2025 (4) TMI 1364 - HC - Income Tax

Tax Reassessment Invalidated: Authorities Cannot Reopen Assessment When Income Already Substantively Taxed Under Section 148

Sai Shirdi Constructions Versus Income-Tax Officer-28 (3) (1)

HC analyzed the validity of tax reassessment notices under Section 148 for two assessment years. The court found that the reopening notices were invalid ... Reopening of assessment u/s 147 - second re-assessment notice issued after a period of four years - Petitioner has received cash for sales - HELD THAT:- In this case, the return of income was filed on 16 September 2008. The said return of income was reopened by issuing notice u/s 148 on 29 December 2011 and an assessment order u/s 143(3) r.w.s. 147 was passed on 18 December 2012. The second re-assessment notice u/s 148 which is impugned in the present Petition, was issued on 27 March 2015, which is after a period of four years from the end of the relevant assessment year. In the reasons recorded, it is alleged that the Petitioner has received cash for sales relevant to assessment year 2008- 09 as per the assessment order 2011-12, which have not been shown by the assessee in return of income for assessment year 2008-09 and therefore, the case is reopened. On a perusal of the assessment order for AY 2011-12, an addition is made on the ground of alleged cash received on sale of flat. The breakup of said amount can be found in the assessment order at internal page 9 to 12 and Writ Petition. On a comparison of the breakup it is noticed that the amount proposed to be reassessed in the reasons recorded for assessment year 2008-09 has already been added in the assessment order for assessment year 2011-12. The reasons for reopening the case for assessment year 2008-09 are recorded on or before 27 March 2015 whereas, the assessment order for assessment year 2011-12 is dated 27 March 2014. On the date of recording the reasons, the assessing officer had already added on substantive basis in assessment year 2011-12 and further the reasons recorded for assessment year 2008-09 does not say that the said amount is supposed to added on protective basis. In our view, if sum was already added in the assessment order for assessment year 2011-12 on substantive basis much prior to the issue of the impugned notice dated 27 March 2015, then we failed to understand how there could be reasons to believe that income for assessment year 2008-09 has escaped assessment, since the same figure has already been added on substantive basis in assessment year 2011-12 and the present impugned proceedings are not on protective basis. On this short point itself since there could not have been any reasons to believe that the income has escaped assessment for assessment year 2008-09 after having the said amount added in assessment year 2011-12 prior to the impugned proceedings, the present impugned notice under Section 148 dated 27 March 2015 is hereby quashed and set aside. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in these Writ Petitions are:Whether the issuance of a second notice under Section 148 of the Income-Tax Act, 1961, for reopening the assessment for assessment years 2008-09 and 2009-10 was valid and justified.Whether the reasons recorded for reopening the assessment under Section 147 of the Act for AY 2008-09, based on alleged undisclosed cash receipts, constitute valid reasons to believe that income chargeable to tax had escaped assessment.Whether the amount of Rs. 82,16,705/- alleged to have escaped assessment for AY 2008-09 had already been subjected to income tax assessment in AY 2011-12, thereby negating the basis for reopening the earlier assessment.Whether the reopening notice issued after four years from the end of the relevant assessment year complies with the legal requirements, particularly in light of the previous addition of the same amount in a subsequent assessment year.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the reopening notice under Section 148 for AY 2008-09 and AY 2009-10Relevant legal framework and precedents: Section 148 of the Income-Tax Act empowers the Assessing Officer (AO) to reopen an assessment if he has reason to believe that income chargeable to tax has escaped assessment. The reopening must be supported by 'reasons to believe' and must be issued within the prescribed time limits, generally within four years from the end of the relevant assessment year, except in cases of serious tax evasion where a ten-year period applies.Court's interpretation and reasoning: The Court examined the reasons recorded for reopening the assessment for AY 2008-09, which were based on alleged undisclosed cash receipts of Rs. 82,16,705/-. The Court noted that the same amount had already been added as income in the assessment order for AY 2011-12 dated 27 March 2014, which predated the reasons recorded for reopening AY 2008-09 (dated on or before 27 March 2015).The Court emphasized that the reopening notice for AY 2008-09 was not issued on a protective basis but on a substantive basis. Since the amount was already assessed in AY 2011-12, the AO could not have a genuine reason to believe that the income had escaped assessment in AY 2008-09.Key evidence and findings: The assessment order for AY 2011-12 showed an addition of Rs. 8,83,43,028/- on account of alleged cash sales, with a breakup indicating Rs. 82,16,705/- relevant to AY 2008-09. The Court compared the breakup of this amount in the AY 2011-12 order and the reasons recorded for reopening AY 2008-09 and found them identical.Application of law to facts: The Court applied the principle that reopening under Section 148 requires fresh reasons to believe that income has escaped assessment. Since the alleged escaped income had already been subjected to tax in a subsequent assessment year, the reopening lacked fresh reasons and was therefore invalid.Treatment of competing arguments: The Petitioner argued that the reopening was unjustified as the amount was already assessed in AY 2011-12. The Revenue contended that the reopening was valid based on the reasons recorded. The Court sided with the Petitioner, holding that the reopening notice was unsustainable.Conclusions: The Court quashed and set aside the reopening notice under Section 148 dated 27 March 2015 for AY 2008-09.Issue 2: Applicability of the above reasoning to AY 2009-10Relevant legal framework and precedents: The same principles governing reopening under Section 148 apply to AY 2009-10.Court's interpretation and reasoning: Both parties agreed that the facts and issues for AY 2009-10 were identical to those of AY 2008-09. Therefore, the Court applied the same reasoning to set aside the reopening notice for AY 2009-10.Conclusions: The reopening notice under Section 148 for AY 2009-10 dated 27 March 2015 was also quashed and set aside.3. SIGNIFICANT HOLDINGSThe Court held that:'If sum of Rs. 82,16,705/- was already added in the assessment order for assessment year 2011-12 on substantive basis much prior to the issue of the impugned notice dated 27 March 2015, then we fail to understand how there could be reasons to believe that income for assessment year 2008-09 has escaped assessment, since the same figure has already been added on substantive basis in assessment year 2011-12 and the present impugned proceedings are not on protective basis.'This principle establishes that reopening an assessment year under Section 148 cannot be justified when the alleged escaped income has already been assessed in a subsequent year and the reopening is not protective in nature.The final determinations were that the reopening notices under Section 148 for AY 2008-09 and AY 2009-10 were invalid and were accordingly quashed and set aside.