2025 (3) TMI 213 - AT - Income Tax

Reopening of assessment - notice after four years - disallowing deduction for payment of car hire charges - 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 no action can be taken for reopening after four years unless the AO 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 u/s 147 of the Act cannot be sustained and is therefore held to be bad in law. Assessee appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid, particularly when initiated after four years from the end of the relevant assessment year.
Whether the additions made by the Assessing Officer (AO) under Sections 13(1)(c) and 11 of the Act were justified, particularly concerning the disallowance of car hire charges.
Whether the procedural lapses, such as the failure to provide reasons for reopening and the opportunity for a hearing, invalidated the reassessment proceedings.

ISSUE-WISE DETAILED ANALYSIS

Validity of Reassessment Proceedings under Section 147

Relevant Legal Framework and Precedents: The reassessment proceedings under Section 147 can be initiated if the AO has reason to believe that income has escaped assessment. However, as per the proviso to Section 147, if four years have elapsed since the end of the relevant assessment year, reassessment can only be initiated if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The judgment of the Bombay High Court in IPCA Laboratories Ltd. was cited as a precedent.
Court's Interpretation and Reasoning: The Tribunal emphasized that the reasons for reopening must clearly indicate a failure by the assessee to disclose material facts. In this case, the reasons recorded did not allege any such failure by the assessee.
Key Evidence and Findings: The reasons for reopening were based on findings from a subsequent assessment year (2015-16) and did not include any new tangible material specific to the assessment year 2014-15.
Application of Law to Facts: The Tribunal found that the reassessment proceedings were initiated merely on a change of opinion without any new tangible evidence, thus violating the proviso to Section 147.
Treatment of Competing Arguments: The Department argued that the reassessment was based on new findings from a later assessment year, while the assessee contended that there was no failure to disclose material facts. The Tribunal sided with the assessee, noting the absence of allegations of nondisclosure in the reasons recorded.
Conclusions: The Tribunal held that the reassessment proceedings were invalid as they were initiated beyond the permissible period without fulfilling the conditions set out in the proviso to Section 147.

Additions under Sections 13(1)(c) and 11

Relevant Legal Framework and Precedents: Sections 13(1)(c) and 11 of the Income Tax Act deal with the conditions under which exemptions for charitable trusts can be denied. The AO had disallowed car hire charges based on these provisions.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) had already provided partial relief by deleting certain additions. The core issue was whether the car hire charges constituted a violation of fiduciary duties.
Key Evidence and Findings: The AO had disallowed car hire charges based on findings from a subsequent assessment year, without new evidence for the year in question.
Application of Law to Facts: The Tribunal found that the AO's reliance on subsequent findings without new evidence specific to the assessment year 2014-15 was insufficient to justify the additions.
Treatment of Competing Arguments: The Tribunal acknowledged the appellant's argument that the car hire charges had been disclosed and justified during the original assessment proceedings.
Conclusions: The Tribunal concluded that the additions under Sections 13(1)(c) and 11 were not justified in the absence of new evidence specific to the assessment year in question.

Procedural Lapses

Relevant Legal Framework and Precedents: The principles of natural justice require that reasons for reopening be provided to the assessee, and an opportunity for a hearing be granted.
Court's Interpretation and Reasoning: The Tribunal found that the failure to provide reasons and the opportunity for a hearing constituted a violation of natural justice.
Key Evidence and Findings: The assessee was not furnished with the reasons for reopening, nor was a hearing granted.
Application of Law to Facts: The procedural lapses were deemed to invalidate the reassessment proceedings.
Treatment of Competing Arguments: The Tribunal rejected the Department's arguments that the procedural lapses were not significant.
Conclusions: The Tribunal held that the reassessment proceedings were invalid due to procedural lapses.

SIGNIFICANT HOLDINGS

The Tribunal held that the reassessment proceedings initiated under Section 147 were invalid due to the absence of any failure on the part of the assessee to disclose material facts, as required by the proviso to Section 147.
The Tribunal quashed the Assessment Order dated 21/03/2022, and consequently, all additions and disallowances made therein were deleted.
The Tribunal emphasized the importance of adhering to procedural requirements, such as providing reasons for reopening and granting an opportunity for a hearing, as part of the principles of natural justice.
The final determination was that the appeal by the assessee was allowed, rendering other grounds of appeal infructuous.

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