2025 (11) TMI 1661 - AT - Income Tax

Reassessment under Sections 147/148 quashed for notices beyond four years without assessee's failure under first proviso

ITAT Raipur held that reassessment proceedings initiated u/s 147/148 were invalid as the notices were issued beyond four years from the end of the ... Validity of the reassessment proceedings u/s. 148/147 - notice issued beyond the period of four years - failure on the part of the assessee to disclose fully and truly all material facts - HELD THAT:- A.O has also not brought in the reasons regarding that whether there is any active failure on the part of the assessee regarding evaporation/handling loss of such petrol or diesel. The practical aspect in these cases has to be dealt with vis-à-vis IOC guidelines in order to portray any failure on the part of the assessee as prescribed under the “1st proviso” to Section 147 of the Act. But in these cases, no such failure has been brought on record by the A.O. Admittedly, in both these cases, such reassessment proceedings have been conducted beyond the period of four years without recording any failure on the part of the assessee in disclosing fully and truly all material facts necessary for assessment. As relying on Hariom Ingots and Power Pvt. Ltd. [2022 (4) TMI 344 - CHHATTISGARH HIGH COURT] assessee are hit by the “1st proviso” to Section 147 of the Act. DR also could not refute through any evidence regarding these facts on record. When in both the assessment years, the reassessment proceedings have been initiated beyond the period of four years without bringing on record any failure on the part of the assessee as enshrined in the “1st proviso” to Section 147 hold that such reassessment is invalid, bad in law and void ab initio, hence quashed. Since the reassessment is quashed thereafter all the other proceedings becomes non-est in the eyes of law. As the legal issue has been answered in favour of the assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether reassessment proceedings initiated under sections 147/148 beyond four years from the end of the relevant assessment years, without recording any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, are barred by the first proviso to section 147. 1.2 Consequentially, whether any further proceedings and additions on merits can survive if the reassessment itself is held invalid and void ab initio. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of reassessment proceedings under sections 147/148 beyond four years in absence of recorded failure by the assessee (first proviso to section 147) Legal framework 2.1 The judgment refers to section 147 of the Income-tax Act, 1961, particularly the first proviso, which stipulates that where an assessment under section 143(3) or section 147 has been made for the relevant assessment year, no action shall be taken after the expiry of four years from the end of that year unless income has escaped assessment by reason of failure of the assessee to file a return or to disclose fully and truly all material facts necessary for the assessment. 2.2 The Court relies on the jurisdictional High Court decision holding that, for reassessment beyond four years, the Assessing Officer must record a conclusion in the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, failing which notice under section 148 is not sustainable. 2.3 Reference is also made to a coordinate bench decision which reiterated that: (i) action beyond the statutory time limit is conditioned upon fulfilment of the first proviso; (ii) no limb of the proviso permits enlargement of time merely because the alleged escaped income exceeds a monetary threshold; and (iii) an order passed without jurisdiction is a nullity, as clarified by the Supreme Court in the context of statutory powers being exercised strictly in the manner prescribed. Interpretation and reasoning 2.4 The Court finds from the recorded reasons that the reassessment in both years was initiated beyond four years from the end of the relevant assessment years. 2.5 On examining the reasons, the Court notes that there is no allegation, even by implication, of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. There is 'no whisper' of such failure in the reasons. 2.6 The Assessing Officer's basis for reopening was the reliance on guidelines issued by oil companies regarding maximum admissible evaporation/handling loss of petrol and diesel and consequent proposed disallowance, without correlating the specific IOC guidelines to the factual matrix of the assessee's business operations. 2.7 The Court observes that the oil company guidelines are fact-dependent and cannot be applied in the abstract without considering how the fuel is stored, inspections by the parent company, local weather conditions, and the specific location of the petrol pump, etc. No such factual examination or linkage is recorded by the Assessing Officer. 2.8 It is specifically recorded that the Assessing Officer has not brought on record any material or reasoning to show 'any active failure' on the part of the assessee regarding evaporation/handling loss or in disclosure of material facts. 2.9 Applying the jurisdictional High Court decision, the Court holds that in the absence of a recorded finding in the reasons that there was failure by the assessee to disclose fully and truly all material facts, the mandatory condition of the first proviso to section 147 for action beyond four years is not satisfied. 2.10 The Court further relies on the coordinate bench view, which, based on the Supreme Court's pronouncement, emphasizes that: (i) statutory powers must be exercised strictly in the manner provided by the statute; (ii) non-fulfilment of statutory preconditions results in lack of jurisdiction; (iii) there can be no waiver of such jurisdictional requirements; and (iv) any order passed without jurisdiction is a nullity. 2.11 The Court notes that the Department did not produce any evidence to contradict the factual position that no failure of disclosure was recorded, nor could the Departmental Representative refute these findings by any material. Conclusions 2.12 Since the reassessment proceedings in both years were initiated beyond four years and the reasons recorded do not disclose any failure by the assessee to disclose fully and truly all material facts necessary for assessment, the first proviso to section 147 bars such reassessment. 2.13 The reassessment proceedings are held to be invalid, bad in law, void ab initio and are accordingly quashed for both assessment years. Issue 2: Consequence of quashing reassessment on merits of additions Interpretation and reasoning 2.14 The Court records that the assessee had also raised grounds on merits, which were to be considered only if the legal challenge to reassessment failed. 2.15 Having held the reassessment proceedings void ab initio, the Court holds that all consequential proceedings, including additions on merits, become non est in the eyes of law. Conclusions 2.16 As the reassessment itself is quashed on legal grounds, all grounds on merits are rendered academic and are not adjudicated. 2.17 The appeals are allowed on the jurisdictional (legal) ground alone, with reassessment and all consequential actions set aside for both assessment years.