2025 (2) TMI 1387 - AT - Income Tax

Reopening assessment under section 147 invalidated where reasons recorded before return filed; reopening quashed for lack of application of mind

Recording reasons for reopening an assessment before any return is on record cannot supply a reason to believe that income has escaped assessment based on ... Reopening of assessment u/s 147 - Reasons Recorded for reopening assessment - Reasons Recorded for reopening assessment prior to the date for filing of return - HELD THAT:- Assessee has filed return of income u/s 139(4) of the Act as belated return on 19/09/2016 (i.e. seven days after the reason were recorded). Prior to that no return of income was on record. Thus, as on the date of recording of reasons of reopening, there is no return of income before the AO and therefore, the question of the Assessee making claim for exemption u/s 10(38) of the Act did not arise. Reason Recorded repeatedly referred to claim made by the Assessee of exemption despite the fact that there was no claim made by the Assessee as no return of income was filed. In the case of Reena Rakesh Kothari [2024 (3) TMI 1521 - ITAT MUMBAI] in identical facts and circumstances, the Tribunal has held that this amounts to non-application of mind by the Assessing Officer as well as by the sanctioning authority. No reason to believe could have been formed by AO with respect to escapement of income prior to the date for filing of return of income. DR was not able to differentiate the decision of the Tribunal in the case of Reena Rakesh Kothari (supra) either on facts and or in law. Thus, relying on case of Prashant S. Joshi [2010 (2) TMI 271 - BOMBAY HIGH COURT] and Reena Rakesh Kothari (supra), we hold that the reasons recorded for reopening assessment for the Assessment Year 2015-16 do not meet the requirements of Section 147 of the Act. Therefore, the reasons recorded for reopening the assessment based upon incorrect understanding of facts, communicated, passed u/s 147 of the Act are quashed as being bad in law. Assessee appeal allowed. Issues: (i) Whether the reasons recorded for reopening assessment under Section 147/notice under Section 148 were valid where reasons referred to a claim of exemption though no return was on record at the time of recording; (ii) Whether sanction under Section 151 was validly granted where the reasons for reopening suffered from non-application of mind.Issue (i): Whether the reasons recorded for reopening the assessment met the requirements of Section 147 when they referred to a claim of exemption despite no return being filed as on the date of recording.Analysis: The reasons recorded referred to the assessee's claim of exempt long term capital gain though the first return was filed after the reasons were recorded. Authorities require that the validity of reopening be examined with reference to the reasons as recorded and that those reasons must disclose the Assessing Officer's mind based on material available at that time. Reliance was placed on prior decisions holding that reasons cannot be supplemented subsequently and that absence of a return at the time undermines any assertion of a claim in the reasons.Conclusion: The reasons recorded do not satisfy Section 147 and are invalid because they rely on a claim that was not on record when reasons were recorded. This conclusion is in favour of the Assessee.Issue (ii): Whether the sanction under Section 151 was valid where the reasons for reopening were vitiated by non-application of mind.Analysis: The sanctioning authority approved the reasons which repeatedly alleged a claim of exemption despite no return being filed before the Assessing Officer when reasons were recorded. Authorities establish that approval based on deficient or incorrect reasons is also invalid. The recorded reasons and consequent sanction thus reflect lack of application of mind.Conclusion: The sanction under Section 151 is invalid for want of application of mind. This conclusion is in favour of the Assessee.Final Conclusion: The reassessment proceeded under the impugned notice and assessment order are quashed; consequential additions and other grounds are rendered infructuous and the appeal is allowed.Ratio Decidendi: Where reasons for reopening under Section 147 are examined, only the reasons as recorded and material available at the time of recording can be relied upon; reasons that assert facts not on record at that time and approvals given on that basis constitute non-application of mind and render the reopening and sanction invalid.