2024 (11) TMI 1435 - AT - Income Tax

Validity of the reassessment proceedings - Notice beyond period of four years - reason to believe or suspect - payments made towards car hire charges were disallowed as unjustified/unwarranted and in violation of fiduciary relationship between the trust and trustee - HELD THAT - Reasons recorded do not spell out failure on the part of the Appellant to disclose fully and truly any material facts. In the contention advanced on behalf of the Appellant that specific query in relation to vehicle hiring charges was raised during the relevant assessment proceedings and in response to the same the Appellant had made disclosure of primary facts and furnished supporting documents during the assessment proceedings. We note that during the assessment proceedings the Appellant had filed letter giving justification regarding car hiring charges paid to Shri Deepak More for hiring of three vehicles. Appellant had also filed Vehicle Hiring Agreement. It is admitted position that reassessment proceedings have been initiated in the present case after the expiry of 4 years from the end of the relevant assessment year. As per Proviso to Section 147 of the Act no action can be taken for reopening after four years unless the Assessing Officer has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since in the case before us in the reasons recorded there is nothing to indicate that reopening is sought on the ground of the failure on the part of the petitioner to disclose fully and truly material facts the initiation of re-assessment proceedings under Section 147 of the Act cannot be sustained and is therefore held to be bad in law. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the reassessment proceedings initiated beyond four years were valid, considering the absence of any failure on the part of the Appellant to disclose fully and truly all material facts necessary for assessment under the first proviso to Section 147 of the Income Tax Act, 1961.
• Whether the reassessment proceedings were invalid due to the failure of the Assessing Officer to provide the 'reasons to believe' during the assessment proceedings.
• Whether the reassessment proceedings were invalid due to the lack of an opportunity for the Appellant to be heard through a Virtual Conference, thus violating the principles of natural justice.
• Whether the additions of INR 5,70,000 made by the Assessing Officer and upheld by the CIT(A) were in accordance with the facts and provisions of the Act.
• Whether the invocation of provisions of Section 13(1)(c) of the Act for the addition of INR 5,70,000 was incorrect and not in accordance with the provisions of Section 13 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Reassessment Proceedings Beyond Four Years

• Legal Framework and Precedents: The reassessment proceedings are governed by Section 147 of the Income Tax Act, which allows reopening of assessments if income has escaped assessment. The first proviso to Section 147 stipulates that no action can be taken after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts.
• Court's Interpretation and Reasoning: The Tribunal noted that the reassessment was initiated based on the same material that was available during the original assessment, which had been duly considered by the Assessing Officer. The Tribunal relied on the precedent set by the Bombay High Court in IPCA Laboratories Ltd. v. DCIT, emphasizing that reassessment based on a mere change of opinion is not permissible.
• Key Evidence and Findings: The Tribunal found that during the original assessment, specific queries regarding car hire expenses were raised and satisfactorily addressed by the Appellant, with all relevant documents provided.
• Application of Law to Facts: The Tribunal applied the proviso to Section 147, concluding that the absence of any failure to disclose material facts by the Appellant rendered the reassessment proceedings beyond four years invalid.
• Treatment of Competing Arguments: The Department argued that no opinion was formed during the original assessment, thus justifying the reassessment. However, the Tribunal found this argument unconvincing as the original assessment records indicated a thorough examination of the relevant facts.
• Conclusions: The Tribunal held that the reassessment proceedings were invalid and quashed the assessment order dated 21/03/2022.

Failure to Provide 'Reasons to Believe'

• Legal Framework and Precedents: It is a settled principle that the reasons for reopening an assessment must be communicated to the assessee to allow them to object to the reassessment proceedings.
• Court's Interpretation and Reasoning: The Tribunal noted that the Appellant was not provided with the reasons for reopening the assessment, which is a procedural lapse affecting the validity of the proceedings.
• Key Evidence and Findings: The Appellant repeatedly requested the reasons for reopening, which were not furnished, thereby denying the Appellant an opportunity to contest the reopening.
• Application of Law to Facts: The Tribunal found that the failure to provide reasons constituted a violation of procedural fairness and natural justice.
• Conclusions: Although this issue was rendered moot by the decision on the first issue, it highlighted procedural deficiencies in the reassessment process.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "Since in the case before us in the reasons recorded there is nothing to indicate that reopening is sought on the ground of the failure on the part of the petitioner to disclose fully and truly material facts, the initiation of re-assessment proceedings under Section 147 of the Act cannot be sustained and is, therefore, held to be bad in law."
• Core Principles Established: Reassessment proceedings initiated beyond four years require a failure to disclose material facts by the assessee. Mere change of opinion or reliance on previously examined facts does not justify reopening.
• Final Determinations on Each Issue: The Tribunal allowed the appeal, quashing the reassessment order and deleting the additions made by the Assessing Officer. Other grounds raised by the Appellant were dismissed as infructuous due to the resolution of the primary issue.