2022 (1) TMI 830 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - assessee s case was selected for scrutiny - eligibility of reason to believe - Case reopened on the basis of information received from the DDIT (Inv) Unit-IV(1) Kolkata - notice after the expiry of four (4) years from the end of the relevant assessment year - HELD THAT - AO has to record his reason to believe escapement of income and if he intends to reopen an assessment which has been framed earlier u/s. 143(3) after the expiry of four (4) years from the end of the relevant assessment year then he has to clearly record the additional condition precedent in the reasons recorded that the escapement of chargeable income was due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. And it is settled that when there is challenge to the validity of the reasons recorded in the AO to usurp the jurisdiction then the reasons recorded by the AO should be read as it is i.e. on a standalone basis. No addition or deletion is allowed in the reason recorded. In the light of the aforesaid discussion a plain reading of the impugned reasons recorded by the AO to reopen (supra) it nowhere mentions that there has been any failure on the part of the assessee to disclose fully and truly all material facts for assessment. Therefore relying on ratio decidendi of PHILIPS CARBON BLACK LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX AND ORS. 2019 (3) TMI 993 - CALCUTTA HIGH COURT and other High Courts (supra) we find force in the contention of the Ld. A.R. that the essential jurisdictional fact as necessary for usurpation of jurisdiction u/s. 147 first proviso is absent without which the AO does not enjoy the jurisdiction to reopen the assessment which has been framed originally u/s. 143(3) of the Act. Assessee succeeds in its challenge in respect of usurpation of jurisdiction without satisfying the first proviso to Section 147 of the Act in the facts and circumstances of the case. Therefore we are inclined to quash the notice of the AO issued u/s. 148. Therefore all consequential actions fall being non-est in the eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to reopen the original assessment.
2. Compliance with the first proviso to Section 147 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) to reopen the original assessment:
The primary issue raised by the assessee is the challenge to the AO's jurisdiction to reopen the original assessment under Section 143(3) of the Income Tax Act, 1961. The reopening was initiated after the expiry of four years from the end of the relevant assessment year (AY 2010-11). The assessee contended that the AO failed to specify in the recorded reasons that the income chargeable to tax had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. This condition is a prerequisite as per the first proviso to Section 147 of the Act. The assessee cited several precedents, including decisions from the Hon'ble Bombay High Court and the Hon'ble Delhi High Court, which support the requirement for the AO to record such jurisdictional facts explicitly.

2. Compliance with the first proviso to Section 147 of the Income Tax Act, 1961:
The assessee argued that the AO's reasons for reopening the assessment did not mention any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The relevant part of Section 147 and its first proviso was highlighted, emphasizing that no action can be taken under this section after four years from the end of the relevant assessment year unless the escapement of income is due to the assessee's failure to disclose material facts. The Tribunal examined the reasons recorded by the AO, which were based on information received from the DDIT (Inv), indicating that the assessee had received accommodation entries of share capital and loans through a complex financial transaction. However, the recorded reasons did not state any failure by the assessee to disclose material facts fully and truly.

The Tribunal referred to several judicial precedents, including the Hon'ble Calcutta High Court's decision in M/s. Philips Carbon Black Ltd. vs. ACIT & Ors., which held that if the reasons to believe are not good reasons, the jurisdiction to compel the assessee to submit to reassessment is not derived. The Tribunal also cited the Hon'ble Bombay High Court's decision in M/s. Sound Casting Pvt. Ltd. vs. DCIT, which stated that reopening an assessment beyond four years without alleging failure on the part of the assessee to disclose material facts is invalid.

Conclusion:
The Tribunal concluded that the AO did not satisfy the essential jurisdictional condition required by the first proviso to Section 147 of the Act. The recorded reasons for reopening did not mention any failure by the assessee to disclose fully and truly all material facts necessary for the assessment. As a result, the AO lacked jurisdiction to reopen the assessment beyond the four-year period. Consequently, the notice issued under Section 148 and all subsequent actions were quashed, and the appeal of the assessee was allowed.

Order:
The appeal of the assessee is allowed, and the order was pronounced in the open court on 5th January 2022.