2015 (6) TMI 530 - AT - Income Tax

Reopening of assessment - CIT(A) quashed reopening - Held that - CIT (A) has clearly mentioned that the escapement of income was not on account of failure on the part of the assessee to fully or truly disclose all material facts necessary for assessment. Further, there is nothing on record to suggest that there is a new material in possession of the Assessing Officer, indicating escapement of income, to initiate reassessment proceedings. Therefore, in the light of case of Madhukar Khosla vs. ACIT (2014 (8) TMI 568 - DELHI HIGH COURT), the Hon ble Court has held that if there is no reason to believe that the income has escaped assessment based on new tangible material , then the reopening of assessment amounts to impermissible review we hold that CIT (A) is justified in quashing the reassessment proceedings and we see no reason to interfere with the same. It is ordered accordingly. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening the assessment under section 148 of the Income Tax Act.
2. Applicability of proviso to section 147 of the Income Tax Act.
3. Requirement of new tangible material for reassessment.
4. Failure to disclose material facts by the assessee.

Detailed Analysis:

1. Legality of Reopening the Assessment Under Section 148 of the Income Tax Act:
The primary issue in this appeal was whether the Commissioner of Income-tax (Appeals) [CIT (A)] erred in quashing the reopening of the assessment under section 148 of the Income Tax Act. The department argued that the reopening was justified due to under-assessment, while the assessee contended that the reassessment was bad in law as no new material indicating escapement of income was presented.

2. Applicability of Proviso to Section 147 of the Income Tax Act:
The CIT (A) quashed the reassessment on the grounds that the proviso to section 147 was applicable. The proviso stipulates that no action shall be taken after four years from the end of the relevant assessment year unless there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. The CIT (A) noted that the Assessing Officer (AO) did not record any failure on the part of the assessee to disclose material facts, making the reassessment proceedings void.

3. Requirement of New Tangible Material for Reassessment:
The CIT (A) and the Hon'ble jurisdictional High Court in the case of Madhukar Khosla vs. ACIT emphasized that reassessment requires new tangible material. The court held that "if there is no 'reason to believe' that the income has escaped assessment based on new 'tangible material', then the reopening of assessment amounts to impermissible review." The CIT (A) found that the reasons for reopening were based on the balance sheet and information already available during the original assessment, indicating that no new material was presented.

4. Failure to Disclose Material Facts by the Assessee:
The CIT (A) concluded that there was no failure on the part of the assessee to disclose all material facts necessary for the assessment. The reasons recorded by the AO were based on information already disclosed in the original return and balance sheet. The CIT (A) cited several judicial precedents, including decisions from the Delhi High Court, which reiterated that the onus is on the AO to prove that the assessee failed to disclose material facts. In the absence of such proof, the reassessment proceedings were deemed invalid.

Conclusion:
The CIT (A) held that the reassessment proceedings were invalid as they were initiated after the stipulated four-year period without any new tangible material or failure on the part of the assessee to disclose material facts. The appeal by the revenue was dismissed, and the order pronounced that the CIT (A) was justified in quashing the reassessment proceedings.