2025 (8) TMI 1179 - AT - Income Tax

Reopening under s.147 invalid where AO's reasons based on material already furnished at s.143(3); reassessment quashed

Tata Motors Limited Versus DCIT Circle – 3 (4), Mumbai

Tata Motors Limited Versus DCIT Circle – 3 (4), Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the reassessment proceedings initiated under section 147 read with section 148 of the Act (reopening beyond four years) were valid where the reasons recorded indicate reliance on material already on assessment record. 2. Whether the recorded 'reasons to believe' disclose any new tangible material or information which could justify reopening beyond the four-year period under the first proviso to section 147. 3. Whether the reopening amounted to an impermissible 'change of opinion' by the assessing officer rather than formation of a bona fide reason to believe that income had escaped assessment. 4. Whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment so as to attract the extended limitation for reassessment. 5. Whether, having quashed the reopening for want of jurisdiction, it is necessary to adjudicate the substantive additions/disallowances made in the reassessment order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening beyond four years where reasons rely on material on record Legal framework: Reopening beyond the four-year period is permissible only if the first proviso to section 147 is satisfied - typically by satisfying that there was failure to disclose fully and truly material facts or by existence of fresh tangible material enabling formation of a reason to believe that income has escaped assessment. Precedent treatment: The Court applied established principles that mere restatement or rereading of material already placed before the assessing officer at the time of original assessment does not constitute fresh material; reopening in such circumstances has been quashed by higher courts and tribunals. Interpretation and reasoning: The recorded reasons began with 'subsequently on perusal of the records it was observed...' and reproduced facts and figures which originated from submissions and documents furnished during the original scrutiny assessment. The tribunal examined the assessment file and found that the same documents, audit reports, responses and working papers were available during the original assessment and had been considered by the assessing officer. There was no identification of any additional material or fresh evidence that surfaced after completion of the original assessment. Ratio vs. Obiter: Ratio - where reasons for reopening rely solely on material already available and considered in original assessment, reopening beyond four years is invalid. Obiter - discussion of policy considerations against unsettled assessments. Conclusion: Reopening beyond four years based on material already on record is invalid; the notice under section 148 was bad in law and subsequent reassessment proceedings lacked jurisdiction. Issue 2 - Existence of new tangible material/'live linkage' required to justify reassessment Legal framework: Jurisprudence requires some fresh or tangible material that reasonably leads to the inference that income has escaped assessment; recorded reasons must demonstrate a live nexus between the newly discovered material and the alleged escapement of income. Precedent treatment: The Court relied on authorities that distinguish between primary facts (which must be disclosed by the assessee) and inferences (for the AO to draw), and that the absence of specified fresh tangible material or a live link renders reopening impermissible. Interpretation and reasoning: The reasons recorded by the assessing officer did not specify any new information received after the original assessment or explain how any such information connected to the claimed disallowance. The order recited observations 'on perusal of records' and did not identify additional evidence or a due-diligence discovery from existing documents that would constitute fresh tangible material. Ratio vs. Obiter: Ratio - absence of identified fresh tangible material or live linkage in recorded reasons invalidates reopening; Obiter - commentary on requirement that reasons show due application of mind. Conclusion: No new tangible material or live linkage was demonstrated; reassessment could not be sustained on that basis. Issue 3 - Reopening as impermissible change of opinion Legal framework: Section 147 is not a power of review; mere change of opinion by the assessing officer on the same material cannot be a basis for reopening; reopening must be predicated on additional material or failure to disclose. Precedent treatment: The Court followed settled authority that reopening which effectively reviews an earlier decision without new material is impermissible and constitutes change of opinion. Interpretation and reasoning: The assessing officer, after having considered the assessees' submissions and documents during original scrutiny and making no adverse finding in the assessment order, later formed a contrary view relying on the identical material. The tribunal held that this amounted to a change of opinion and thus contravened the first proviso to section 147 where the notice was issued beyond four years. Ratio vs. Obiter: Ratio - formation of belief based solely on rereading or fresh application of mind to the same material is a change of opinion and cannot sustain reassessment; Obiter - none material to decision. Conclusion: The reopening was a forbidden change of opinion and therefore invalid. Issue 4 - Failure to disclose fully and truly: whether requirement satisfied Legal framework: Extended limitation applies only when the assessee failed to disclose fully and truly all material facts; the burden is on revenue to show non-disclosure and the reasons must specify the nature of failure and link it to the escapement of income. Precedent treatment: Authorities state the assessee's duty is to disclose primary facts; where primary facts were before the assessing officer and the officer drew inferences differently later, reassessment cannot be justified on non-disclosure. Interpretation and reasoning: Recorded reasons did not identify any specific primary fact omitted by the assessee nor point to particular documents or disclosures that were missing at the time of original assessment. The assessees' audit report, computation and detailed submissions on the contested deductions were on record and had been considered. The AO's generic assertion of failure to disclose was unsupported by particulars in the reasons to believe. Ratio vs. Obiter: Ratio - unspecific assertion of non-disclosure without particulars does not satisfy the proviso and cannot justify reopening beyond four years; Obiter - none material to conclusion. Conclusion: There was no demonstrated failure by the assessee to disclose fully and truly all material facts; the proviso to section 147 was not attracted. Issue 5 - Consequences of quashing reopening on substantive issues Legal framework: If reopening is quashed for want of jurisdiction, subsequent assessments made pursuant to that reopening fall and substantive correctness of additions becomes academic. Precedent treatment: Courts and tribunals routinely refrain from deciding substantive grounds once foundational jurisdictional defect is established. Interpretation and reasoning: Having held the section 148 notice and ensuing proceedings void for lack of jurisdiction (reliance on same material, no fresh tangible material, no failure to disclose), the tribunal declined to adjudicate the substantive merits of the additions/disallowances made in reassessment. Ratio vs. Obiter: Ratio - quashing of void reassessment renders subsequent substantive determinations academic and rescinds need for their adjudication; Obiter - none material. Conclusion: The reassessment orders were quashed for want of jurisdiction and substantive grounds were not adjudicated. Final Disposition The Court held that reopening beyond four years was invalid for want of fresh tangible material or any specified failure to disclose, amounted to an impermissible change of opinion, rendered the section 148 notice and consequent reassessment void, and quashed the impugned assessment orders; other grounds were treated as academic.