2025 (9) TMI 1025 - AT - Income Tax

Reopening under Sections 147/148 invalid where assessing officer failed to record satisfaction or reasons to believe income escaped assessment

ITAT held that reopening of assessment was invalid because the AO failed to record any satisfaction or reasons to believe that income had escaped ... Validity of reopening of assessment - mandation of recording satisfaction - reasons to believe - HELD THAT:- Reopening assessment has been by made invalidly without recording any findings that income has escaped by assessment during the year. In our opinion, the notice has been issued under Section 148 of the Act for reopening the assessment u/s 147 of the Act is invalid as there are no valid reasons recorded by the Assessing Officer. Consequently, we quash the reopening of assessment as well as assessment framed. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessment could be reopened under section 147 read with section 148 of the Income Tax Act where the Assessing Officer did not record any satisfaction or reasons showing escapement of income (pre-requisites under s. 148(2)). 2. Whether statutory approval required under the Act (e.g., approval noted from JCIT/under s. 151 as asserted in the file) cures the absence of recorded satisfaction under s. 148(2), or otherwise validates the notice and reassessment. 3. Whether additions on account of unexplained cash credits/unexplained deposits during the demonetisation period, invoked under sections 69A read with 115BBE, could be sustained where the reopening under sections 147/148 is found invalid. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Reopening: Requirement to Record Satisfaction under s. 148(2) Legal framework: Section 147 authorises reassessment where income has escaped assessment; section 148 requires the Assessing Officer to serve notice if he is satisfied that income has escaped and to record reasons as required by s. 148(2). Reopening must comply with statutory pre-conditions of recorded satisfaction and reasons. Precedent treatment: The judgment does not invoke or apply specific precedents; the Tribunal proceeds on statutory text and the requirement of recording satisfaction and reasons as essential pre-conditions to valid reopening. Interpretation and reasoning: The Tribunal examined the reasons placed on record purportedly under s. 148(2) and found they do not record any satisfaction that income had escaped assessment. The reasons merely summarize information received (deposit of cash during demonetisation) and note denial of explanation by the assessee, and reference an approval by JCIT. The Tribunal held that absence of any recorded finding or satisfaction that income had escaped renders the notice issued under s. 148 invalid. Ratio vs. Obiter: Ratio - The statutory requirement that an Assessing Officer record satisfaction/reasons under s. 148(2) is mandatory; failure to record such satisfaction/necessary reasons vitiates the notice under s. 148 and the consequent reassessment under s. 147. Obiter - No broader commentary on ancillary evidentiary standards or on sufficiency of particular formulations of reasons beyond the factual finding in the case. Conclusion: The reopening under sections 147/148 was invalid for want of recorded satisfaction as required by s. 148(2); accordingly, the notice and reassessment were quashed. Issue 2 - Effect of Administrative Approval (JCIT) and Compliance with s. 151 or Other Internal Instructions Legal framework: The Act contemplates certain approvals for issuance of notices in specified circumstances; internal or supervisory approvals (e.g., by JCIT) do not substitute for the statutory requirement to record satisfaction under s. 148(2). Precedent treatment: No reliance on authority to validate approval in place of recorded reasons; the Tribunal treated the asserted approval as insufficient to cure the absence of mandatory statutory findings. Interpretation and reasoning: The Assessing Officer's file note referenced approval from JCIT/Range-49 for issuance of notice, but the reasons under s. 148(2) did not contain the required satisfaction that income had escaped. The Tribunal held that administrative approval cannot replace the statutory requirement of recording satisfaction and reasons under s. 148(2). Allegations relating to non-compliance with CBDT instructions or internal practice were raised in grounds but the Tribunal confined its decision to the statutory defect of missing recorded satisfaction. Ratio vs. Obiter: Ratio - Administrative approval does not validate an otherwise defective notice where statutory reasons/satisfaction are not recorded under s. 148(2). Obiter - The Tribunal noted the assessee's reliance on CBDT instructions and raised grounds about procedural irregularity but did not decide on the broader legal effect of such instructions beyond the statutory requirement. Conclusion: The purported administrative approval did not cure the fatal defect of non-recording of satisfaction; reopening remained invalid. Issue 3 - Sustenance of Additions under ss. 69A and 115BBE following Invalid Reopening Legal framework: Sections 69A and 115BBE permit treatment of unexplained cash credits/deposits (including specified bank note deposits during demonetisation) as income and levy special tax rates where applicable, but such additions depend on valid initiation of reassessment proceedings. Precedent treatment: The judgment does not address prior case law on the merits of invoking ss. 69A/115BBE for demonetisation deposits; instead, it approaches the additions as contingent on valid reopening. Interpretation and reasoning: Because the Tribunal found the reopening under s. 148 invalid for absence of recorded satisfaction, the consequential assessment and additions (aggregate Rs. 10,25,700/-) made under ss. 69A read with 115BBE cannot stand. The Tribunal did not adjudicate in detail on the substantive sufficiency of evidence supporting the unexplained deposits finding, as the jurisdictional defect rendered such inquiry unnecessary. Ratio vs. Obiter: Ratio - Where reassessment is invalidated on jurisdictional grounds (failure to record statutorily required satisfaction), consequential additions made in that reassessment necessarily fall and must be quashed. Obiter - No substantive determination as to whether the material before the AO would have sufficed to sustain an addition under ss. 69A/115BBE had the reopening been valid. Conclusion: The additions on account of unexplained deposits during the demonetisation period are quashed along with the invalid reassessment. Cross-References and Interrelation of Issues The Tribunal's analysis on Issue 1 directly determines Issues 2 and 3: absence of recorded satisfaction under s. 148(2) (Issue 1) is fatal to the notice and cannot be cured by administrative approval (Issue 2), and therefore all consequential additions under ss. 69A/115BBE framed in the reassessment are invalid (Issue 3). The Tribunal did not engage in a detailed merits assessment of the unexplained deposit additions because of the dispositive jurisdictional defect.