2025 (5) TMI 360 - AT - Income Tax

Reassessment notice under section 148 beyond four years quashed for lacking allegations of non-disclosure of material facts

ITAT Delhi held that reassessment notice issued under section 148 beyond four years was time-barred and without jurisdiction. The AO's recorded reasons ... Validity of reassessment proceedings - reasons to believe - notice issued beyond period of four years - assessee contended that the reasons recorded by the AO do not meet the pre-requisites of assumption of jurisdiction and therefore, the notice issued u/s 148 of the Act pursuant to reasons spelt out is bad in law - HELD THAT:- From the body of reasons recorded, a bare reading thereof would show a total absence of any allegation towards failure of assessee to disclose material facts or to attract the first proviso to sec 147 of the Act. No allegation has been made against the assessee that there is a failure on the part of the assessee to disclose fully and truly all the material facts as necessary for completing the assessment. In the absence of such allegations at the threshold, the notice issued u/s 148 of the Act beyond four years is time barred and thus without jurisdiction and hence, bad in law. In the instant case, the AO has clearly mentioned in the reasons recorded that ‘no assessment has been carried out’ which is contrary to facts on record. No allegation has been made against the assessee towards failure to disclose material facts contemplated in the first proviso to sec 147 of the Act. Thus, notice issued u/s 148 of the Act is clearly time barred and deserves to be quashed. The jurisdiction assumed u/s 147 is thus clearly without legal foundation. Consequent re-assessment framed based on nonest time barred notice u/s 148 of the Act is therefore, bad in law. The additions made in such re-assessment order thus requires to be cancelled and deleted at the threshold. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:(i) Whether the Assessing Officer (AO) had valid jurisdiction under section 147 read with section 151 of the Income Tax Act, 1961 ('the Act') to reopen the assessment for the assessment year (AY) 2012-13;(ii) Whether the notice issued under section 148 of the Act was valid and within the prescribed time limits, particularly in light of the prior assessment completed under section 143(3) of the Act;(iii) Whether the conditions stipulated in the first proviso to section 147 of the Act, specifically regarding failure to disclose material facts fully and truly, were satisfied to justify reopening beyond four years;(iv) Whether the additions made by the AO towards unexplained expenditure amounting to INR 1,59,20,700/- were justified on merits;(v) Whether the approval granted by the Principal Commissioner of Income Tax (Pr.CIT) under section 151 of the Act was valid and exercised with due diligence.2. ISSUE-WISE DETAILED ANALYSISIssue (i) & (ii): Jurisdiction under section 147/148 and validity of reopening noticeRelevant legal framework and precedents: Section 147 of the Income Tax Act empowers the AO to reopen an assessment if he has reason to believe that income chargeable to tax has escaped assessment. Section 148 mandates issuance of a notice before reopening. The first proviso to section 147 imposes an embargo on reopening beyond four years from the end of the relevant AY unless there is a failure to disclose material facts fully and truly. Section 151 requires prior approval from the Pr.CIT for reopening beyond four years.Judicial precedents cited include:CIT v. Foramer France (264 ITR 566) (SC)Hindustan Lever Ltd. v. R.B. Wadkar (268 ITR 332) (Bom)Mercury Travels Ltd. v. Dy. CIT (258 ITR 533) (Cal)JSRS Udyog Ltd. & Ors. v. ITO (313 ITR 321) (Del)Bombay Stock Exchange Ltd. v. DDIT(E) (361 ITR 160) (Bom)Grindwell Norton Ltd. v. ACIT (2004) 267 ITR 673 (Bom)Shriram Foundry v. DCIT (2012) 350 ITR 115 (Bom)Sound Casting Pvt. Ltd. v. DCIT (2012) 250 CTR 119 (Bom)Voltas Ltd. v. ACIT (2012) 70 DTR 433 (Bom)Pr.CIT, Central-11 v. DSC Ltd. [2023] 153 taxmann.com 535 (Delhi)Court's interpretation and reasoning: The Tribunal carefully examined the reasons recorded by the AO under section 148(2) of the Act. The AO's reasons stated that no assessment had been made under section 143(3) for AY 2012-13 and that reopening was justified based on a Tax Evasion Petition (TEP) alleging large expenditures inconsistent with the declared income of Rs. 5,18,520/-. However, the Tribunal found this to be factually incorrect since an assessment under section 143(3) was indeed completed on 15.01.2015.The Tribunal noted the absence of any allegation in the reasons recorded that the assessee had failed to disclose material facts fully and truly. This failure is a mandatory condition under the first proviso to section 147 to permit reopening beyond four years. Since the assessment year in question was more than four years old, the reopening notice issued on 31.03.2019 was subject to this embargo. The Tribunal held that without such an allegation, the reopening notice was time barred and hence without jurisdiction.Further, the approval given by the