2021 (6) TMI 454 - AT - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - HELD THAT - From the perusal of the reasons, we find that there is absolutely no mention by the ld. AO in the said reasons recorded about the failure on the part of the assessee to fully and truly disclose material facts that are relevant for the purpose of assessment. Admittedly, the reopening of assessment for the A.Y.2007-08 was made in the instant case beyond four years from the end of the relevant assessment year which triggers applicability of proviso to Section 147. The said proviso categorically states that the ld. AO should bring on record the failure committed by the assessee in not disclosing fully and truly all material facts that are relevant for the purpose of assessment in the original assessment proceedings, before resorting to reopening of the case of the assessee. In view of the fact that failure on the part of the assessee in terms of proviso to Section 147 of the Act was not mentioned in the reasons recorded by the ld. AO, we have no hesitation in quashing the entire re-assessment proceedings as void ab initio. Since the relief is granted to the assessee on the preliminary ground of invalid assumption of jusridiction u/s.147 of the Act, we refrain to give our opinion on the grounds raised on merits and the same are left open. In the result, appeal of the assessee is allowed.

Summary

Issues involved:
Challenge to the validity of assumption of jurisdiction under section 147 of the Income Tax Act, 1961.

Analysis:
The appeal in ITA No.6105/Mum/2018 for A.Y.2007-08 was against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961. The assessee, a partnership firm trading in diamonds, challenged the validity of the reopening of assessment. The original assessment for A.Y.2007-08 was completed earlier, and the reassessment was initiated beyond four years from the end of the relevant assessment year. The reasons recorded by the ld. AO for reopening did not mention any failure on the part of the assessee to disclose fully and truly all material facts relevant for assessment, as required by the proviso to Section 147 of the Act. The decision of the Hon'ble Jurisdictional High Court highlighted the importance of reasons being clear, unambiguous, and based on evidence. It emphasized that the ld. AO must establish a vital link between the reasons and evidence to prevent arbitrary reopening of concluded assessments.

The Tribunal, following the High Court decision, quashed the entire reassessment proceedings as void ab initio due to the absence of mentioning the failure on the part of the assessee in the reasons recorded by the ld. AO. The relief was granted to the assessee on the preliminary ground of invalid assumption of jurisdiction u/s.147 of the Act. As a result, the appeal of the assessee was allowed, and the Tribunal refrained from giving an opinion on the grounds raised on merits, leaving them open for future consideration.

The judgment was pronounced on 11/06/2021, emphasizing the importance of reasons for reopening assessments being clear, unambiguous, and based on evidence to prevent arbitrary actions by the assessing officer.