2025 (9) TMI 1313 - AT - Income Tax

Reopening assessment beyond four years invalid where no new tangible material post original 143(3) order; s.147 proviso unmet

ITAT held that reopening of assessment beyond four years was invalid where the AO possessed no new tangible material arising after the original 143(3) ... Validity of reopening of assessment - reasons to believe - notice issued beyond period of four (4) years from the end of the relevant assessment year - possession of any tangible material or not? - HELD THAT:- The reasons disclose that the AO reached the belief that there was escapement of income, ongoing through the return of income filed by the assessee as well as the financials [P&L account as well as the balance sheet filed by the assessee as well as the documents to prove the expenditure claimed by the assessee which were already in the assessment folder of the assessee for AY 2014-15] which culminated in the AO scrutinizing the same and passing the original assessment order u/s. 143(3) of the Act dated 18.12.2017. Therefore, the impugned action of the AO issuing notice on the strength of the reasons recorded for reopening of the assessment shows that there was no tangible material which came to the possession of the AO subsequent to the original assessment order having been passed on 18.12.2017. Therefore, the action of the AO to have reopened the assessment without any tangible material and without alleging that the assessee didn’t furnish fully and truly all relevant material for the assessment i.e. as provided for under the first proviso to section 147 of the Act, the impugned action of the AO to reopen the assessment is held to be wholly without jurisdiction and therefore quashed. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer had jurisdiction under section 147 read with section 148 to reopen an assessment after four years from the end of the relevant assessment year where the reasons for reopening rely solely on materials already in the assessment record. 2. Whether the reopening is sustainable where the reasons recorded do not allege that the assessee failed to make full and true disclosure of material facts as required by the first proviso to section 147. 3. Whether a reassessment founded on a mere change of opinion, or on re-examination of documents already available at the time of original assessment, constitutes impermissible review rather than valid reassessment. 4. Whether a clerical/error of the appellate authority in issuing an order pertaining to a different assessment year vitiates the appellate decision and requires remand or warrants adjudication on merits by the Tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdiction to Reopen after Four Years when Reasons Rely on Existing Record Legal framework: Section 147/148 confers power to reopen assessment where the AO 'has reason to believe' that income has escaped assessment; the first proviso to section 147 requires an allegation of failure to make full and true disclosure where reopening is after four years. The statutory scheme distinguishes reassessment (requires tangible material) from review (impermissible). Precedent treatment: The Tribunal relied on the principles in Kelvinator India Ltd. (supreme-court precedent discussed in the judgment) and on the Madras High Court decision holding that reassessment beyond four years must be based on material de hors the existing record; also invoked Delhi High Court authority that absence of tangible material makes reopening a disguised review. Interpretation and reasoning: The Tribunal examined the reasons recorded by the AO, which identified two alleged escapements discovered from perusal of profit & loss account and a receipt already present in the assessment folder. The Tribunal found no new or extraneous material came into AO's possession after completion of the original assessment; the AO's conclusions flowed from documents placed before the AO at the time of the original scrutiny and assessment. Ratio vs. Obiter: Ratio - Reopening after four years must be based on tangible material external to the record used in original assessment; mere re-examination of the same materials or a change of opinion by the AO does not constitute valid 'reason to believe' under section 147. (This follows the binding principle articulated in Kelvinator and applied to the facts.) Conclusions: The reopening was invalid for want of jurisdiction because it was founded solely on materials already available when the original assessment was completed; therefore the reassessment proceedings under section 147/148 were quashed. Issue 2 - Requirement of Allegation of Non-Disclosure under the First Proviso to Section 147 Legal framework: The first proviso to section 147 bars reopening after four years unless the AO records that the assessee failed to make full and true disclosure of material facts relevant to assessment. Precedent treatment: The Tribunal applied the proviso's requirement and considered its interplay with decisions stressing tangible material and the prohibition of review in the guise of reassessment. Interpretation and reasoning: The reasons recorded by the AO did not contain any allegation that the assessee had failed to make full and true disclosure; instead the reasons recited content evident from earlier assessment records. The absence of the statutory allegation meant the statutory precondition for reopening beyond four years was not satisfied. Ratio vs. Obiter: Ratio - For a valid reopening beyond four years the reasons must either be supported by tangible fresh material or must expressly allege non-disclosure as per the first proviso; failure to do so renders the action without jurisdiction. Conclusions: Because the AO neither possessed fresh tangible material nor alleged non-disclosure, the requisites of the first proviso were not met and the reopening lacked jurisdiction and was quashed. Issue 3 - Distinction Between Reassessment and Review; Change of Opinion Doctrine Legal framework: The statutory regime contemplates reassessment based on reason to believe supported by tangible material; the doctrine forbids reopening based on mere change of opinion or reappraisal of records already considered in original assessment. Precedent treatment: The Tribunal relied upon the Supreme Court's exposition that reopening must not be a disguised review and that reasons must have a 'live link' with formation of belief supported by tangible material. Interpretation and reasoning: The AO's grounds showed reconsideration of the same P&L and receipt that had been on record during original assessment; the Tribunal held that such re-examination equated to review rather than reassessment. The statutory history and judicial pronouncements were invoked to underline that reopening on such basis is impermissible. Ratio vs. Obiter: Ratio - Reassessment must be grounded on tangible material not previously considered or on a lawful allegation of non-disclosure; re-opening based solely on re-evaluation of existing material constitutes impermissible review. Conclusions: The AO's action amounted to review of matters previously on record; therefore reopening could not be sustained and is quashed. Issue 4 - Appellate Authority's Clerical Error (Cut-and-Paste of Wrong Year) and its Consequences Legal framework: Appellate orders must pertain to the correct assessment year and the correct grounds; clerical or material errors in appellate orders can vitiate the order and may require remand or rectification. Precedent treatment: The parties drew attention to the appellate authority's mistake; the Department sought remand for rectification while the assessee sought quashing of reopening. The Tribunal considered both the procedural error and the jurisdictional question on merits. Interpretation and reasoning: The Tribunal found that the appellate order contained a clear error (cut & paste of an order for a different assessment year) which could not be countenanced. Notwithstanding that error, the Tribunal proceeded to decide the core legal issue of jurisdiction to reopen, concluding that the reopening itself was without jurisdiction and thus the appeal was allowed on merits. Ratio vs. Obiter: Obiter/Procedural - Clerical or appellate errors vitiate the appellate order and usually warrant correction or remand; however where the Tribunal can and does decide the central jurisdictional issue on a full record, it may dispose of the appeal on merits notwithstanding the appellate authority's clerical mistake. Conclusions: The appellate authority's order for a different year was erroneous; the Tribunal, after noting the error, addressed and decided the jurisdictional question and quashed the reassessment as without jurisdiction rather than remanding solely for rectification. Overall Disposition The reopening under section 147/148 after the four-year period was quashed because the reasons relied exclusively on documents and materials already available and considered at the time of the original assessment and did not allege failure to make full and true disclosure as required by the first proviso to section 147; the AO thereby lacked jurisdiction to reopen and reassess. The appeal was allowed.