Pr.CIT under section 151 was found to be mechanical and granted without due diligence, as the Pr.CIT was not made aware of the prior assessment under section 143(3), which was a vital fact affecting jurisdiction.Key evidence and findings: The key evidence was the record of prior assessment under section 143(3) dated 15.01.2015 and the reasons recorded by the AO under section 148(2) which incorrectly stated no prior assessment was made. The Tax Evasion Petition was also considered vague and unsupported by independent material.Application of law to facts: The Tribunal applied the statutory provisions and judicial precedents to conclude that the reopening was invalid. The absence of a failure to disclose material facts and the existence of a prior assessment barred reopening beyond four years. The approval under section 151 was also invalid due to lack of due diligence.Treatment of competing arguments: The Revenue relied on the reasons recorded and the TEP to justify reopening. The Tribunal rejected this, emphasizing the factual inaccuracy and absence of statutory conditions. The assessee's contention that the reopening was time barred and without jurisdiction was accepted.Conclusions: The reopening notice under section 148 was invalid and time barred. The jurisdiction assumed under section 147 was without legal foundation. Hence, the reassessment order was bad in law and liable to be quashed.Issue (iii): Conditions under first proviso to section 147 regarding failure to disclose material factsRelevant legal framework and precedents: The first proviso to section 147 requires that for reopening beyond four years, the AO must record an allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.Court's interpretation and reasoning: The Tribunal found that the reasons recorded did not contain any such allegation. The AO's reasons only referred to the TEP and discrepancies in declared income but did not allege concealment or non-disclosure of material facts by the assessee. This absence rendered the reopening invalid beyond the four-year period.Key evidence and findings: The reasons recorded under section 148(2) were silent on failure to disclose material facts. This was critical since the reopening was beyond four years.Application of law to facts: The statutory requirement was not met; hence reopening could not be sustained.Treatment of competing arguments: The Revenue did not specifically argue the presence of failure to disclose material facts but relied on the TEP and reasons recorded. The Tribunal rejected this approach.Conclusions: The reopening notice was time barred for failure to comply with the first proviso to section 147.Issue (iv): Merits of additions towards unexplained expenditureRelevant legal framework: The AO made additions of INR 1,59,20,700/- towards unexplained expenditure related to marriage expenses and gifts.Court's interpretation and reasoning: Since the reopening itself was invalid, the Tribunal did not consider it necessary to examine the merits of these additions.Conclusions: Additions made in the reassessment order were deleted as the order itself was without jurisdiction.Issue (v): Validity of approval under section 151Relevant legal framework: Section 151 requires prior approval from the Pr.CIT for reopening beyond four years.Court's interpretation and reasoning: The Tribunal found that the approval was mechanical and granted without due diligence, as the Pr.CIT was not informed of the prior assessment under section 143(3). This vitiated the approval.Conclusions: Approval under section 151 was invalid.3. SIGNIFICANT HOLDINGS'In the absence of such allegations at the threshold, the notice issued under s. 148 of the Act beyond four years is time barred and thus without jurisdiction and hence, bad in law.''The AO has clearly mentioned in the reasons recorded that 'no assessment has been carried out' which is contrary to facts on record.''The jurisdiction assumed under s. 147 is thus clearly without legal foundation. Consequent re-assessment framed based on nonest time barred notice under s. 148 of the Act is therefore, bad in law.''The approval granted by the Pr.CIT under s. 151 is also without due diligence expected to be exercised by the approving authority.'Core principles established include:Reopening beyond four years requires an allegation of failure to disclose material facts fully and truly;A reopening notice issued after four years without such allegation is time barred and without jurisdiction;Prior assessment under section 143(3) bars reopening under section 147 unless conditions in proviso are met;Approval under section 151 must be granted with due diligence and full knowledge of relevant facts;Vague and unsupported Tax Evasion Petitions cannot form the sole basis for reopening.Final determinations:The reopening notice under section 148 was invalid and time barred;The jurisdiction under section 147 was without legal foundation;The approval under section 151 was invalid;The reassessment order and additions made thereunder were quashed;The appeal was allowed in favour of the assessee without examining the merits of additions.