2025 (6) TMI 52 - AT - Income Tax

Reopening of assessment u/s 148 - non supply the assessee with the reasons recorded for reopening - HELD THAT - Where the assessee was not given the copy of reason of reopening for issuance of notice u/s 148 by AO the whole assessment proceeding and the resultant order of the assessment passed in the reassessment proceeding is liable to be quashed as held by the jurisdictional High Court. As noted that the Ld. DR has failed to place any judgment contrary to such finding. Thus having regard to the entire aspect of the matter when the assessee was not supplied with the copy of reason for issuance notice u/s 148 by the AO in spite of specific request made by the assessee to that effect the whole assessment proceeding is vitiated and the resultant assessment order is also therefore liable to be set aside as found to be invalid non sustainable in the eyes of law and suffers from jurisdictional error. Hence with the aforesaid observations the entire assessment proceeding is quashed. Assessee appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961 was valid and sustainable, particularly in light of the procedural requirements mandated by the statute.

2. Whether the Assessing Officer complied with the statutory obligation to supply the assessee with the reasons recorded for reopening the assessment, as requested by the assessee.

3. Whether the addition of Rs. 10,73,978/- to the assessee's income on the basis of the "test of human probability" was justified and legally sustainable.

4. The validity of the reassessment proceedings and the resultant order passed under Section 147 read with Section 144 of the Act.

Issue-wise Detailed Analysis

1. Validity of Reopening under Section 147 of the Income Tax Act

The reopening of assessment under Section 147 requires that the Assessing Officer (AO) must have "reason to believe" that income has escaped assessment. This belief must be based on tangible material and recorded in writing. The legal framework mandates that the AO must communicate the reasons recorded for reopening to the assessee upon request, to enable the assessee to effectively contest the reopening.

In this case, the reopening was triggered by information received from a different assessing officer during assessment proceedings of another taxpayer, revealing that the assessee had given an unsecured loan of Rs. 10,73,978/- to that taxpayer. The AO issued notice under Section 148 and proceeded with reassessment.

The assessee, upon receiving the reopening notice, filed a return and specifically requested the AO to provide a copy of the reasons recorded for reopening along with the approval documentation and any material relied upon. The AO failed to supply these documents.

The Tribunal relied on authoritative precedents, including the jurisdictional High Court's ruling in PCIT vs. Jagat Talkies Distributors, which held that failure to supply the reasons recorded for reopening upon request vitiates the reassessment proceedings. This principle ensures compliance with principles of natural justice and statutory mandates.

The Revenue did not contest this failure or provide any contrary judicial authority. The Tribunal therefore concluded that the reopening was invalid due to non-compliance with mandatory procedural safeguards, rendering the entire reassessment proceeding and consequent order under Section 147 void and liable to be quashed.

2. Non-Supply of Reasons Recorded and Its Legal Consequences

The assessee's request for reasons recorded and related documents was a statutory right under the procedural framework governing reassessment. The Tribunal emphasized that such supply is essential for the assessee to mount a meaningful objection against reopening.

The AO's failure to provide the reasons despite specific request was not disputed by the Revenue. The Tribunal held that this non-supply constitutes a jurisdictional defect, making the reassessment proceedings invalid.

This finding aligns with settled legal principles that procedural compliance is mandatory in tax proceedings, especially when reopening assessments which impinge on the finality of assessments.

3. Application of the Test of Human Probability for Addition of Loan Amount

The AO had made an addition of Rs. 10,73,978/- to the assessee's income by applying the "test of human probability" in the absence of evidence supporting the genuineness of the loan given by the assessee to the third party.

The First Appellate Authority had confirmed this addition. However, the Tribunal did not delve into the merits of this addition because the foundational reopening itself was held invalid. Without valid reopening, the addition could not sustain.

The Tribunal's approach reflects the principle that if the reopening is invalid, any additions or assessments based on it must also fail.

4. Validity of Reassessment Proceedings and Resultant Order

Given the procedural lapses, particularly the failure to provide reasons recorded for reopening, the Tribunal held that the reassessment proceedings were vitiated by jurisdictional error.

The Tribunal found no evidence or argument from the Revenue to justify or cure this defect. Consequently, the entire reassessment order passed under Section 147 read with Section 144 was quashed.

Significant Holdings

"Where the assessee was not given the copy of reason of reopening for issuance of notice under Section 148 by AO, the whole assessment proceeding and the resultant order of the assessment passed in the reassessment proceeding is liable to be quashed as held by the jurisdictional High Court."

"In the absence of such statutory compliance made by the statutory authorities being the Assessing Officer, the entire assessment is vitiated and the resultant order of assessment passed under Section 147 of the Act is liable to be quashed."

"Having regard to the entire aspect of the matter when the assessee was not supplied with the copy of reason for issuance notice under Section 148 by the Assessing Officer in spite of specific request made by the assessee to that effect, the whole assessment proceeding is vitiated and the resultant assessment order is also, therefore, liable to be set aside as found to be invalid, non sustainable in the eyes of law and suffers from jurisdictional error."

The Tribunal thereby established the core principle that compliance with procedural requirements, including furnishing reasons recorded for reopening, is mandatory and non-compliance results in jurisdictional error invalidating reassessment proceedings.

On the substantive issue of addition based on the test of human probability, the Tribunal refrained from adjudicating due to the invalidity of the reopening itself, thereby implicitly underscoring the primacy of procedural validity in tax reassessment.

Final determination: The appeal was allowed, and the reassessment proceedings and resultant addition were quashed on grounds of jurisdictional defect arising from failure to supply reasons recorded for reopening under Section 148.