2025 (8) TMI 359 - AT - Income Tax

Reopening assessments under Section 147 require valid belief; invalid if based on incorrect facts, notice under Section 148 quashed

The ITAT Delhi held that reopening assessment under section 147 requires a valid reason to believe, which was absent as the assessee had filed the return ... Reopening of assessment u/s 147 - addition towards term deposits/cash deposits in bank - assessee did not file ROI - Reason to believe OR reason to suspect - HELD THAT:- 'Reason to believe’ is the starting point for re-opening a case. A freak foundation or reason that assessee did not file ROI is blatantly contrary to the facts. Belief stemmed from wholly unfounded reasons thus betrays the pre-requisites of s. 147 of the Act. We find that the issue is squarely covered in favour of the assessee by the judgements rendered in the case of Arvind Sahdeo Gupta [2023 (8) TMI 522 - BOMBAY HIGH COURT] and Kunwar Ayub Ali [2023 (6) TMI 27 - ITAT DELHI] wherein as held that where the reasons cited that the assessee did not file the return of income was found to be factually incorrect, the notice issued under s. 148 of the Act for re-opening of assessment requires to be quashed for assumption of jurisdiction on extraneous grounds. In the light of the judgements rendered supra expounding the position of law, we find palpable merit in the plea of the assessee towards inherent lack of jurisdiction u/s 147 of the Act. The re-opening proceedings itself being not permissible on the basis of inherently wrong facts, we do not consider it necessary to delve into the merits of the additions - Appeal of the assessee is allowed. ISSUES: Whether the reopening of assessment under section 147 of the Income Tax Act, 1961 is valid when the Assessing Officer's belief of escapement of income is based on the incorrect premise that no return of income was filed by the assessee for the relevant assessment year.Whether the addition made by the Assessing Officer towards term deposits/cash deposits in bank can be sustained when the factual position regarding the amount of deposits is materially different from the figures relied upon by the Assessing Officer. RULINGS / HOLDINGS: The reopening of assessment under section 147 is unsustainable where the 'reason to believe' is founded on 'wholly incorrect' and 'factually incorrect' grounds, such as the erroneous belief that no return of income was filed, contrary to the record showing a duly filed return.The Assessing Officer's reliance on an incorrect figure of cash deposits (INR 2,40,58,618/-) instead of the actual aggregate cash deposits (INR 2,24,500/-) demonstrates a 'colossal misunderstanding' of facts, rendering the additions unjustified.Where the foundational premise for reopening assessment is 'a freak foundation' or 'extraneous grounds,' the jurisdiction under section 147 does not exist, mandating quashing of reassessment proceedings. RATIONALE: The Court applied the statutory framework of section 147 of the Income Tax Act, 1961, which requires a 'reason to believe' that income has escaped assessment as a precondition for reopening assessments.The Court relied on precedent from coordinate benches and High Courts, including judgments emphasizing that reopening based on 'incorrect facts' or where the 'reason to believe' is factually baseless is impermissible.The Court noted no need to examine the merits of the additions once jurisdiction under section 147 was found lacking due to the foundational error in the formation of belief.