AO's failure to record non-disclosure of material facts makes section 147 reopening invalid

The ITAT Mumbai held that the reopening of assessment under section 147 was invalid on multiple grounds. The AO failed to record in the reasons that the assessee failed to disclose fully and truly all material facts necessary for assessment, making the reopening bad in law. Additionally, this constituted a second round of reassessment proceedings where the AO had previously accepted the share capital and premium receipts in the first reopening completed in 2015. The second reopening was based merely on a change of opinion following investigation wing reports and survey statements, which lack evidentiary value and do not constitute tangible material. The tribunal ruled in favor of the assessee, quashing the impugned assessment order.

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Issues Involved:
1. Validity of reopening of assessment.
2. Addition of Rs. 7.65 crores under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The assessee challenged the reopening of the assessment for the second time, arguing that it was invalid as per the first proviso to Section 147 of the Income Tax Act. The original assessment was completed under Section 143(3) on 19-11-2011, and the first reassessment was completed on 17-03-2015 without any addition. The second reopening notice was issued on 16-09-2016, after the expiry of four years from the end of the assessment year. The assessee contended that the Assessing Officer (AO) did not demonstrate any failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment, which is a mandatory requirement under the first proviso to Section 147.

The Tribunal noted that the AO did not mention any failure on the part of the assessee to disclose all material facts in the reasons recorded for reopening the assessment. Citing various judicial precedents, including the decisions of the Bombay High Court in *Everest Kanto Cylinder Ltd* and *Titanor Components Ltd*, the Tribunal held that the non-mentioning of the failure to disclose material facts in the reasons recorded would make the reopening invalid.

Additionally, the Tribunal observed that the AO had already examined and accepted the share capital and share premium transactions during the first reassessment. Therefore, the second reopening was based on a change of opinion, which is not permissible. The Tribunal also noted that the statement taken during the survey operations under Section 133A does not have evidentiary value, as held by the Supreme Court in *CIT vs. S Khader Khan*.

2. Addition of Rs. 7.65 Crores under Section 68:
The AO made an addition of Rs. 7.65 crores as unexplained cash credit under Section 68 during the second reassessment. The assessee argued that the share application money was received in the preceding year, and the shares were allotted in the current year. Therefore, the AO could not have made the addition under Section 68 for the year under consideration.

The Tribunal did not delve into the merits of the addition, as it had already decided the appeal on the legal issue of the validity of reopening the assessment. The Tribunal quashed the orders passed by the tax authorities, holding that the impugned reopening of assessment was bad in law.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the orders passed by the tax authorities on the grounds that the reopening of the assessment was invalid. The Tribunal did not address the merits of the addition under Section 68, as the appeal was decided based on the legal issue of the validity of the reopening. The order was pronounced in the open court on 30th May, 2024.

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