2022 (6) TMI 1545 - AT - Income Tax

s.147 reopening barred by first proviso where AO failed to allege non-disclosure; s.151 approval mechanical, assessment u/s.143(3) quashed

ITAT (Del-AT) allowed the appeal, holding the reopening under s.147 barred by the first proviso as the AO failed to allege any non-disclosure of material ... Reopening of assessment u/s 147 - reasons to believe towards alleged escapement at all - maintainability of jurisdiction u/s 147 - compliance of approval of superior authority u/s 151 Order as per AM - HELD THAT:- Reopening in the instant case is governed by the embargo placed by 1st proviso to Section 147 of the Act. A completed assessment is a valuable right and cannot be lightly ignored. AO has not even cared to allege any kind of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. From the reasons recorded, it is not known, what material facts were not brought on record by the assessee in the course of original assessment. The salutary burden placed on the AO under the 1st proviso is not discharged at all. The jurisdiction u/s 147 was exercised in a most flippant and nonchalant manner. It is axiomatic that a reopening of completed assessment is special and extra-ordinary and carries civil consequences. Hence, AO is expected to exercise the jurisdiction under Section 147 with scrupulous care. The completed assessment has been reopened in the instant case in a very cursory manner without satisfying any of the conditions of Section 147 of the Act. Ostensibly, the competent authority u/s 151 of the Act has formed ‘satisfaction’ of escapement on such flimsy reasons mechanically. Such symbolic compliance of approval of superior authority u/s 151 cannot be countenanced. The jurisdiction assumed under Section 147 in this backdrop is ex-facie vitiated and thus requires to be struck down at the threshold. The impugned assessment framed u/s 147 r.w. Section 143(3) is clearly bad in law in the absence of any valid jurisdiction. Consequently, the impugned assessment order framed in pursuance of non est jurisdiction stands quashed. ASSENT ORDER of J.M - Respectful agreement of the conclusion drawn and determination made by Hon’ble AM AO has resorted to section 147 of the Act primarily as an alternative to section 263 or section 154 owing to the admitted fact that the action u/s. 263 cannot be taken due to bar of limitation. Needless to say, the invocation of jurisdiction u/s. 147 is governed by own set of stringent statutory requirement and not alternative of the provisions of section 263 of the Act. The reopening in the instant case is also governed by the embargo placed by first proviso to section 147 of the Act. The completed assessment is a valuable right and cannot be lightly ignored. The Assessing Officer has not even cared to allege any kind of failure on the part of Assessee to disclose fully and truly all material facts necessary for assessment. From the reasons recorded, it is not known what material facts were not brought on record by the Assessee in the course of original assessment. The solitary burden placed before the Assessing Officer in the first proviso is not discharged at all. The jurisdiction assumed u/s. 147 in this backdrop is ex facie vitiated and thus requires to be struck down at the threshold. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer lawfully assumed jurisdiction to reopen a completed assessment under Section 147 read with Section 148 where reasons recorded under Section 148(2) are perfunctory and do not disclose any 'reason to believe' that income had escaped assessment. 2. Whether the reopening after completion under Section 143(3), more than four years from the end of the assessment year, complied with the first proviso to Section 147 (i.e., whether the Assessing Officer discharged the burden of showing failure by the taxpayer to disclose fully and truly all material facts). 3. Whether the approval/satisfaction recorded by the superior authority under Section 151 cured deficiencies in the reasons recorded by the Assessing Officer. 4. Ancillary-whether the reassessment framed under Section 144/147 in an ex parte manner violated principles of natural justice (considered only insofar as it related to jurisdiction and procedural propriety). ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of jurisdiction to reopen under Section 147/148 where reasons are perfunctory Legal framework: Reopening of a completed assessment under Section 147/148 requires that the Assessing Officer must record reasons satisfying the statutory threshold of having a 'reason to believe' that income has escaped assessment; the recorded reasons must disclose the basis and process of formation of that belief. Precedent Treatment: No specific precedents were invoked by the Court; the reasoning follows statutory interpretation principles applicable to Section 147/148. Interpretation and reasoning: The reasons recorded in the matter were brief and merely stated that prior period expenses were inadmissible and that remedial action under Section 147 was proposed because actions under Sections 263 or 154 were time-barred. The Court found the reasons to be tentative, non-descriptive and devoid of the necessary process of reasoning - merely parroting an audit observation without independent application of mind or articulation of facts showing escapement. Invoking Section 147 as an alternative to other remedial provisions