2026 (2) TMI 768 - AT - Income Tax

Reassessment Limitation: reopening based on audit notes and same records invalid, notice quashed for lack of fresh material.

Reopening assessments beyond the four-year limitation based on audit objections and materials already on record is impermissible where no failure by the ... Reopening of assessment u/s 147 - Reassessment on basis of the return of income, tax audit report or annual report - notice beyond a period of four years - whether there was failure on the part of the assessee to disclose fully and truly all material facts? HELD THAT:- In a subsequent decision by the Hon’ble Supreme Court in the case of Indian & Eastern Newspaper Society [1979 (8) TMI 1 - SUPREME COURT (LB)] held that the opinion on law rendered on the basis of audit report cannot be the basis for re-assessment rather it has to be the Ld. AO who should apply his mind not merely on the information by external agency but by evaluation of law, else it could lead to grave consequence of the external agencies taking the power of re-assessment rather than the Ld. AO. Note put up by the internal audit party cannot be termed to be “information” within the meaning of section 147(b) of the Act per se where the provision emphasizes that the AO should first have information in his possession and in consequence of which he must have reason to believe that income has escaped assessment. The issue was decided in favour of the assessee after duly considering various decisions of the Hon’ble High Courts and also the earlier decision of the Hon’ble Supreme Court itself. As in the recent decision in the case of Adani Power Rajasthan Ltd [2026 (1) TMI 376 - SC ORDER] upheld the finding of the Hon’ble Gujarat High Court that reopening was merely on the basis of audit party opinion and not on the basis of the Ld. AO’s own conviction lacking in subjective satisfaction while issuing notice u/s 148 of the Act. It further held that reopening on the basis of the same materials tantamounts to change of opinion which is impermissible in law. Decided against revenue. Issues: Whether the reassessment notice issued beyond four years under section 147 read with section 148 of the Income-tax Act, 1961 is valid where reopening was founded on audit objections and materials already on record, and whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.Analysis: The proviso to section 147 of the Income-tax Act, 1961 bars action after four years from the end of the relevant assessment year unless income has escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The Tribunal examined the factual matrix, the sequence of scrutiny assessment, appellate and revisionary proceedings (including orders under section 263 and giving effect thereof), and the reasons recorded for reopening which relied on audit objections and materials already on record. The Tribunal contrasted the reliance on internal/external audit notes with the requirement that the Assessing Officer must possess fresh tangible material or form his own subjective satisfaction that income has escaped assessment. Prior decisions cited by the parties (including authorities distinguishing mere audit opinion from fresh information and those where audit revealed previously unknown facts) were considered. Applying the statutory proviso and precedent, the Tribunal found no specification in the reasons or assessment order of any failure by the assessee to disclose material facts attributable to it; the reopening was based on the same materials already available and amounted to change of opinion rather than fresh tangible material establishing escapement of income due to the assessee's failure.Conclusion: The reassessment proceedings under section 147/148 are invalid; the notice of reopening and the impugned assessment order are quashed and the appeals and cross-objections are dismissed in favour of the assessee.