2025 (11) TMI 41 - AT - Income Tax

Reopening under section 148 held void for mechanical notice; additions under section 69A and section 115BBE set aside

Om Kar Singh Versus ITO Ward – 5 (2) (1) Noida

ITAT held the reassessment void and quashed the assessment order because the reopening notice under section 148 was issued mechanically on incorrect ... Reopening of assessment - no notice u/s 143(2) was issued/served on the appellant - ‘assessee has not filed ITR for A.Y. 2017-18’ - addition u/s. 69A of the Act on account of cash deposited during the year as unexplained money and AO by involving provisions of section115BBE of the Act, imposed 60% rate on the said addition - HELD THAT:- AO has recorded wrong reason for reopening, the case of the assessee was based on borrowed satisfaction and in absence of any independent verification made by the A.O. we find merit in the contentions of the Ld. AR that the AO while issuing notice u/s. 148 of the Act has not applied his mind, therefore, the entire assessment proceedings are vitiated. Accordingly, for the aforesaid reasons, the assessment order confirmed by the order of CIT(A) is hereby quashed. As could be seen from the reasons recorded, the AO was under the firm opinion that assessee has not filed the return for 2017-18. However, it is a matter of fact that the assessee has filed return of income on 15.09.2017 which fact has also been even mentioned by the A.O. himself in assessment order. Thus, the AO while issuing notice u/s. 148 of the Act, has not applied his mind and the notice has been issued in a mechanical manner. As evident from the reasons that the AO has reopened the case of the assessee in believe that assessee has not filed return of income during the year under consideration as the case of the Assessee reopened. In view of provisions of clause (a) of Explanation-2 to Section147 of the Act and the said provision is applicable only in a case where assessee has not filed return of income. In the case of Deepak Wadhwa [2021 (3) TMI 332 - DELHI HIGH COURT] held since the proof put in place by the petitioner-assessee with regard to the acknowledgement of return filed for AY 2011-2012 has not been disputed by the Revenue, as noticed above, the challenge to the impugned notice and the impugned order will have to be sustained. Assessment order on the ground of non-application of mind in issuing Notice u/s 148 of the Act as the notice has been issued on the wrong reasons recorded, all other grounds of Appeal requires no adjudication. ISSUES PRESENTED AND CONSIDERED 1. Whether the notice under section 148 read with section 147 of the Income Tax Act was validly issued where the Assessing Officer's recorded reasons stated non-filing of return for the relevant year despite record showing a filed return? 2. Whether the reasons recorded to reopen assessment constituted an application of mind by the Assessing Officer or amounted to a mechanical/borrowed satisfaction vitiating jurisdiction under section 147/148? 3. Whether an addition under section 69A (unexplained money) quantified and taxed under section 115BBE could be sustained where reassessment proceedings were quashed on grounds of invalid reopening? 4. Whether defects in the reasons for reopening or in the approval under section 151 are curable (e.g., by section 292B or by considering typographical errors) or render proceedings void when relevant factual errors influenced the satisfaction to reopen? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice under section 148 where reasons recorded state non-filing though a return was filed Legal framework: Reopening of assessment requires recording of reasons to believe under section 147 and issuance of notice under section 148; Explanation 2(a) to section 147 is attracted where no return was filed; sanction/approval under section 151 required where more than four years have not lapsed. Precedent Treatment: Tribunal and High Court authorities discussed in the judgment (including decisions holding that where reasons are factually incorrect as to non-filing, reopening may be quashed) were followed and applied. Interpretation and reasoning: The Tribunal examined the AO's reasons which repeatedly stated non-filing for the assessment year, while the record itself showed filing of return on 15.09.2017 (a fact acknowledged even in the assessment order). The AO treated the matter as a non-filer case and invoked Explanation 2(a) to section 147 - a provision applicable only where no return was filed. Because the foundational factual premise for invoking Explanation 2(a) was incorrect, the Tribunal concluded that the AO's satisfaction was based on a wrong fact. Ratio vs. Obiter: Ratio - A reopening predicated on a factual premise of non-filing when a return was in fact filed vitiates the AO's satisfaction and the subsequent notice under section 148 is invalid. Obiter - Observations about potential processing/upload issues of the return and administrative typographical errors (e.g., mention of Principal Commissioner instead of Joint/Pr. CIT) were treated as curable in principle but were not dispositive given the main factual defect. Conclusion: The notice under section 148 was invalid because it was issued on the basis that the assessee had not filed return for the year when in fact a return had been filed; the reopening was therefore unsustainable. Issue 2 - Whether the reasons for reopening demonstrated application of mind