2025 (10) TMI 23 - AT - Income Tax

Second reopening beyond four years invalid where reasons lack specific fresh material; quashes addition under Section 68 (Section 147 proviso)

M/s. Modinagar Rolls Ltd. Versus DCIT, Circle-1, Ghaziabad

ITAT (DELHI - AT) held that a second reopening beyond four years was invalid because the recorded reasons failed to identify specific material showing the ... Reopening proceedings u/s 147 initiated second time beyond four years - reasons to believe - addition u/s 68 - HELD THAT:- As from recorded reasons to the Revenue which could not pinpoint any specific material holding the assessee to have failed in disclosing “fully” and “truly” all the relevant facts in the earlier round(s) of the original return and scrutiny thereafter; as the case may be. Faced with this situation, we quote Hindustan Liver Ltd. Vs. R.B. Wadkar [2004 (2) TMI 41 - BOMBAY HIGH COURT] that such reopening reasons do not have any scope for any improvement, amendment, or substitution therein as they have to be read on standalone basis as are recorded by the AO and, quash the impugned reopening itself as being violative of section 147 1st proviso in very terms. ISSUES PRESENTED AND CONSIDERED 1. Whether the reassessment proceedings u/s 147/148 initiated after an earlier reassessment are valid where the recorded reasons do not specify material showing failure to disclose income 'fully and truly' in the original return or previous proceedings. 2. Whether reopening based on information that an addition for a different assessment year implies escaped income for the subject year constitutes valid reason to believe under section 147 (including the 1st proviso) when the reasons merely refer to earlier appellate confirmation for a different year and do not identify fresh tangible material. 3. Whether the recorded reasons for reopening under section 148 may be improved, amended, or supplemented after recording, or must be read standalone and be adequate on their face to sustain jurisdiction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of second reassessment where recorded reasons lack specific material of non-disclosure Legal framework: Reopening under section 147/148 requires that the Assessing Officer (AO) have 'reason to believe' that income has escaped assessment; the first proviso imposes limits and requires the AO's reasons to disclose sufficient material to justify reopening. Precedent treatment: The Court applied established authority that reasons recorded for reopening must be read as recorded and cannot be patched up; such reasons must on their face disclose sufficient basis for the belief that income has escaped assessment. Interpretation and reasoning: The AO's reasons recited receipt of information from an investigation wing and referenced earlier assessment/addition in relation to a payment of Rs.2.30 crore and ledger entries indicating an opening balance and purchases that, according to the AO, showed that part of the amount related to the subject year. The AO did not identify any contemporaneous or independent material demonstrating that the assessee failed to disclose facts 'fully and truly' in the earlier return or proceedings. The Revenue could not point to any specific material in the file to show non-disclosure. Ratio vs. Obiter: Ratio - Reasons which merely recite an appellate outcome in another year or refer to generic information without specific material do not satisfy the statutory requirement for 'reason to believe'; such reopening is invalid. Obiter - Observations on the investigative source's generic mention were ancillary. Conclusions: The Court held the reasons insufficient on their face and therefore the second reassessment lacked jurisdiction under section 147 and the 1st proviso; the reopening was quashed. Issue 2 - Reliance on appellate decision for another assessment year as basis for reopening Legal framework: Reopening must be based on material indicating escaped income in the specific assessment year under consideration. A finding in another year may be relevant only if it supplies tangible, year-specific material or demonstrates omission from the return for the year reopened. Precedent treatment: The Court followed authority that prior appellate findings for a different year cannot, by themselves, constitute a sufficient basis for reopening unless linked to identifiable material demonstrating escape of income in the year sought to be reopened. Interpretation and reasoning: The AO's reasons relied on the appellate confirmation of an addition in a different assessment year and on ledger inferences to treat certain amounts as pertaining to the reopened year. The Court found that this linkage was conclusory and did not amount to specific evidence showing non-disclosure for the year in question; no independent or new material was produced to justify reopening. Ratio vs. Obiter: Ratio - Reopening premised primarily on an appellate outcome in another year, without specific supporting material tying the amounts to the reopened year and showing non-disclosure, is inadequate to constitute a reason to believe under section 147. Obiter - Remarks about the manner in which ledger entries were interpreted by the AO. Conclusions: The reliance on the appellate order for another year and the ledger inference was held insufficient; reopening on that basis was invalid. Issue 3 - Whether reasons for reopening can be amended or supplemented after recording Legal framework: The validity of the jurisdictional satisfaction under section 147/148 is determined by the reasons as recorded at the time; statutory and judicial exposition requires that reasons be read standalone and not subject to after-the-fact improvement. Precedent treatment: The Court adhered to binding principle that recorded reasons cannot be improved, amended, or supplemented to cure inadequacy - they must disclose jurisdictional satisfaction on their face. Interpretation and reasoning: Having examined the recorded reasons, the Court found no ability to cure the deficiencies by later explanation or by production of unspecified material; the statutory scheme and existing judicial guidance require quashing where reasons are inadequate as recorded. Ratio vs. Obiter: Ratio - Recorded reasons are conclusive for determining jurisdictional adequacy and cannot be retrospectively fortified; insufficiency requires quashing. Obiter - None material beyond the ratio. Conclusions: The Court quashed the reopening because the recorded reasons, read standalone, were inadequate and could not be remedied by subsequent clarification. Consequential and ancillary conclusions The Court held that, because the reopening was invalid, all consequential additions and adjudications arising out of that reopening became academic and did not survive; the appeal was allowed and the reassessment order set aside.