2025 (8) TMI 429 - AT - Income Tax

AO's reopening quashed due to incorrect facts and improper income examination under relevant tax rules

The ITAT Ahmedabad held that the AO did not derive primary satisfaction for reopening the assessment, as the reasons recorded were factually incorrect and ... Reopening of assessment - whether AO had derived primary satisfaction to arrive at escapement of taxable income or not? - AO has believed that the assessee has not shown any capital gain/loss in his income tax return nor shown any business earnings which is contrary to the material found on the return of income was filed by the assessee HELD THAT:- Considering these facts on record, it cannot be established that the AO has really gone through the return of income filed by the assessee to come to the conclusion that there has been an escapement of income other than the information provided by the Department. The reasons recorded are found to be factually incorrect as they have been recorded without going through the return of income filed by the assessee. Hence, we hold that the reasons recorded suffers from infirmity on the factual grounds leading to quashing of the assessment order. Since we have decided on the threshold of reopening of the assessment thereby observing that reasons recorded were not found appropriate, the issues on merit does not need any adjudication at this juncture. Assessee appeal allowed. ISSUES: Whether the Assessing Officer had derived primary satisfaction to reopen the assessment under section 147 of the Income Tax Act, 1961, based on escapement of income.Whether the reasons recorded under section 147 were valid and supported by material evidence.Whether the assessment order passed under section 143(3) read with section 147 without proper notice and procedure is valid.Whether the addition under section 69A read with section 115BBE of the Income Tax Act, 1961 is justified.Whether principles of natural justice were violated by non-consideration of submissions and documents on record.Whether penalty proceedings under sections 271(1)(c) and 271F and interest under sections 234A, 234B, and 234C are sustainable. RULINGS / HOLDINGS: On the issue of primary satisfaction for reopening, the Court held that the reasons recorded 'suffer from infirmity on the factual grounds' as they were made 'without going through the return of income filed by the assessee,' thereby invalidating the reopening.The Court found that the Assessing Officer's reasons were 'factually incorrect' and not supported by material evidence, leading to quashing of the assessment order passed under section 147.The Court did not adjudicate on the merits of the addition under section 69A read with 115BBE as the threshold issue of reopening was decided against the Revenue.The Court implicitly held that failure to consider written submissions and documentary evidence violated the principles of natural justice.The penalty and interest issues were not addressed due to the dismissal of the reassessment proceedings at the threshold stage. RATIONALE: The Court applied the statutory framework under sections 147 and 148 of the Income Tax Act, 1961, requiring the Assessing Officer to record valid reasons for reopening an assessment and to have 'primary satisfaction' based on material evidence.The Court relied on the principle that reasons recorded must be 'based on information or material which was not previously available' and must not be 'vague or a fishing inquiry.'The Court emphasized the necessity of examining the return of income filed by the assessee before recording reasons, as failure to do so renders the reasons invalid.The Court followed established precedent requiring adherence to principles of natural justice, including consideration of submissions and documents on record.No dissent or doctrinal shift was indicated; the decision adhered to settled legal principles concerning reopening of assessments and procedural fairness.