rules for Transactions to Avoid Income Tax Scrutiny The Income Tax Department monitors high-value transactions through banks’… Read More

5 days ago

Quick Guide on GST Marginal Scheme

Quick Guide on GST Marginal Scheme What is GST Marginal Scheme Meaning : The GST Margin Scheme is applicable primarily… Read More

5 days ago
Call Us Enquire Now