2025 (6) TMI 1705 - AT - Income Tax

Reopening proceedings when proceedings u/s 154 was pending - HELD THAT - Two notices were received by the assessee. One in regard to non-deduction of TDS on account of lease rent and the other was in regard to alleged non-accounting of short-term capital gain. The report submitted by the AO is patently silent on the fact if these notices when responded by the assessee were particularly dropped. The judgement which was relied in the case of S.M. Overseas (P) Ltd. 2022 (12) TMI 702 - SC ORDER squarely applies wherein the Hon ble Supreme Court has upheld the Tribunal s conclusion that during the pendency of proceedings u/s 154 of the Act it was not permissible on the part of the Revenue to initiate the proceedings u/s 147/148 of the Act. As far as application of provisions of section 154(8) of the Act is concerned the same is applicable where the application is moved by an assessee which is not the case. Thus the assertions of the ld. DR by relying provisions of section 154(8) of the Act do not come to the rescue. In any case when the material on record establish that AO was aware of the disputed transaction of short term capital gain for which notice was issued by way of rectification proceedings and the proceedings are deemed to have been dropped then subsequent assumption of jurisdiction u/s 147 of the Act will certainly lead to reopening on stale information and just a change of opinion.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

- Whether reassessment proceedings under Section 147 of the Income Tax Act, 1961 (the Act) are valid when initiated during the pendency of rectification proceedings under Section 154 of the Act.

- Whether reopening of assessment under Section 147 can be sustained if the proceedings under Section 154 are pending and have not been formally withdrawn.

- The applicability and interpretation of limitation provisions under Section 154(7) and Section 154(8) of the Act in the context of rectification and reassessment proceedings.

- Whether the reopening of assessment in the present case amounts to a change of opinion, which is impermissible under the law.

- The admissibility of raising additional grounds orally under Rule 27 of the ITAT Rules challenging the jurisdiction of the Assessing Officer to initiate reassessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment proceedings under Section 147 during pendency of rectification proceedings under Section 154

Relevant legal framework and precedents: The Tribunal relied heavily on the Supreme Court judgment in S.M. Overseas (P) Ltd. vs. CIT, which held that reopening of assessment under Section 147/148 is impermissible during the pendency of rectification proceedings under Section 154 of the Act. The Court emphasized that the pendency of rectification proceedings precludes initiation of reassessment proceedings, as it would amount to a change of opinion rather than a valid reopening.

Court's interpretation and reasoning: The Tribunal noted that the Supreme Court found the High Court erred in holding that the rectification notice under Section 154 was invalid due to limitation under Section 154(7). The Supreme Court clarified that unless rectification proceedings are formally withdrawn or concluded, they are deemed pending, and reassessment proceedings cannot be initiated concurrently.

Key evidence and findings: The assessee produced two notices under Section 154 dated 02.11.2016 and 12.01.2017. The Assessing Officer (AO) did not deny issuance of the second notice dated 12.01.2017, nor was there any record of withdrawal or disposal of these rectification proceedings. The AO's report was silent on the status of these notices and failed to establish that rectification proceedings had concluded or been withdrawn prior to initiation of reassessment.

Application of law to facts: Given that rectification proceedings were pending, the Tribunal applied the binding Supreme Court precedent to conclude that the reopening under Section 147 was not permissible. The AO's reliance on Section 154(8), which relates to the time limit for passing an order on an application moved by the assessee, was found misplaced as the rectification proceedings were initiated suo moto by the AO and not at the instance of the assessee.

Treatment of competing arguments: The Revenue argued that the limitation period under Section 154(7) had expired, rendering the rectification notice invalid and thereby allowing reassessment. The Tribunal rejected this contention, noting absence of any formal order invalidating or withdrawing the rectification proceedings. The Tribunal also rejected the Revenue's contention that no rectification proceedings were pending based on the AO's report, which lacked documentary support.

Conclusions: The Tribunal concluded that reassessment proceedings initiated under Section 147 during the pendency of rectification proceedings under Section 154 were invalid and amounted to an impermissible change of opinion.

Issue 2: Whether the reopening amounted to a change of opinion

Relevant legal framework and precedents: It is well established that reassessment proceedings cannot be initiated merely on a change of opinion. The Supreme Court in various rulings has held that reopening must be based on tangible material indicating escapement of income and not on mere dissatisfaction with the original assessment.

Court's interpretation and reasoning: The Tribunal observed that the reopening was based on the same material already under consideration in the rectification proceedings. Since the rectification proceedings were pending, the reassessment was effectively a second look at the same issue without new material, thus amounting to a change of opinion.

Key evidence and findings: The AO's knowledge of the disputed short-term capital gain transaction and issuance of rectification notices demonstrated that the matter was already under scrutiny. No new material was brought on record to justify reassessment.

Application of law to facts: Applying the principle that reassessment cannot be based on change of opinion, the Tribunal held that the reopening was unjustified.

Treatment of competing arguments: The Revenue's arguments did not demonstrate any new tangible material beyond what was already under consideration in rectification proceedings.

Conclusions: The reassessment was quashed as it was based on a mere change of opinion and not on any new information or material.

Issue 3: Admissibility of raising additional grounds orally under Rule 27 of ITAT Rules

Relevant legal framework and precedents: Rule 27 of the ITAT Rules permits the Tribunal to admit additional grounds of appeal orally at the time of hearing, subject to the discretion of the Tribunal.

Court's interpretation and reasoning: The Tribunal admitted the assessee's oral additional ground challenging the jurisdiction of the AO to initiate reassessment during pendency of rectification proceedings, relying on the precedent from the Delhi High Court in Sanjay Sawhney vs. Pr. CIT.

Key evidence and findings: The assessee's challenge was directly relevant to the core issue of jurisdiction and validity of reassessment.

Application of law to facts: The Tribunal exercised its discretion to admit the additional ground as it was germane and necessary for a just adjudication of the appeal.

Treatment of competing arguments: The Revenue did not contest the admission of the additional ground.

Conclusions: The additional ground was admitted and considered in the final decision.

3. SIGNIFICANT HOLDINGS

- "During the pendency of the proceedings under Section 154 of the Act, it was not permissible on the part of the Revenue to initiate the proceedings under Section 147/148 of the Act."

- "In the absence of any specific order of withdrawal of the proceedings under Section 154 of the Act, the proceedings initiated under Section 154 can be said to have been pending."

- "The reopening of assessment under Section 147 during the pendency of rectification proceedings under Section 154 amounts to a change of opinion and is impermissible."

- The Tribunal restored the ITAT order quashing the reassessment and set aside the High Court's order upholding reassessment on the ground of limitation under Section 154(7), holding that the limitation issue was not properly adjudicated and the rectification proceedings were deemed pending.

- The Tribunal held that reliance on Section 154(8) was misplaced as it applies only when the application for rectification is moved by the assessee, which was not the case here.

- The Tribunal allowed the appeal, quashed the reassessment proceedings, and upheld the principle that reassessment cannot be initiated on stale information or mere change of opinion.