was held to be impermissible; the statute demands independent satisfaction, not an expedient procedural choice. Ratio vs. Obiter: Ratio - a recorded reason which is perfunctory, speculative or merely parrots audit notes, without demonstrating the Assessing Officer's reasoned belief of escapement, is inadequate to sustain jurisdiction under Section 147/148. Obiter - comments on the general obligation of quasi-judicial authorities to exercise jurisdiction with scrupulous care. Conclusions: The reopening was vitiated for want of any valid 'reason to believe'; jurisdiction under Section 147/148 was not lawfully assumed and must be quashed. Issue 2: Compliance with first proviso to Section 147 for reassessment beyond four years (disclosure of material facts) Legal framework: The first proviso to Section 147 places an onus on the Assessing Officer to show that the taxpayer failed to disclose fully and truly all material facts necessary for assessment when reopening a completed assessment after the four-year period applicable to earlier assessments completed under Section 143(3). Precedent Treatment: The Court applied the statutory standard directly; no case law was relied upon in the text. Interpretation and reasoning: The reasons recorded did not specify any omission or failure by the taxpayer to disclose material facts during the original assessment proceedings. The Assessing Officer did not identify what material facts were withheld or how such nondisclosure had caused escapement. The Court emphasized that a completed assessment is a valuable right and that the proviso imposes a salutary burden on the Assessing Officer which was not discharged here. Ratio vs. Obiter: Ratio - where the first proviso to Section 147 is applicable, absence of any allegation or material showing that the assessee failed to disclose fully and truly all material facts renders reopening invalid. Obiter - the characterization of completed assessment as a valuable right requiring scrupulous exercise of reopening power. Conclusions: The statutory requirement under the first proviso was not met; reopening beyond four years was therefore unlawful. Issue 3: Effect of approval under Section 151 where primary reasons are deficient Legal framework: Section 151 requires approval of a specified authority for initiation of reassessment in certain cases; however, the superior authority's approval must be based on genuine satisfaction and cannot be merely symbolic to cure defects in the Assessing Officer's reasons. Precedent Treatment: No prior decisions were cited; the Court applied principles of administrative law concerning the genuineness of delegated satisfaction. Interpretation and reasoning: The Court observed that the approval under Section 151 appeared mechanical and symbolic because it was based on the same perfunctory reasons. A superior authority cannot, by formal approval, validate an absence of any substantive reasoning or a failure to comply with the statutory threshold; statutory satisfaction must be real and recorded on cogent material. Ratio vs. Obiter: Ratio - mechanical or symbolic approval under Section 151 does not validate jurisdiction where the reasons recorded by the Assessing Officer disclose no real 'reason to believe.' Obiter - expectation that superior authorities must form independent satisfaction and not rubber-stamp deficient reasons. Conclusions: Approval under Section 151, when based on the same flimsy reasons, does not cure the lack of jurisdiction; the recorded approval could not salvage the reassessment. Issue 4: Ex parte reassessment and principles of natural justice (ancillary consideration) Legal framework: Principles of natural justice require opportunity to be heard before adverse action is taken; however, the Court addressed this ancillary issue only insofar as it related to the broader jurisdictional defect. Precedent Treatment: No direct precedents were cited. Interpretation and reasoning: The assessee contended that the reassessment was framed ex parte without hearing. The Court did not decide the natural justice point on its own merits because the primary defect was want of jurisdiction; a reassessment framed without jurisdiction is bad irrespective of whether opportunity was given. The Court noted that framing a proceeding in violation of natural justice would be an additional ground of invalidity but was not necessary to decide once jurisdictional invalidity was established. Ratio vs. Obiter: Obiter-to-ratio transition - the key ratio is that lack of jurisdiction renders subsequent procedural irregularities moot; the remark that ex parte framing would violate natural justice remains ancillary and not necessary to the decision. Conclusions: The procedural natural justice objection is rendered academic by the primary finding of lack of jurisdiction; therefore, the reassessment fails irrespective of the ex parte contention. Overall Disposition Because (a) the Assessing Officer's reasons did not demonstrate any bona fide 'reason to believe' escapement and were perfunctory, (b) the first proviso to Section 147 (requirement to show failure to disclose material facts) was not satisfied, and (c) the superior authority's approval under Section 151 was merely symbolic and could not cure the defect, the assumption of jurisdiction under Section 147/148 was held to be ex facie vitiated. The reassessment order premised on that jurisdiction was quashed.