Reopening the assessment is unnecessary because there was no material fact withheld that was complete and true

Fact and issue of the case

This appeal by the assessee is preferred against the order of the ld. CIT(A) – 27, New Delhi dated 27.06.2022 pertaining to Assessment Year 2014-15.

The solitary grievance of the assessee in Form No. 36 reads as under

That the ld. CIT(A) has erred in law and on facts in not deleting the disallowance of Rs. 25 lakhs made by the Assessing Officer u/s 3 7(1) and it is prayed that the deduction of Rs. 25 lakhs claimed by the assessee as payment of professional fees as per its books of accounts be allowed.

Vide letter dated 13.02.2023, the assessee prayed for the admission of the following additional grounds of appeal:

That having regard to the facts and circumstances of the case, assumption of jurisdiction in reopening the impugned assessment and passing the impugned order u/s 147, is bad in law and against the facts and circumstances of the case and more so when statutory conditions as stipulated u/s 147 to 151 have not been complied with.

That in any case and in any view of the matter, assumption of jurisdiction in reopening the assessment u/s 147, is bad in law and against the facts and circumstances of the case.

That having regard to the facts and circumstances of the case, the impugned assessment order ought to have been quashed on the ground that four weeks time was not allowed between the date of disposal of the objection and date of re-assessment order in view of the several judicial decisions.

Since the additional grounds taken by the assessee go to the root of the matter, we decided to proceed with the same.

Representatives of both the sides were heard at length. Case records carefully perused and relevant documentary evidences duly considered in light of Rule 18(6) of the ITAT Rules.

The peculiar facts of the case are that the impugned assessment order is dated 10.03.2022. Notice u/s 148 of the Income-tax Act, 1961 [the Act, for short] was issued on 05.02.2021. On 05.04.2021, the assessee requested for supplying the reasons for reopening of the assessment. On 15.06.2021, the assessee reiterated its request for the supply of reasons recorded for reopening of the assessment. On 02.2022, the Assessing Officer supplied the copy of reasons.

On 18.02.2022, the assessee raised objections to the reasons for reopening of the assessment. On 02.03.2022, objections were disposed and as mentioned elsewhere, assessment was framed on 10.03.2022, e., a week later.

This action of the Assessing Officer is against the ratio laid down by the Hon’ble Bombay High Court in the case of Asian Paints 296 ITR 90 wherein the Hon’ble High Court has categorically held as under:

“if the Assessing Officer does not accept the objections so filed by the assessee, he shall not proceed further in the matter for a period of four weeks from the date of service of the order rejecting objections on the assessee. The above procedure is to be followed strictly for reopening of assessment.”

Observation of the court

On the given facts of the case and in light of the reasons recorded for reopening of the assessment mentioned hereinabove, it would be pertinent to refer to the judgment of the Hon’ble Jurisdictional High Court of Delhi in the case of E.I. Dupont India [P] Ltd 351 ITR 299. The relevant findings of the Hon’ble High Court read as under:

We have heard the learned counsel for the parties and we feel that since this was a case of proposed reopening of assessment after four years from the end of the relevant assessment year it was incumbent upon the assessing officer to demonstrate that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for its assessment. The purported reasons which we have extracted above do not even allege that there has been a failure on the part of the assessee to disclose any material fact. In fact, even in the impugned order dated 31.05.2012 there is no mention of what fact the assessee had failed to disclose which was necessary for the assessment in the original round of assessment. Failure to disclose all material facts necessary for assessment is a condition precedent for reopening of an assessment beyond the period of four years from the date of assessment. This is a pre-condition set out in the statute itself.

In view of the fact that this pre-condition has not been satisfied, we feel that the impugned notice dated 07.03.2012 as also the order dated 31.05.2012 ought to be set-aside. It is ordered accordingly. All the proceedings pursuant to the notice dated 27.03 .2012 are quashed. The writ petition is allowed. There shall be no order as to costs. Consequently, all the pending applications also stand disposed of.

Similar view was taken by the Hon’ble High Court of Gujarat in the case of Himson Textile Engineering Industries 83 DTR 132 wherein the Hon’ble High Court held as under:

Though the AO in the reasons recorded, has observed that income chargeable to tax has escaped assessment on account of failure on the part of the assessee to furnish full and true particulars of income, there is nothing whatsoever to indicate as to what is the nature of failure on the part of the assessee. On perusal of the affidavit in reply filed by the respondent, it is apparent that, it is the case of the AO that the petitioner has failed to disclose fully and truly all material facts by reason of the fact that it had claimed more deduction than allowable to it. Moreover, in para 3.2 of the affidavit in reply, the AO has averred that on verification of the record, it is found that the assessee had claimed deduction u/s 80M of the Act to the tune of Rs. 32,55,000/- towards deduction u/s 80M of the Act on the dividend of Rs. 60,06,000/- received from the Unit Trust of India which was granted by the AO without discussing the issue in the assessment order and without looking into the provisions of the Act. Thus, it is apparent that the formation of belief of the AO that income chargeable to tax has escaped assessment is based upon the record before him. Under the circumstances, it is apparent that there is no failure on the part of the petitioner to disclose fully and truly all material facts and that the assessment is sought to be reopened on the ground that the earlier AO had made an error while framing the original assessment. Therefore, by merely adding a line in the reasons recorded that the petitioner had failed to disclose fully and truly all material facts the requirement of the proviso to section 147 of the Act would not be satisfied. When the AO alleges that there is failure to disclose fully and truly all material facts, he should also be in a position to demonstrate as to what is the failure on the part of the assessee. Merely putting in a line as aforesaid would not satisfy the requirements of the proviso to section 147 of the Act. (Para 5)

In the light of the above discussion, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its AY under consideration, the assessment of jurisdiction on part of the AO u/s 147 of the Act after the expiry of a period of four years from the end of the relevant A. Y is without jurisdiction. Consequently, the impugned notice u/s 148 seeking to reopen the assessment u/s 147 cannot be sustained.

Considering the above judgment of the Hon’ble High Courts, it can be safely concluded that merely by adding a line in the reasons recorded by the Assessing Officer that the assessee had failed to disclose fully and truly all material facts, requirement of proviso to section 147 of the Act would not be satisfied for the purpose of reopening of the assessment u/s 147 of the Act.

Considering the facts of the case from all angles, we do not find any merit in the reopening of the assessment. Even on merits, the revenue fails and the assessee succeeds.

In the result, the appeal of the assessee in ITA No. 1984/DEL/2022 is allowed.

The order is pronounced in the open court on 09.06.2023.