or amounted to borrowed/mechanical satisfaction Legal framework: The assessing authority must apply its own mind and record independent reasons; borrowed satisfaction from information/investigation without independent verification may render reopening void for lack of jurisdiction. Precedent Treatment: The Tribunal relied on coordinate Bench and High Court decisions (cited in the judgment) which quashed reopenings where the AO merely reproduced information from investigation wings or failed to quantify/justify escapement and did not independently examine whether information was reflected in the return. Interpretation and reasoning: The AO's reasons were primarily reproduced from NMS/Investigation data asserting large cash deposits and concluding escapement. The Tribunal found absence of independent verification or explanation as to how amounts were attributed to escapement of income, and no application of mind as the AO ignored processing/143(1) status and return particulars. The approval authority under section 151 also did not demonstrate independent consideration, indicating a borrowed satisfaction. Ratio vs. Obiter: Ratio - Where the AO records reasons that merely repeat investigation inputs without independent verification and without linking those inputs to specific escapement not reflected in the filed return, the satisfaction to reopen is vitiated for lack of application of mind. Obiter - Quantification requirements and the formality of mentioning clause (a) of Explanation 2 are referenced as relevant but subordinate to the absence of independent examination. Conclusion: The reasons suffer from non-application of mind and borrowed satisfaction; the reopening and notice are vitiated on that ground. Issue 3 - Fate of additions under section 69A and applicability of section 115BBE once reassessment is quashed Legal framework: Additions under section 69A (unexplained money) can be made in assessment/reassessment proceedings; section 115BBE prescribes special rate for taxability of undisclosed income in certain situations. However, validity of such additions depends on the validity of the underlying proceedings. Precedent Treatment: The Tribunal treated prior decisions that quashed substantive additions where reopening was invalid as applicable; those authorities supported quashing of consequential additions where the foundational jurisdictional act (reopening) was defective. Interpretation and reasoning: The Tribunal did not adjudicate the substantive merits of the section 69A addition because it concluded the entire reassessment was vitiated by the invalid notice/reopening. Having quashed reassessment on jurisdictional grounds, the Tribunal held further adjudication of the addition unnecessary. Ratio vs. Obiter: Ratio - If reassessment proceedings are quashed for invalid reopening, additions made in those proceedings (including under section 69A and imposition of section 115BBE tax rate) cannot stand and need not be adjudicated. Obiter - No comments on intrinsic correctness of the addition on merits were made. Conclusion: The addition under section 69A and related invocation of section 115BBE were set aside by consequence of quashing the reassessment; the Tribunal declined to decide merits of that addition. Issue 4 - Curability of defects in reasons/approval and effect of irrelevant or erroneous facts on reopening Legal framework: Procedural/typographical errors may be curable (e.g., under section 292B or by clarifying approval), but where an irrelevant or incorrect fact has overbearingly influenced the satisfaction to reopen, the reopening is vitiated. The authorities cited establish that taking into account an irrelevant or factually incorrect matter that materially affects the satisfaction makes the action unsustainable. Precedent Treatment: High Court and Tribunal authorities cited were applied to show that when the reasons recorded are de hors (contrary to) facts on record or when the AO cannot demonstrate which factor weighed in the decision, the reopening must be quashed. Interpretation and reasoning: The Tribunal acknowledged that minor typographical errors in recording approving authority could be curable. However, the larger factual error - asserting non-filing of return - was not a mere typographical mistake but a substantive incorrect fact that dominated the AO's rationale. Given the AO's reliance on that incorrect premise, the defect was not curable and rendered the proceedings void. Ratio vs. Obiter: Ratio - Material factual errors relied upon in forming the satisfaction to reopen are not curable and invalidate the reopening; immaterial or clerical errors may be curable. Obiter - The Tribunal noted that administrative lapses in upload/processing could be examined in appropriate factual contexts, but did not treat such possibilities as curing the primary defect here. Conclusion: Typographical/clerical defects in approval could be curable, but the substantive factual misstatement (non-filing) materially vitiated the satisfaction; the reopening could not be salvaged. Concluding Disposition (operative conclusion derived from issues) The Tribunal quashed the reassessment and assessment order because the notice under section 148 was issued on wrong reasons and without application of mind, relying on borrowed satisfaction; consequential issues (section 69A addition and section 115BBE tax) were not adjudicated as the reassessment itself was set aside.