2025 (4) TMI 299 - HC - Income Tax

Validity of reopening of assessment - way the objections of the Petitioner were required to be considered and disposed of - HELD THAT - Except for summarising the Petitioner s objections such objections are not considered. The impugned order contains no reasons and records only conclusions. Simply stating that the AO who issued the initial notice has elaborately discussed each of the issues does not amount to the incumbent or the Faceless Centre dealing with the objections in accordance with law. None of the objections appear to have been considered and the impugned order dated 2nd February 2022 has been made very cursorily. We set aside the impugned order and direct the Jurisdictional Assessing Officer to hear the Petitioner and decide the Petitioner s objections to the reopening of the assessment within five weeks of the uploading of this order.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment pertain to the reopening of the tax assessment for the Assessment Year 2016-2017. Specifically, the issues include:

• Whether the notice issued under Section 148 of the Income Tax Act for reopening the assessment was valid.
• Whether the reasons provided for reopening the assessment were adequate and based on fresh tangible material.
• Whether the rejection of the Petitioner's objections by the National Faceless Assessment Centre was justified and in accordance with the law.
• Whether the Additional Commissioner of Income Tax's sanction for reopening the assessment was mechanical and lacked application of mind.

ISSUE-WISE DETAILED ANALYSIS

Validity of Notice under Section 148

The legal framework for reopening an assessment is governed by Sections 147 and 148 of the Income Tax Act. The Court examined whether the notice issued under Section 148 was based on a valid "reason to believe" that income had escaped assessment. The Petitioner argued that the reasons for reopening were not genuinely those of the Assessing Officer (AO) and lacked fresh tangible material, suggesting it was merely a change of opinion.

The Court noted that the reasons provided by the AO were not adequately considered by the Faceless Centre, as the order merely summarized the objections without addressing them substantively. The Court found this approach insufficient for validating the notice under Section 148.

Adequacy of Reasons for Reopening

The Court scrutinized the requirement for "fresh tangible material" as a basis for reopening assessments. The Petitioner contended that the reasons for reopening were not based on any new evidence but rather on a reevaluation of existing information, which constitutes a change of opinion. The Court highlighted that the order from the Faceless Centre lacked detailed reasoning and only provided conclusions without engaging with the Petitioner's objections.

Rejection of Petitioner's Objections

The Court criticized the manner in which the Faceless Centre disposed of the Petitioner's objections. The order was deemed cursory, as it failed to engage with the substantive content of the objections. The Court emphasized that merely stating that the AO had elaborately discussed the issues does not suffice as a legal consideration of objections.

Sanction by Additional Commissioner of Income Tax

The Petitioner argued that the sanction by the Additional Commissioner was mechanical and lacked application of mind. The Court did not find any detailed reasoning in the Faceless Centre's order to counter this argument, further supporting the Petitioner's claim that the process was not thorough.

Application of Law to Facts

The Court applied the principles established under Sections 147 and 148, emphasizing the need for a genuine "reason to believe" supported by new material evidence. The absence of such material and the mechanical nature of the process led the Court to conclude that the reopening was not justified.

Treatment of Competing Arguments

The Court considered the Petitioner's arguments regarding the lack of fresh material and the mechanical sanction process. The Faceless Centre's reliance on previous case laws without addressing the specific objections was deemed inadequate. The Court favored the Petitioner's view that the objections were not properly considered.

Conclusions

The Court concluded that the process followed by the Faceless Centre was flawed, as it did not adequately address the Petitioner's objections or provide a reasoned order. The reopening of the assessment was set aside, and the matter was remanded to the Jurisdictional Assessing Officer for reconsideration.

SIGNIFICANT HOLDINGS

The Court's significant holdings include:

• The requirement for a detailed and reasoned order when disposing of objections to a notice under Section 148.
• The necessity for fresh tangible material to justify reopening an assessment under Section 147, rather than a mere change of opinion.
• The importance of non-mechanical sanction processes by higher authorities in tax assessment cases.

Verbatim quote: "In view of these facts, it can be inferred that there is relevant and sufficient material available for forming a reasonable belief that income has escaped assessment and therefore, the initiation of reassessment proceedings u/s 147 of the Income-tax Act, 1961 is in order."

The Court directed the Jurisdictional Assessing Officer to reconsider the Petitioner's objections within five weeks and allowed for the filing of additional objections. The order emphasized that if the outcome is adverse, it should not be implemented for four weeks post-communication, preserving the Petitioner's right to further challenge.