2026 (2) TMI 567 - AT - Income Tax

Reopening of assessment after four years on claimed exempt LTCG found invalid and notice and reassessment set aside

Reopening an assessment more than four years after the relevant year was invalid where the only information before the assessing officer was that the ... Reopening assessment u/s 147 v/s proceeding u/s 153C - Bogus LTCG - notice after the lapse of four years - reasons to believe - Search and survey action was carried out at the residence and office premises of one Shri Shirish Chandra Shah and at the residence of his key-employees and associates HELD THAT:- In the present case, as is revealed from the reasons recorded by the AO for reopening of the assessment, the only information available to the AO was that the assessee had traded in the shares of Sawaca and has claimed tax exempt long term capital gains and nothing more. AO, in the reasons recorded under the heading 'Enquiries made by the AO as a sequel to information collected/received,' has stated that “on examination of return it was found that the assessee had shown exempt income therefore no further enquiry is required in this case”. This shows that the crucial fact on the basis of which the assessment was reopened, in this case, after the lapse of four years from the end of the relevant assessment year, was already on record during the original scrutiny assessment. Therefore, the reopening, in this case, is hit by first proviso to section 147 of the Act. As noted from the reasons recorded, in case of search action in case of third party, no direct incriminating evidence has been found against the assessee otherwise the AO could have proceeded u/s 153C of the Act. Even the AO has wrongly observed that no assessment was carried out u/s 143(3) of the Act and hence the AO proceeded to reopen the assessment on the wrong premises, whereas, the original assessment was carried out u/s 143(3) of the Act. Hence, the AO erred in reopening the assessment despite the said action being hit by the first proviso to section 147 of the Act under the misbelief that the original assessment was not carried out u/s 143(3) of the Act. This shows a complete lack of application of mind and a failure to correlate the portal information with the actual assessment records on the part of the AO. AO also failed to identify what specific material fact remained undisclosed; instead, the AO made a bald assertion of nondisclosure, which as per the settled law is not a valid ground for reopening of the assessment beyond 4 years. As per the settled law, the AO must examine the information in the context of the facts on record to determine if there was a failure to fully and truly disclose the relevant facts necessary for the assessment. In this case, the AO's own reasons admit that the claim was on record, and there was no direct incriminating evidence found against the assessee. The wisely crafted reasoning by the AO that the information was 'embedded' in the records is a mere pre-tense when the AO had already examined the exempt income in the original u/s 143(3) of the Act proceedings and, hence, the reopening in this case is squarely hit by the restriction as imposed under first proviso to section 147 of the Act, therefore, the assumption of jurisdiction by the AO in this case under section 147 of the Act was invalid and without jurisdiction. Accordingly, the notice under section 148 and the subsequent reassessment order are quashed. Assessee appeal allowed. Issues: Whether the reopening of assessment under Section 147 of the Income-tax Act, 1961 (by notice issued under Section 148) after the lapse of four years was valid or was barred by the first proviso to Section 147 where a regular assessment had already been concluded under Section 143(3) of the Income-tax Act, 1961.Analysis: The Tribunal examined the reasons recorded by the Assessing Officer and the material on record. The AO relied on general information from investigation/portal records relating to third-party search activity and noted that the assessee had claimed exempt long-term capital gains; the AO did not put forward any specific undisclosed material fact which the assessee had failed to disclose during the original assessment under Section 143(3). The AO also did not independently verify or reconcile the portal information with the assessment records before forming the belief of escapement of income. In these circumstances, the information available was either already on record or was general third-party information that required independent verification; the AO's bald assertion of non-disclosure without identifying specific material facts or conducting requisite enquiries was insufficient to satisfy the first proviso to Section 147.Conclusion: The reopening of assessment under Section 147/notice under Section 148 was barred by the first proviso to Section 147 as the original assessment had been completed under Section 143(3) and there was no failure by the assessee to disclose fully and truly all material facts. The notice under Section 148 and the consequential reassessment order are quashed. The appeal is allowed in favour of the assessee.