TaxTMI 
TaxTMI 
2026 (7) TMI 1224
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.... return of income (ROI/ITR) on 28.11.2014 declaring total income of Rs. 95,31,33,970/- and the ITR of the assessee was selected for scrutiny assessment through CASS. In response to notices under Section 143(2) and 142(1) of the Income Tax Act, (hereinafter referred to as "the Act"), the assessee furnished its books of accounts, balance sheet, income & expenditure statement, and other details as requestioned by the AO. The AO had inter alia issued notice under Section 142(1) on 06.09.2016 and called for details regarding software expenses, including the ledger of such expenses, pursuant to which assessee filed reply dated 28.10.2016 along with details of it. The AO after verification of the material submitted and gathered by him, passed the original scrutiny assessment order under Section 143(3) on 19.01.2018, computed the total income at Rs. 121,02,76,062/- in place of returned income of Rs. 95,31,33,970/-. Thereafter, the AO reopened the assessment for the relevant AY, after expiry of four years, by issuing impugned notice u/s. 148 on 31.03.2021. In response, the assessee filed the return on 20.04.2021 and requested for a copy of the reasons recorded, which was given belatedly onl....
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....ng that the reopening of assessment made under section 147 is bad in law on the ground that the Assessing Officer is not valid in the absence of any new tangible material that had come to the knowledge of the assessing officer after the completion of scrutiny assessment u/s. 143(3) of the Act. 3. The learned Commissioner of Income Tax (Appeals) erred in holding that the reopening u/s. 147 of the Income tax Act, 1961 is invalid and failed to adjudicate the merits of the case. 4. The Ld. CIT(A) erred in holding that the reopening of the assessment made u/s. 147 is bad in law without appreciating that the AO recorded reasons for failure on the part of the assessee to disclose fully and truly all material facts which are necessary for passing assessment. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) may be set aside and that of the Assessing Officer be restored. 6. The appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 7. In the CO of assessee, even though assessee has raised many grounds, Ld.AR supports the impugned action of Ld.CIT(A....
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....ed. The Ld.AR submitted that initiation of reassessment would have been permissible only if the AO was having in his possession fresh and tangible material which came in his possession subsequent to passing of the order u/s. 143(3) and its relation with formation of belief should have been spelt out in the reasons recorded to justify reopening. According to Ld. AR the AO had miserably failed to demonstrate the foregoing in the recorded reasons which vitiated the assumption of reopening-jurisdiction by the AO. The Ld.AR further pointed out that in the course of original proceedings u/s. 143(3), the assessee was directed to furnish various details arising from the ITR filed by the assessee as well as the expense relating to software to the tune of Rs. 4,24,07,026/- (refer page number 53 to 54 PB). And in compliance the particulars as requisitioned were furnished along with its beak-up, (refer page number 56 to 64 PB) which thereafter were examined by the AO not only with reference to the assessee's books of account, balance-sheet, income & expenditure, computation of income but also by enquiry from the assessee by issuing notice u/s. 142(1) of the Act. The Ld.AR therefore submitted t....
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....(Mad), Karur Vysya Bank 229 Taxmann 396. 13. Countering the submission of the Ld. DR that the reopening was based on audit objection, he drew our attention again to the reasons recorded (supra), and showed that the AO has not mentioned that upon receiving audit objection he came to know about the fact regarding the assessee's claim of software expenses. Hence, according to Ld.AR the Ld.DR cannot be allowed to add something, which is not mentioned in the reasons recorded by AO to reopen the assessment and relied for such proposition on the decision of Hon'ble Bombay High Court in Hindustan Lever Ltd and Hon'ble Supreme Court in N.D.T.V reported in 424 ITR 607. Thus, according to Ld.AR, the allegation made by the Ld.DR is neither emanating from the "reasons recorded" by the AO to re-open the assessment nor emanating from the impugned re-assessment order. Further according to the Ld.AR, even though it is an undisputed fact that original assessment u/s. 143(3) of the Act has been re-opened after four years from the relevant assessment year but the reasons recorded by him does not have a whisper about the failure on the part of the assessee to fully and truly disclosed all material f....
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.... in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact & law (mixed question of fact and law) the reason to believe escapement of income (supra). 15. As noted, the AO, who is a quasi-judicial authority is empowered to reopen the assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax, which he has to record before issuing notice u/s. 148 of the Act. In this regard, it must be borne in mind that reasons to believe postulates foundation based on information, and belief based on reason. After a foundation based on information, is made, there still must be some reason, which should warrant the holding of a belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon'ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression "reason to believe" occurring in sec. 147 "is stronger" than the expression "if satisfied" and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act. At this stage, authorities must understand the fine distinction betwe....
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....ed by the AO, he could have validly reopened the assessment. For that it has to be seen as to whether the AO on the basis of whatever material before him, [which he had indicated in his "reasons recorded"] had reasons warrant holding a belief that income chargeable to tax has escaped assessment. At this stage, it is also important to bear in mind that the reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed, while adjudicating the legal issue of AO's usurpation of jurisdiction u/s. 147 of the Act. The Hon'ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar [(2004) 268 ITR 332], has, inter alia, observed that "... It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons. "Their Lordships added that "The reasons recorded should be self-explanatory and should not ke....
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....capitalized after allowing 25% depreciation thereon. The balance 75% needs to be capitalized and hence needs to be disallowed. Thus, we find that there was no tangible material in the possession of the AO to reopen the scrutiny assessment under section 143(3) of the Act, which action is impermissible as held the Hon'ble Supreme Court in CIT vs. Kelvinator of India Ltd (supra). 20. Further, in the reasons recorded, the AO has not alleged any failure on the part of the assessee to disclose fully and truly any material facts necessary for the original assessment. It is an admitted fact that the notice under section 148 of the Act has been issued on 31.03.2021, which is an event after four years from the end of the relevant assessment year. Since the AO sought to reopen the scrutinized assessment under section 143(3) after four years from the relevant assessment year, it was incumbent upon the AO to prove that he satisfies the additional condition precedent provided in the first proviso to section 147 of the Act, namely that escapement of income was due to failure on the part of the assessee in not fully and truly disclosing the material facts at the time of the original assessment.....