2023 (2) TMI 152 - AT - Income Tax

Invalid Reopening of Assessment under Section 147

Sagplan Academy Pvt. Ltd. Versus ITO, Ward-4 (1), Gurgaon

Sagplan Academy Pvt. Ltd. Versus ITO, Ward-4 (1), Gurgaon - TMI Issues:1. Validity of reopening of assessment under Section 147 of the Act.2. Application of proviso to section 147 regarding disclosure of material facts.3. Alleged violation of section 40A(3) in assessment proceedings.Issue 1: Validity of reopening of assessment under Section 147 of the ActThe appeal was filed against the order passed by the National Face Centre (NFC), Delhi for the assessment year 2015-16. The grounds raised by the assessee challenged the validity of the income escaped assessment proceedings initiated under section 147. The Assessing Officer reopened the assessment under Section 147 based on cash payments made by the assessee, leading to the addition of Rs.2,12,000 under Section 40A(3) of the Act. The assessee contended that the reopening was invalid as there was no failure on their part to disclose all material facts necessary for assessment. The Tribunal analyzed the reasons recorded for reopening and observed that the Assessing Officer lacked tangible material and proceeded based on a relook at the original assessment proceedings. The Tribunal held that the conditions of the proviso to section 147 were not fulfilled, rendering the reopening invalid. The Tribunal quashed the assessment order and set aside the Commissioner (Appeals) decision.Issue 2: Application of proviso to section 147 regarding disclosure of material factsThe Tribunal noted that the original assessment was completed under Section 143(3) before the reopening under Section 147, which occurred after four years from the end of the relevant assessment year. As per the proviso to section 147, no reopening can occur unless there is a failure to disclose fully and truly all material facts. The Tribunal found that the Assessing Officer lacked fresh tangible material and initiated proceedings under Section 147 based on a revisit of existing records. The Tribunal concluded that the reopening was a mere change of opinion and did not establish any failure on the part of the assessee to disclose necessary facts. Citing relevant case law, the Tribunal held that the reopening was invalid due to non-compliance with the proviso to section 147.Issue 3: Alleged violation of section 40A(3) in assessment proceedingsDuring the assessment proceedings, the Assessing Officer added Rs.2,12,000 to the assessee's income under Section 40A(3) for cash payments made. The assessee contended that the disallowance under Section 40A(3) was unwarranted as the payments were not high value and did not involve tax evasion. The Tribunal, after invalidating the reopening of assessment, did not delve into the merits of the disallowance under Section 40A(3, as the grounds raised on merits became academic. Consequently, the appeal was allowed based on the invalidity of the reopening of assessment under Section 147.This detailed analysis of the legal judgment from the Appellate Tribunal ITAT DELHI highlights the issues raised by the assessee, the arguments presented, and the Tribunal's decision regarding the validity of the reopening of assessment and the application of relevant legal provisions.