2025 (5) TMI 190 - AT - Income Tax

Reopening of assessment - Based on the audit objections raised by the audit party - Independent application of mins v/s borrowed satisfaction - HELD THAT - The case of the assessee was selected for scrutiny mainly on the basis of AIR Information that assessee has made cash deposits in his bank account after due verification of the same the AO has completed the original assessment order. It shows that AO has verified all the transactions relating to cash deposits. AO has reopened the assessment by recording the reasons brought on record by the audit party and it is clearly a borrowed satisfaction and his change of opinion without bringing on record proper reasons and it is also fact on record that the present assessment was reopened beyond four years and the provision of 147(1) of the Act is squarely applicable and the AO has failed to bring on record the gross failure on the part of the assessee to disclose fully and truly all the material facts in the ROI. Respectfully following the decision of TechSpan India (P) Ltd. 2018 (4) TMI 1376 - SUPREME COURT and also ICICI Bank Ltd 2025 (2) TMI 582 - BOMBAY HIGH COURT thus inclined to quash the reassessment proceedings initiated by the AO without jurisdiction and reopened the same on the borrowed satisfaction. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this appeal include:

- Whether the reassessment proceedings initiated beyond four years from the end of the relevant assessment year were validly carried out under the provisions of the Income Tax Act, 1961, particularly in the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

- Whether the reopening of assessment based solely on audit objections and without any fresh material or new facts constitutes a permissible exercise of jurisdiction or amounts to a mere change of opinion, which is impermissible.

- Whether the Assessing Officer (AO) complied with the requirements of section 147 of the Income Tax Act by recording proper reasons for reopening the assessment and whether these reasons were substantiated by material evidence.

- The validity of reassessment proceedings initiated on the basis of audit objections, and whether such reassessment is sustainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of Reassessment Proceedings Initiated Beyond Four Years

Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act governs the reassessment of income. The proviso to this section restricts the reopening of assessments beyond four years from the end of the relevant assessment year unless the AO has reason to believe that income chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts. The Supreme Court's decision in ITO Vs. TechSpan India (P) Ltd. (2018) 404 ITR 10 (SC) clarified that reassessment cannot be based on mere change of opinion and requires tangible material evidencing escapement of income.

Court's Interpretation and Reasoning: The Tribunal observed that the original assessment for AY 2011-12 was completed on 24/12/2013 after detailed verification of cash deposits totaling Rs. 41.70 lakhs and Rs. 17.73 lakhs in two bank accounts. The reassessment was initiated beyond four years based on audit objections, which the Tribunal characterized as "borrowed satisfaction" and a mere change of opinion by the AO. The AO failed to bring on record any gross failure by the assessee to disclose material facts fully and truly in the return of income (ROI).

Key Evidence and Findings: The AO had verified the cash deposits during the original assessment and made a minor addition of Rs. 97,740/- for unexplained deposits. The reassessment was triggered solely by audit objections without any new facts or fresh material. The assessee had submitted notarized affidavits from parties confirming the source of unsecured loans.

Application of Law to Facts: The Tribunal applied the principle that reopening beyond four years requires a failure to disclose material facts, which was absent here. The AO's reliance on audit objections without independent satisfaction or fresh material was held insufficient to justify reassessment under section 147.

Treatment of Competing Arguments: The Revenue contended that the issue of reopening beyond four years was not raised before the CIT(A) and relied on lower authorities' orders. The Tribunal rejected this, emphasizing the jurisdictional nature of the issue and the need for compliance with statutory safeguards.

Conclusions: The reassessment initiated beyond four years was held invalid and quashed for lack of jurisdiction and absence of proper reasons supported by material evidence.

Issue: Reassessment Based on Audit Objections and Change of Opinion

Relevant Legal Framework and Precedents: The Supreme Court in TechSpan India (supra) held that reassessment cannot be based on a mere change of opinion and must be founded on fresh material or facts indicating escapement of income. Similarly, the Bombay High Court in ICICI Bank Ltd. Vs. DCIT (2025) 171 taxmann.com 617 reiterated that audit objections alone cannot form the basis for reopening unless they reveal non-disclosure of material facts.

Court's Interpretation and Reasoning: The Tribunal noted that the AO reopened the case solely on audit objections without bringing any new material facts or evidence. The AO's satisfaction was "borrowed" from the audit party and not independently formed. The Tribunal emphasized that audit objections are not conclusive evidence of escapement of income and cannot justify reassessment unless corroborated by independent inquiry.

Key Evidence and Findings: The audit objections pointed to cash loans from farmers supported by affidavits, which were examined during original assessment. No fresh evidence was produced during reassessment. The AO's reasons for reopening were recorded in the order but lacked substantive material.

Application of Law to Facts: The Tribunal applied the legal principle that reassessment proceedings should not be used as a tool for review or change of opinion of the AO. The reopening based on audit objections without fresh material was held to be impermissible.

Treatment of Competing Arguments: The Revenue argued that audit objections justified reopening. The Tribunal rejected this, relying on binding precedent and statutory provisions requiring genuine reasons and material for reassessment.

Conclusions: The reassessment based on audit objections and change of opinion was held to be unsustainable and invalid.

3. SIGNIFICANT HOLDINGS

- "The Assessing Officer has reopened the assessment by recording the reasons brought on record by the audit party and it is clearly a borrowed satisfaction and his change of opinion without bringing on record proper reasons."

- "The present assessment was reopened beyond four years and the provision of 147(1) of the Act is squarely applicable and the Assessing Officer has failed to bring on record the gross failure on the part of the assessee to disclose fully and truly all the material facts in the ROI."

- "Respectfully following the decision of the Hon'ble Supreme Court in the case of TechSpan India (P) Ltd. and also ICICI Bank Ltd., I am inclined to quash the reassessment proceedings initiated by the Assessing Officer without jurisdiction and reopened the same on the borrowed satisfaction."

- The Tribunal established the core principle that reassessment proceedings beyond four years require the AO to demonstrate a failure by the assessee to disclose material facts fully and truly, and mere audit objections or change of opinion cannot justify reopening.

- The final determination was that the reassessment proceedings initiated beyond four years based on audit objections without fresh material or failure to disclose were invalid and quashed, allowing the appeal of the assessee on this ground. Other grounds were kept open for future adjudication.