2025 (3) TMI 924 - AT - Income Tax

Validity of Reopening of assessment as barred by limitation - as argued reasons recorded for reopening the assessment were based on a change of opinion - HELD THAT - Recording of reasons therefore is very important factor to be taken care of by the assessing officer. Section 148(2) stipulates that AO shall before issuing notice u/s 148 record the reasons for doing so. Which means before issuing notice u/s 148 recording of reason is mandatory and prerequisite to assume jurisdiction by the AO to initiate reassessment proceedings u/s. 147. Even when no return of income was filed the basic requirement of recording reasons must be fulfilled. Department s contention that since the assessee had not filed return of income and this was not a case of reassessment the recording of reasons was not required was not acceptable. Power of reopening was not exercised in a fair manner. Admittedly the reasons were issued by an officer who completed the reassessment by issuing notice under section 143(2) is different from the officer who initiated reassessment proceeding by issuing notice u/s 148 of the Act. The revenue placed nothing on record to show any thing contrary to the observation by this Tribunal. Thus the officer who issued notice u/s 148 had not recorded reasons prior to its issuance and therefore did not validly assume jurisdiction to reopen the assessment. The reasons recorded are post 31/03/2021 is beyond the period of 6 years and is therefore barred by limitation. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

Whether the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961, were barred by limitation and therefore invalid.
Whether the directions issued by the Dispute Resolution Panel under section 144C(5) were legally sound.
Whether the reasons recorded for reopening the assessment were based on a change of opinion and thus invalid.
Whether the assessee was denied the opportunity to cross-examine witnesses and access underlying material, thereby violating principles of natural justice.
Whether the addition of income under section 68 concerning short-term capital gains was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Reassessment Proceedings

Relevant Legal Framework and Precedents: The legal framework involved sections 147 and 148 of the Income-tax Act, 1961. The court referenced the Supreme Court's decisions in National Thermal Power Co. Ltd. Vs. CIT and Jute Corporation of India Ltd. Vs. CIT regarding the admission of additional grounds.
Court's Interpretation and Reasoning: The Tribunal noted that the reasons for reopening were recorded by a different officer than the one who issued the notice under section 148, which contravened the procedural requirements. The Tribunal emphasized the necessity of recording reasons before issuing a notice under section 148.
Key Evidence and Findings: The Tribunal found that the reasons were recorded after the issuance of the notice, which was beyond the prescribed timeline, thereby rendering the reassessment proceedings invalid.
Application of Law to Facts: The Tribunal applied the legal requirement that reasons must be recorded before issuing a notice under section 148 and found that this requirement was not met.
Treatment of Competing Arguments: The Tribunal considered the Department's arguments but found them insufficient to counter the procedural lapses identified.
Conclusions: The Tribunal quashed the reassessment notice under section 148 as it was not issued in compliance with the legal requirements, rendering the entire reassessment process invalid.

2. Directions Issued by the Dispute Resolution Panel

Relevant Legal Framework and Precedents: The framework involved section 144C(5) of the Income-tax Act, 1961.
Court's Interpretation and Reasoning: The Tribunal did not delve deeply into this issue as the reassessment proceedings themselves were quashed.
Conclusions: The issue became academic following the quashing of the reassessment proceedings.

3. Change of Opinion

Relevant Legal Framework and Precedents: The Tribunal referenced the principle that reassessment based on a mere change of opinion is not permissible.
Court's Interpretation and Reasoning: The Tribunal found that the reasons recorded for reopening the assessment were based on a change of opinion, which is not a valid ground for reassessment.
Conclusions: The Tribunal agreed with the assessee's contention that the reassessment was based on a change of opinion and thus invalid.

4. Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principle of natural justice requires that the assessee be given an opportunity to cross-examine witnesses and access material relied upon by the assessing officer.
Court's Interpretation and Reasoning: The Tribunal noted the assessee's claim of not being provided an opportunity to cross-examine witnesses or access underlying material.
Conclusions: This issue was not addressed in detail as the reassessment proceedings were quashed on other grounds.

5. Addition of Income under Section 68

Relevant Legal Framework and Precedents: Section 68 of the Income-tax Act deals with unexplained cash credits.
Court's Interpretation and Reasoning: The Tribunal did not address this issue substantively due to the quashing of the reassessment proceedings.
Conclusions: The issue became academic following the quashing of the reassessment proceedings.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The officer who issued notice under section 148 had not recorded reasons prior to its issuance and therefore did not validly assume jurisdiction to reopen the assessment."
Core Principles Established: The necessity of recording reasons before issuing a notice under section 148 and the prohibition against reassessment based on a mere change of opinion.
Final Determinations on Each Issue: The Tribunal quashed the reassessment notice and the consequential reassessment order, rendering other issues academic.

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