2025 (1) TMI 181 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Borrowed satisfaction - AR argued that the AO had mechanically recorded the reason for reopening the case and the AO had not verified the veracity of the information received from the Investigation Wing of the Income Tax Department - AR further contended that the reassessment proceedings were based on change of opinion - HELD THAT - This case is squarely covered by the decision of ATS Infrastructure Ltd. 2024 (7) TMI 1441 - DELHI HIGH COURT wherein the case of Manjinder Singh Kang 2012 (6) TMI 616 - PUNJAB AND HARYANA HIGH COURT and N. Govind Raju 2015 (8) TMI 271 - KARNATAKA HIGH COURT were discussed and distinguished. The case of Mehak Finvest P. Ltd. 2014 (11) TMI 56 - PUNJAB HARYANA HIGH COURT are also held distinguishable on the facts of the case. The decision of the Hon ble Delhi High Court in the case of ATS Infrastructure Ltd. 2024 (7) TMI 1441 - DELHI HIGH COURT are binding in nature as the AO was situated within the territorial and subjective jurisdiction of the Hon ble Delhi High Court. Thus, hold that there were no infirmities in the impugned orders and we thus, decline to interfere with. We hold that reassessment orders in these cases were bad in the eyes of the law and therefore, these are hereby quashed. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

1. Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961 were valid, given that the reasons for reopening the assessment were allegedly flawed or incorrect.

2. Whether the Assessing Officer (AO) was justified in making additions on grounds other than those originally recorded for reopening the assessment.

3. Whether the reassessment proceedings were based on a mere change of opinion, thus rendering them invalid.

4. The legality of the reassessment orders in light of the procedural and substantive requirements under the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings

Relevant legal framework and precedents: The reassessment proceedings were initiated under Section 148 of the Income Tax Act, which requires the AO to have a "reason to believe" that income has escaped assessment. The precedents cited include decisions from various High Courts, emphasizing the necessity of a valid reason for reopening an assessment.

Court's interpretation and reasoning: The court found that the reasons for reopening the assessment were based on incorrect information and lacked independent verification. The AO's reliance on information from the Investigation Wing without proper verification was deemed insufficient to justify reopening the assessment.

Key evidence and findings: The AO failed to confront the assessee with alleged bogus transactions, and no incriminating evidence was shared during the proceedings. The court noted discrepancies in the procedure followed, such as issuing notices under incorrect sections.

Application of law to facts: The court applied the principles from precedents, concluding that the reassessment proceedings were invalid due to the lack of a valid reason for reopening.

Treatment of competing arguments: The assessee argued that the reassessment was based on incorrect information and a change of opinion. The Revenue contended that the AO had the power to make additions on other grounds. The court sided with the assessee, emphasizing the need for a valid reason for reopening.

Conclusions: The court concluded that the reassessment proceedings were invalid and quashed the reassessment orders.

Issue 2: Additions on Grounds Other Than Originally Recorded

Relevant legal framework and precedents: The issue revolves around the AO's power to make additions on grounds not originally recorded for reopening. The court referred to precedents, including the decision in Ranbaxy Laboratories Ltd., which limits the AO's power to make additions on other grounds if no additions are made on the original grounds.

Court's interpretation and reasoning: The court held that the AO could not make additions on other grounds if the original grounds for reopening were found to be invalid. The reassessment should focus on the reasons initially recorded.

Key evidence and findings: The AO made additions on issues not included in the reasons recorded for reopening. The court found this approach inconsistent with the legal principles established in precedents.

Application of law to facts: The court applied the principles from precedents, concluding that the AO's approach was incorrect and the reassessment orders were invalid.

Treatment of competing arguments: The Revenue argued that the AO had the power to make additions on other grounds. The court rejected this argument, emphasizing the need to adhere to the reasons initially recorded for reopening.

Conclusions: The court concluded that the AO's additions on other grounds were invalid, and the reassessment orders were quashed.

Issue 3: Reassessment Based on Change of Opinion

Relevant legal framework and precedents: The court referred to precedents, including Kelvinator of India Ltd., which prohibits reassessment based on a mere change of opinion.

Court's interpretation and reasoning: The court found that the reassessment proceedings were based on a change of opinion, as the AO revisited issues already examined during the original assessment.

Key evidence and findings: The court noted that the reassessment proceedings were initiated without new tangible material, indicating a change of opinion.

Application of law to facts: The court applied the principles from precedents, concluding that the reassessment proceedings were invalid due to being based on a change of opinion.

Treatment of competing arguments: The Revenue argued that the reassessment was justified. The court rejected this argument, emphasizing the prohibition on reassessment based on a change of opinion.

Conclusions: The court concluded that the reassessment proceedings were invalid and quashed the reassessment orders.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The court emphasized, "The reassessment proceedings were invalid due to the lack of a valid reason for reopening and were based on a change of opinion, which is prohibited by law."

Core principles established: The court reinforced the principles that reassessment must be based on valid reasons, not on a change of opinion, and that the AO cannot make additions on other grounds if the original grounds for reopening are invalid.

Final determinations on each issue: The court quashed the reassessment orders, dismissing the Revenue's appeals and allowing the assessee's cross-objections.