2025 (1) TMI 1593 - AT - Income Tax

Reopening Notice Under Section 148 Quashed for Being Beyond Limitation Without Concealment or Nondisclosure

M/s S.P. Singla Construction Pvt. Ltd. Versus The DCIT, Central Circle-1, Chandigarh

The ITAT Chandigarh held that the reopening notice issued under Section 148 dated 20.03.2019 was barred by limitation and bad in law, as the assessee had ... Assessment u/s 147 or 153C - documents found during the course of search u/s 132 at the premises of the third party - only charge of the AO in the reasons recorded is that the assessee has used various sub contractor firms to book bogus expenses to bring down its overall profits and according to the reasons, this was affirmed by Chartered Accountant - HELD THAT:- Assessee has filed complete details in respect to these 39 parties i.e. sub contractors on behalf of whom the assessee has claimed sub contract expenses. The assessee has replied these details and also filed the details of all work done by these sub contracts during original assessment proceedings vide questionnaire, particularly Question No.10. The details filed by the assessee before us now clearly show that these details were made available to the AO during original assessment proceedings and the details include these 39 parties on behalf of the assessee who has carried out the sub contract work. Accordingly, the assessee has made sub contract payment to these 39 parties and genuineness was explained during original assessment proceedings. The original assessment was completed under Section 143(3) read with Section 153A which was carried out in consequent to search conducted under Section 132 of the Act on the assessee group of cases i.e. first search. The only basis made by AO treating the same as incriminating material i.e. the statement of Shri Gurinder Kumar Garg, Chartered Accountant, we noted that the statement of Shri Gurinder Kumar Garg, nowhere admits that these parties are bogus, only he stated that all parties are registered at his address or at the address of one Shri Manoj Kumar, Accountant of the assessee firm. During original assessment proceedings, all these materials were produced by assessee and even the same is part of assessee's financials filed alongwith the return of income and part of audited accounts which were never doubted by AO during original assessment proceedings. Simpliciter one list found from Shri Gurinder Kumar Garg wherein around 150 parties of sub contractors including these 39 parties who has carried out sub contract work of the assessee and received payment but this paper does not indicate anything that these are bogus contract parties. Apart from the above, we noted from the very reasons recorded by AO, admittedly original assessment was completed under Section 143(3) read with 153 of the Act in consequent to search conducted under Section 132 of the Act and relevant assessment year is 2012-13 and further the reopening notice is dated 20.03.2019, which is beyond four years. The only saving grace will remain for Department that if the Department proves that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year. But from the very reasons we came to conclusion that not only the Revenue fails to prove failure on the part of the assessee but they invoked the deeming provisions i.e the provisions of clause (c) of Explanation-2 to Section 147 of the Act. In our view, w.e.f. 01.04.1989, the entire position of Section 147 changed and this has been explained in the case of Foramer France [2000 (8) TMI 45 - ALLAHABAD HIGH COURT] wherein as held admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso. Similarly, Hon'ble Bombay High Court in the case of Rajshree Realtors Pvt. Ltd. [2023 (7) TMI 691 - BOMBAY HIGH COURT] categorically held for assuming crucial jurisdiction under the provisions of Section 147 of the Act, there are parameters prescribed in the proviso to Section 147 i.e. assessee's failure to disclose fully and truly all material facts necessary for its assessment was not fulfilled and once it is fulfilled, the notice under Section 148 has to be annulled. Thus, we hold that the notice issued by the AO under Section 148 of the Act dated 20.03.2019 is bad in law and hence quashed. Consequential assessment is also quashed. ISSUES: Whether the reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961 is valid where original assessment was completed under Section 153A read with Section 143(3) and more than four years have elapsed.Whether the initiation of reassessment proceedings under Section 148 is sustainable when the alleged escaped income is due to bogus expenses claimed through subcontractor firms whose details were disclosed and verified during original assessment proceedings.Whether invocation of clause (c) of Explanation 2 to Section 147 (deemed escapement of income) applies in absence of failure to disclose fully and truly all material facts by the assessee.Whether the provisions of the fourth proviso to Section 153A apply to the facts where income escaping assessment is not represented in the form of assets as defined under Explanation 2 to Section 153A.Whether the reasons recorded for reopening under Section 148 satisfy the statutory requirement of 'reason to believe' based on tangible material and are not mere change of opinion. RULINGS / HOLDINGS: Reopening of assessment under Section 147/148 was held invalid and the notice under Section 148 was quashed because the original assessment under Section 153A read with Section 143(3) was completed and more than four years had elapsed without any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, thus attracting the proviso to Section 147.The initiation of reassessment on the basis of alleged bogus subcontractor expenses was unsustainable as the assessee had disclosed complete details of these subcontractors during original assessment proceedings, which were verified and accepted by the Assessing Officer without objection.The invocation of clause (c) of Explanation 2 to Section 147 (deemed escapement of income) was found inapplicable since there was no failure on the part of the assessee to disclose material facts, and the AO's reasons did not demonstrate any such failure.The fourth proviso to Section 153A did not apply as the escaped income was not represented in the form of assets as defined in Explanation 2 to Section 153A, hence the AO was justified in initiating proceedings under Section 147/148 instead of Section 153A.The reasons recorded by the AO were based solely on statements of the Chartered Accountant and information already on record, lacking any new tangible incriminating material discovered during search on the assessee; thus, the reasons did not constitute valid 'reason to believe' but amounted to a mere change of opinion, which is impermissible for reassessment. RATIONALE: The Court applied the statutory framework of Sections 147, 148, 153A, and related provisos of the Income Tax Act, 1961, emphasizing the proviso to Section 147 which restricts reopening beyond four years unless there is failure to disclose material facts fully and truly.Precedents including the Supreme Court decision in CIT v. Foramer France and High Court rulings such as Rajshree Realtors Pvt. Ltd. v. UOI were relied upon to interpret the proviso to Section 147 and the conditions for valid reopening of assessment.The Court underscored that mere change of opinion by the tax authorities does not justify reopening and that the AO must have tangible material or new incriminating evidence discovered post original assessment to form a valid reason to believe.The Court noted that the fourth proviso to Section 153A applies only where escaped income is represented in the form of assets as defined, which was not the case here, thus excluding applicability of Section 153A for reassessment.The decision reaffirmed the principle that the burden of proving failure to disclose material facts lies on the revenue and in absence thereof, reopening notices are liable to be quashed.