2025 (2) TMI 875 - HC - Income Tax

Revision u/s 263 - additions on account of notional rent under the head income from house property - reopening is sought to be done beyond the period of 4 years from the end of the relevant assessment year. HELD THAT - The issues raised in the reasons recorded for reopening are identical to the reasons for which revisional proceedings u/s 263 were initiated by the PCIT. The said revisional order under Section 263 of the Act was passed directing the assessing officer to examine the issues raised in the revisional proceedings and pass a fresh order. Therefore on the same ground the assessing officer is not justified to reopen the case moreso after a period of 4 years. In our view even the approving authority should not have given his approval after he himself having passed the order under Section 263. Therefore even on this ground since the issues were subject matter of 263 proceedings the impugned proceedings are barred by 3rd proviso of Section 147 of the Act. The reasons recorded initially states that there has been no disclosure of material facts necessary in the assessment but what were the material facts which were not disclosed has not been stated. On perusal of the reasons recorded it is observed that the officer himself has recorded that it is based on the perusal of records and verification of records that reopening proceedings are initiated. In our view on this ground also the pre-condition required of failure to disclose truly and material facts necessary for the assessment is not satisfied and therefore the proceedings are bad in law as per the proviso of Section 147 of the Act. In the order rejecting the objections the officer states that the reopening is permissible if in the original assessment the Assessing Officer has through inadvertence oversight given relief. If that be the case then certainly no proceedings could have been initiated by the respondent by virtue of first proviso to Section 147 of the Act because according to the respondent it is the mistake of the predecessor Officer and therefore the issue of any failure to disclose fully and truly all necessary facts for the assessment by the petitioner would not arise. In any case pursuant to the direction under Section 263 of the Act the Assessing Officer examined all the issues which are also subject matter of the present proceedings and passed the assessment order on 14 December 2018. Therefore any attempt now to re-agitate the issues which were already examined while passing the assessment order pursuant to directions in 263 proceedings would be based on change of opinion and review of the earlier order which is not permissible. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

Whether the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 2013-14, was valid.
Whether the reopening of the assessment was barred by the third proviso to Section 147 of the Act, given that the issues had already been addressed in proceedings under Section 263 of the Act.
Whether there was a failure to disclose fully and truly all material facts necessary for the assessment, as required by the first proviso to Section 147 of the Act.
Whether the reopening of the assessment amounted to a change of opinion, which is impermissible under the law.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Notice under Section 148

Legal Framework and Precedents: Section 148 of the Income Tax Act allows the Assessing Officer to issue a notice for reassessment if there is reason to believe that income has escaped assessment. The first proviso to Section 147 restricts reopening beyond four years unless there is a failure to disclose fully and truly all material facts.
Court's Interpretation and Reasoning: The Court noted that the original assessment order dated 31 December 2015 was set aside by the Principal Commissioner of Income Tax (PCIT) under Section 263, and a fresh order was passed on 14 December 2018. Therefore, the original order did not exist when the reasons for reopening were recorded, rendering the proceedings invalid.
Key Evidence and Findings: The assessment order under Section 143(3) read with Section 263 was the operative order on the date of recording reasons for reopening, not the original assessment order.
Application of Law to Facts: The Court held that reopening based on a non-existent order is bad in law.
Treatment of Competing Arguments: The respondent argued for the validity of the notice, but the Court found the procedural flaw in reopening based on a non-existent order.
Conclusions: The notice under Section 148 was quashed as it was based on an order that did not exist.

2. Bar under Third Proviso to Section 147

Legal Framework and Precedents: The third proviso to Section 147 bars reopening if the issues were already subject to proceedings under Section 263.
Court's Interpretation and Reasoning: The Court observed that the issues raised for reopening were identical to those addressed in the Section 263 proceedings, which had directed the Assessing Officer to examine these issues.
Key Evidence and Findings: The revisional order under Section 263 had already addressed the issues, and a fresh assessment order was passed.
Application of Law to Facts: The Court held that reopening on the same grounds was not justified and was barred by the third proviso to Section 147.
Treatment of Competing Arguments: The respondent's reliance on the Supreme Court decision in Kalyanji Mavji & Co. was found outdated in light of subsequent jurisprudence.
Conclusions: The proceedings were barred by the third proviso to Section 147.

3. Failure to Disclose Material Facts

Legal Framework and Precedents: The first proviso to Section 147 requires a failure to disclose fully and truly all material facts for reopening beyond four years.
Court's Interpretation and Reasoning: The Court noted that the reasons recorded for reopening did not specify which material facts were not disclosed.
Key Evidence and Findings: The reasons for reopening were based on records and verification, not on any failure to disclose by the petitioner.
Application of Law to Facts: The Court found that the pre-condition for failure to disclose was not satisfied.
Conclusions: The reopening was invalid as the failure to disclose requirement was not met.

4. Change of Opinion

Legal Framework and Precedents: Reopening based on a change of opinion is impermissible.
Court's Interpretation and Reasoning: The Court held that the issues had already been examined under Section 263, and reopening on the same issues amounted to a change of opinion.
Key Evidence and Findings: The assessment order following Section 263 proceedings had examined the issues.
Application of Law to Facts: The attempt to re-agitate the issues was seen as a review of the earlier order.
Conclusions: Reopening was not permissible as it was based on a change of opinion.

SIGNIFICANT HOLDINGS

Core Principles Established: Reopening an assessment based on a non-existent order is invalid. Issues already addressed in Section 263 proceedings cannot be grounds for reopening. The requirement of failure to disclose material facts must be clearly demonstrated for reopening beyond four years.
Final Determinations on Each Issue: The notice under Section 148 for the assessment year 2013-14 was quashed. The same reasoning applied to the notice for the assessment year 2014-15, which was also quashed.
Verbatim Quotes: "The original assessment dated 31 December 2015 which is sought to be reopened did not exist on the date of recording the reasons and, therefore, on this ground itself the proceedings are bad in law."

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