2025 (11) TMI 1235 - AT - Income Tax

Reassessment under Sections 147 and 148 quashed for lack of failure-to-disclose allegation beyond four years

ITAT Delhi allowed the assessee's appeals and quashed the reassessment proceedings. It held that the notice issued under s.148, having been issued beyond ... Validity of reopening of assessment - Reasons to believe - ‘failure on the part of the Assessee on disclosed fully and truly all material facts that are relevant for the purpose’ - HELD THAT:- On perusal of the reasons recorded placed in the paper books, it is found that nowhere the Ld. A.O. whispered about ‘failure on the part of the Assessee on disclosed fully and truly all material facts that are relevant for the purpose’. Admittedly in both the cases, the notice u/s 148 of the Act was issued on 05/06/2012 which is after expiry of four years from the end of relevant Assessment Year. Therefore, first proviso to Section 147 of the Act comes into operation, wherein the A.O. can invoke provisions of Section 148 of the Act only in case if there was a failure on the part of the Assessee to disclose fully and truly all material fact necessary for his assumption for the Assessment. The Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year 2005-06 [2023 (9) TMI 1721 - ITAT DEHRADUN] having similar set of facts and circumstances, quashed the assessment on the ground of invalid assumption of jurisdiction. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether notices issued under section 148 read with section 147 of the Income Tax Act beyond four years from the end of the relevant assessment year are valid where the reasons recorded do not disclose any failure on the part of the assessee 'to disclose fully and truly all material facts' necessary for assessment. 2. Whether a second notice under section 148 can be validly issued and acted upon while an earlier notice for the same assessment year remains subsisting and has not been withdrawn. 3. Whether a co-ordinate bench decision dealing with identical facts and reasoning is binding for deciding validity of reassessment in subsequent assessment years of the same assessee. 4. Consequential: effect of quashing reassessments on other grounds of appeal and on Revenue appeals. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reassessment notice issued beyond four years without recording 'failure to disclose fully and truly all material facts' Legal framework: The first proviso to section 147 limits initiation of action under section 148 after four years from the end of the relevant assessment year unless 'any income chargeable to tax has escaped assessment ... by reason of the failure on the part of the assessee ... to disclose fully and truly all material facts necessary for his assessment' (first proviso to s.147). Precedent treatment: The Tribunal relied on and followed the approach of the co-ordinate bench and recognized High Court authority that the proviso mandates that the reasons recorded for reopening (when beyond four years) must set out a failure to disclose material facts; absence of such a factual finding/recording renders the reassessment invalid. Interpretation and reasoning: The Court examined the reasons recorded by the Assessing Officer and found that they do not even 'whisper' the required finding of failure to disclose fully and truly all material facts. Where the original assessment was completed accepting returned income and where documentary material was called for and considered at original assessment (sales, suppliers' bills, export documentation, bank loans, valuer's report, etc.), the reassessment reasons did not identify any omission constituting failure to disclose material facts. The first proviso therefore operates to bar reopening in the absence of a recorded failure to disclose. Ratio vs. Obiter: Ratio - where reopening is beyond four years, the reasons recorded must disclose the specific failure to disclose fully and truly all material facts; absence of such recording invalidates the assumption of jurisdiction under section 147/148. The Tribunal's quashing of reassessment on this ground is ratio. Conclusion: Reassessments framed after expiry of four years are quashed for invalid assumption of jurisdiction because the assessing authority did not record the requisite failure to disclose fully and truly all material facts necessary for assessment. Issue 2 - Validity of a second section 148 notice issued without withdrawal of the first Legal framework: Reopening proceedings under section 148/147 constitute a continuing process; judicial pronouncements require that a subsequent notice for the same assessment year cannot be issued while earlier reassessment proceedings remain subsisting, unless the earlier notice is withdrawn. Precedent treatment: The Tribunal relied on binding and persuasive High Court decisions holding that during subsistence of reassessment proceedings a second notice for the same assessment year is impermissible and must be quashed. Interpretation and reasoning: The Assessing Officer had issued a first notice (17.08.2010) and thereafter a second notice (29.03.2012) without withdrawing the first notice and then adjudicated both reasons in a single reassessment order. The Tribunal treated issuance and clubbing of the second notice during the pendency of the first as contrary to settled law and thus fatal to the reassessment based on the second notice. The denial of deduction based on reasons recorded in the second notice therefore could not survive. Ratio vs. Obiter: Ratio - second notice issued during the pendency of a prior reassessment notice (not withdrawn) is invalid; assessment based on such second notice is quashed. This forms part of the operative ratio. Conclusion: The second section 148 notice (and the reassessment made pursuant to it) is quashed because it was issued while the first notice remained subsisting and was not withdrawn. Issue 3 - Application of co-ordinate bench decision in identical facts Legal framework: Principles of judicial discipline and precedent: co-ordinate bench decisions, when directly on point and dealing with identical facts, are followed unless distinguishable. Precedent treatment: The Tribunal expressly followed a prior co-ordinate bench order in the assessee's own case for an earlier assessment year which had quashed reassessment(s) on the twin grounds identified above (absence of recorded failure to disclose for reopening beyond four years; and invalidity of a second notice issued during the pendency of a prior notice). Interpretation and reasoning: The facts and material were materially identical (return filed declaring nil income; original assessment completed under section 143(3); notices issued beyond four years; extensive documentary examination during original assessment). The prior bench had examined documentary record and reasons recorded and concluded that the AO failed to record the requisite failure to disclose. Given identity of facts and reasoning, the current Tribunal applied the co-ordinate bench's conclusions to the subsequent assessment years. Ratio vs. Obiter: Ratio - where identical facts and legal questions are presented, the Tribunal followed the prior co-ordinate bench's ratio; reliance on that reasoning is treating it as binding for purposes of consistency (not obiter). Conclusion: The Tribunal, following the earlier co-ordinate bench decision on identical facts, quashed the reassessments for the assessment years before it on the same legal grounds. Issue 4 - Consequences of quashing and effect on other grounds and Revenue appeals Legal framework: Where reassessment is quashed for lack of valid assumption of jurisdiction, consequential matters framed and additions made in such reassessment cannot survive; appeals arising from those reassessments become infructuous. Interpretation and reasoning: Having set aside the reassessments for invalid assumption of jurisdiction, the Tribunal found that other grounds raised by the assessee did not require adjudication. Similarly, the Revenue appeals against the CIT(A)'s order became infructuous once reassessments were quashed. Ratio vs. Obiter: Ratio - quashing of reassessment on jurisdictional grounds renders subsidiary grounds academic; Revenue appeals against such reassessment are rendered infructuous. Conclusion: Reassessments quashed; therefore other issues were not adjudicated and Revenue appeals dismissed as infructuous. Cumulative Conclusion The Tribunal quashed the reassessment orders because (i) reopening beyond four years did not comply with the first proviso to section 147 - reasons recorded do not disclose failure to disclose fully and truly all material facts, and (ii) a second section 148 notice was issued and acted upon while an earlier notice remained subsisting (not withdrawn), rendering the second notice and resultant reassessment invalid. The Tribunal followed a co-ordinate bench decision on identical facts; consequentially, other grounds were not adjudicated and the Revenue appeals became infructuous.