2024 (3) TMI 473 - AT - Income Tax

Reassessment proceedings under Section 147 struck down for lacking specific allegations and escaped income amount

The ITAT Ahmedabad allowed the assessee's appeal against reassessment proceedings under Section 147. The tribunal held that the reasons for reopening ... Reopening of assessment u/s 147 - reasons to believe - As argued “Reasons for Reopening” do not specify either the “Specific issues” for which case is sought to be reopened and nor the “amount of alleged escapement of income chargeable to tax” - HELD THAT:- We observe that there is no specific allegation that there is any non-disclosure on part of the assessee during the course of assessment proceedings. In the recent case of PCIT v. DSC Ltd.;2023 (7) TMI 865 - DELHI HIGH COURT] the High Court held that where assessment was ought to be reopened in case of assessee on ground that a search conducted at DSC Group of Companies revealed bogus purchases made by assessee through unexplained sources, since reasons recorded by AO did not make specific allegations of failure to disclose all material facts by assessee, jurisdictional ingredients for reopening assessment provided in first proviso to Section 147 were absent, both in form and substance and, thus, proceedings were bad in law. In the case of Dhirendra Hansraj Singh [2018 (5) TMI 1386 - GUJARAT HIGH COURT] High Court held that where after expiry of four years from end of relevant year, Assessing Officer sought to reopen assessment on ground that deduction u/s 80-IB(11A) was wrongly claimed as assessee was engaged in manufacturing and processing of fruit juices and did not derive profits from processing, preservation and packaging of fruits, since there was no failure on part of assessee to disclose fully and truly any material facts which were necessary for assessment, in view of proviso to Section 147, impugned reassessment proceedings deserved to be set aside. We also agree with the contention of assessee that the reasons for reopening also do not specify the amount of income having escaped assessment, so as to extend the period of limitation beyond four years from the end of the relevant assessment year. Where nothing has been brought on record to show that there was failure on part of the assessee to fully and truly disclose all material facts during the course of original assessment proceedings, we are of the considered view that initiation of reassessment proceedings are liable to be stuck down. Appeal of the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under Section 147/148 after four years from the end of the relevant assessment year is valid where the reasons recorded are vague, non-specific and do not quantify the amount of income alleged to have escaped assessment. 2. Whether reopening under extended limitation (beyond four years) is permissible in absence of any failure by the taxpayer to disclose fully and truly all material facts during original assessment proceedings. 3. Whether, having found the reopening invalid, the appellate body should adjudicate other substantive grounds (e.g., disallowance under Section 80P, unexplained expenditure, interest and penalties) or leave them unaddressed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of reopening where reasons are vague, non-specific and do not quantify escaped income Legal framework: Reopening under Section 147/148 requires recording of reasons for belief that income has escaped assessment; where extended limitation (beyond four years but within six) is invoked, the reasons must show that escaped income amounts to or is likely to amount to a specified statutory threshold. The reasons must be specific and disclose the material facts on which the belief is based. Precedent treatment: The Court relied upon established judicial principles that reopening based on vague, scanty or non-specific reasons is impermissible, and that the reasons must, in the case of extended limitation, quantify or otherwise demonstrate that the escaped income meets the statutory threshold. Earlier decisions applying these principles were treated as instructive and followed. Interpretation and reasoning: The Court examined the reasons recorded by the Assessing Officer and found them to be vague and non-specific: the reasons did not identify particular issues or quantify the amount of alleged escapement. The material referred to (e.g., reference to withdrawal of transfer pricing proceedings, safe harbour application, and that certain CASS issues could not be examined due to lack of time) did not constitute a specific allegation that the assessee failed to disclose material facts or that particular income had escaped assessment exceeding the statutory threshold. The absence of a quantified amount in the reasons was significant because the extended limitation provision is contingent upon such a showing. Ratio vs. Obiter: The finding that reasons were vague and non-specific and that therefore reopening was invalid is ratio decidendi for the appeal in respect of jurisdictional validity of reassessment proceedings under Section 147/148 when extended limitation is invoked. Conclusion: Reopening was invalid. The reasons for reopening failed to specify the issues or quantify the escaped income; therefore the reassessment proceedings could not be sustained. Issue 2: Permissibility of reopening under extended limitation absent failure to disclose fully and truly during original assessment Legal framework: When reassessment is sought beyond four years, the proviso to Section 147 requires, among other things, that there must have been a failure by the assessee to disclose fully and truly all material facts necessary for assessment; absent such failure, jurisdiction to reopen is lacking. The reopening jurisdiction is jurisdictional and can be challenged at any stage. Precedent treatment: The Court drew on prior judicial pronouncements holding that where there is no specific allegation or material to show failure to disclose fully and truly, reassessment beyond four years is impermissible. Those authorities were followed as applicable to the facts. Interpretation and reasoning: The assessment had been a complete scrutiny assessment under Section 143(3) with material placed on record at the original assessment. The reasons recorded for reopening did not allege any non-disclosure by the assessee. The Court noted that mere reference to procedural issues (e.g., withdrawn TP reference, safe harbour application not disposed) did not equate to an allegation of concealment or non-disclosure by the assessee. Given absence of any showing that the assessee failed to disclose material facts, the jurisdictional requirement for reopening under the proviso was not satisfied. Ratio vs. Obiter: The conclusion that reopening beyond four years is barred in absence of failure to disclose is ratio in relation to validity of the reassessment in this matter. Conclusion: Reopening beyond four years was impermissible on the facts; jurisdictional ingredients for reassessment were absent and the reassessment proceedings were to be set aside. Issue 3: Consequence of quashing reopening - treatment of other contested substantive issues Legal framework: If reassessment proceedings are held to be invalid for lack of jurisdiction or inadequate reasons, consequential additions or disallowances made in pursuance of those proceedings fall and the appellate forum may allow the appeal without adjudicating the substantive merit of those additions. Precedent treatment: The Court followed the principle that when the foundational reopening is set aside, there is no locus for sustaining consequential assessments or additions and thus the appeal is to be allowed; substantive issues need not be decided. Interpretation and reasoning: The Court observed that the assessee had advanced several substantive grounds (deduction under Section 80P, unexplained expenditure, interest and penalties). However, because the reassessment itself was invalidated on jurisdictional grounds, there was no valid foundation for the additions and disallowances sustained by the Revenue. The Court therefore did not adjudicate the substantive contentions and allowed the appeal on the ground of invalid reopening. Ratio vs. Obiter: The procedural ratio that invalidation of reopening results in setting aside consequential additions is central to the Court's decision and therefore ratio; non-adjudication of substantive issues is consequential and not a determination on merits (obiter with respect to those substantive claims). Conclusion: Having quashed the reassessment for lack of jurisdiction and inadequate reasons, the Court allowed the appeal; consequential disallowances, interest and penalties arising from the invalid reassessment were rendered unsustainable and were not adjudicated on merits. Cross-reference The analyses of Issue 1 and Issue 2 are interrelated: failure to specify particulars and to quantify escaped income (Issue 1) and absence of any failure to disclose fully and truly (Issue 2) independently and cumulatively render reopening beyond four years invalid; accordingly, the Court concluded that reassessment stood vitiated and allowed the appeal without deciding the substantive tax issues raised by the assessee.