2025 (6) TMI 395 - AT - Income Tax

Reopening of assessment u/s 147 - Notice to reopen after 4 years - reasons to believe - HELD THAT - Reopening has been made after four years and the original assessment was already completed u/s 143(3). In this case there is no failure on the part of the assessee to disclose fully and truly all material facts. It is absolutely clear that there is no external information emanating out of records so as to reopen after 4 years. AO has reopened the case upon perusal of the financial statement of the assessee which was very much before him at the time of completing the original assessment under Section 143(3). In this regard we consider it relevant to refer to the decision of CIT v. Usha International Ltd. 2012 (9) TMI 767 - DELHI HIGH COURT AO himself is candidly admitting that the earlier notice dated 31.03.2018 was wrong as it was erroneously mentioned A.Y. 2012-13 instead of A.Y. 2013-14. So once the notice dated 30.03.2018 is unsustainable the impugned notice is issued beyond 4b years from end of assessment year. It is also crystal clear that approval from PCIT was never obtained. DR failed to controvert the issue. She even could not clarify as to who was the approving authority for issuing notice u/s 148. Be that as it may we fail to apprehend as to how the reopening can be sustained on the basis of such laches and infirmities which are glaring. The reopening is accordingly quashed and consequently the entire addition is liable to be deleted. Accordingly the assessee s appeal is allowed.

Summary

The core legal questions considered in this appeal relate to the validity and sustainability of reopening income tax assessment proceedings under Section 147 read with Section 148 of the Income Tax Act, 1961, specifically:

• Whether the reopening notice issued under Section 148 was validly issued, including compliance with approval requirements under Section 151(1) of the Act;
• Whether the reasons recorded for issuance of the reopening notice satisfy the proviso to Section 147, particularly regarding failure to disclose fully and truly all material facts;
• Whether the reopening was based on fresh tangible material or merely a change of opinion by the Assessing Officer (AO), which is impermissible;
• Whether additions made under Section 56 of the Act on account of valuation differences are sustainable if the primary reopening itself is invalid;
• Whether the provisions of Section 56 are applicable to the facts of the case.

Regarding the validity of the reopening notice, the Tribunal focused extensively on the legal framework governing reassessment proceedings under Sections 147 and 148 of the Income Tax Act. Section 147 permits reopening only if income chargeable to tax has escaped assessment due to failure by the assessee to disclose fully and truly all material facts necessary for assessment. The first proviso to Section 147 further restricts reopening beyond four years from the end of the relevant assessment year unless such failure is established. Section 151(1) mandates prior approval from the prescribed authority before issuance of a reopening notice.

The Tribunal examined the reasons recorded by the AO for reopening, which alleged suppression of profit by not accounting for closing stock properly in the Profit & Loss account. However, it was noted that the financial statements and related details were already available and considered at the time of the original assessment completed under Section 143(3). There was no allegation or evidence of failure on the part of the assessee to disclose material facts fully and truly at that stage.

In interpreting these facts, the Tribunal relied heavily on binding precedents, particularly a Full Bench decision of the jurisdictional High Court and Supreme Court rulings, which elucidate the principles governing reopening assessments:

• An assessment completed under Section 143(3) after full and true disclosure by the assessee presumes that the AO has applied his mind and formed an opinion on the material facts presented;
• Reopening on the same material without any new tangible information amounts to impermissible change of opinion;
• The AO cannot take advantage of a perfunctory assessment to reopen the case unless there is evidence of failure by the assessee to disclose fully and truly all material facts;
• Section 114(e) of the Evidence Act applies to the presumption of opinion formation by the AO in such assessments;
• Reopening beyond four years requires proof of failure to disclose or new tangible material not considered earlier;
• Judicial decisions missed or unknown at the time of original assessment can constitute valid new material justifying reopening, but mere re-examination of the same facts does not.

The Tribunal found that in the instant case, the AO's reopening was based solely on the same financial statements and accounts that were available and presumably considered during the original assessment. There was no new tangible material or evidence of non-disclosure by the assessee. The reopening notice was also issued beyond four years from the end of the assessment year and without the requisite approval from the competent authority as mandated under Section 151(1). The AO's own note sheets admitted an erroneous initial notice and lack of proper approval.

Regarding the contention that additions under Section 56 on account of valuation differences should stand if the reopening fails, the Tribunal held that since the reopening itself was invalid and quashed, such additions could not be sustained. The Tribunal also noted that the applicability of Section 56 to the facts was not properly appreciated by the lower authorities but did not delve deeply into this issue as the primary ground of reopening invalidity was dispositive.

In addressing competing arguments, the Tribunal gave due consideration to the Revenue's reliance on the reopening reasons and procedural compliance but found them lacking in evidence and legal foundation. The Revenue could not demonstrate failure by the assessee to disclose material facts nor produce fresh tangible material justifying reassessment. The Tribunal also rejected any suggestion that the AO had formed no opinion at the time of original assessment, emphasizing judicial pronouncements that it is contrary to normal human conduct to conclude an assessment without applying mind to the material before the AO.

In conclusion, the Tribunal held that the reopening notice issued under Section 148 was invalid due to non-compliance with approval requirements and absence of any failure by the assessee to disclose fully and truly all material facts. The reopening was based on the same material already considered, amounting to impermissible change of opinion. Consequently, the reassessment proceedings were quashed, and all additions made pursuant thereto were deleted.

Significant holdings include the following verbatim reasoning:

"Where the assessee has discharged his duty and the assessment completed under section 143 (3) is reopened within the period of 4 years from the end of the assessment year, the assessing officer has to either show that the disclosure is not full and true or he has come into possession of some 'tangible material'... When there is no failure on the part of the assessee to furnish full and true particulars and there is no tangible material... the only consequence would be that the assessing officer was exercising the power of review on the very same materials... This would amount to abuse of the power to re-assess and has to be checked."

"It is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before him... If the assessee has discharged his duty of furnishing full and true particulars at the time of the assessment, it may be fairly taken that the assessing officer has equally discharged his functions in the manner required of him."

"The reopening is accordingly quashed and consequently the entire addition is liable to be deleted."

The core principles reaffirmed are:

• Reopening under Section 147/148 is permissible only if there is failure to disclose fully and truly all material facts or if new tangible material is discovered;
• Assessments completed under Section 143(3) after full disclosure by the assessee carry a presumption that the AO has formed an opinion;
• Reopening based on the same material amounts to impermissible change of opinion and abuse of reassessment powers;
• Procedural compliance including approval under Section 151(1) is mandatory for valid issuance of reopening notices;
• Additions made pursuant to invalid reopening notices cannot be sustained.

Accordingly, the Tribunal allowed the appeal, quashed the reassessment proceedings, and deleted the additions made for the assessment year 2013-14.