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Facts
The assessee's appeal is against an order of the CIT(A) which upheld the reopening of assessment under Section 147/148. The original assessment was completed under Section 143(3). The reopening was initiated based on the AO's belief that closing stock was suppressed, leading to escapement of income.
Held
The Tribunal held that reassessment proceedings under Section 147 cannot be validly reopened if the assessee has furnished full and true particulars at the time of original assessment under Section 143(3), and the AO had applied their mind. In this case, the AO himself admitted an error in the notice and failed to obtain proper approval. The Tribunal quashed the reopening.
Key Issues
Whether reopening of assessment under Section 147 is valid when the original assessment was under Section 143(3) and the assessee had made full and true disclosure, and whether there was a valid approval for such reopening.
Sections Cited
147, 148, 143(3), 151, 56, 139, 142, 114(e)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: Ms. MADHUMITA ROY & SHRI KHETTRA MOHAN ROY
The instant appeal, preferred by the assessee, is directed against the order dated 16.05.2023 (Appeal No. 10114/2019-20), passed by the Ld. CIT(A)-26, New Delhi, arising out of the order dated 20.08.2019, passed by the ACIT, Central Circle-14, New Delhi, under Section 148/143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2013-14.
The assessee has raised the following grounds of appeal:
“1. On facts and circumstances of the case, the learned CIT (Appeals) has erred in law in upholding the validity of proceedings u/s 147 read with section 148 of the Act, without appreciating the fact that the reassessment proceedings have been initiated without obtaining the approval as per the provisions of section 151(1) of the Act.
2. On facts and circumstances of the case, the learned CIT (Appeals) has erred in law in upholding the validity of proceedings u/s 147 read with section 148 of the Act, ignoring the fact that the reasons recorded for issue of notice under section 148 of the Act are without making any allegation that the appellant has failed to disclose fully and truly all material facts necessary for the assessment as per proviso to section 147 of the Act.
3. On the facts and circumstances of the case, the learned CIT (Appeals) has erred in law in upholding the validity of the order passed by the Ld. AO u/s 147 of the Act is bad and liable to be quashed as the same is based on the reasons which are vague, without bringing any fresh material or evidence, and done on the basis of change of opinion, which amounts to review of order, not permissible under the law.
4. On facts and circumstances of the case, the Additions of Rs. 16,66,300/- cannot be made on other grounds, if the primary ground on which the proceeding u/s 147 were initiated, cease to survive.
5. On facts and circumstances of the case, the learned CIT (Appeals) has erred in law in upholding the addition of Rs. 16,66,300/- made u/s 56 of the Act on account of difference in sale value and valuation as per DVO.
6 On facts and circumstances of the case, the learned CIT (Appeals) and the Id. AO, both have failed to appreciate the scope of section 56 which is not applicable to the case of the assessee.
7 That the appellant craves leave to add, alter or delete the above grounds of appeal at the time of hearing.
2. Learned AR initially assailed the sustainability of the reopening notice under Section 148 issued on 31.03.2018. The reasons for the reopening as contained at page 34 of the paper book is reproduced below:
“delhi.doit.cen14 <delhi.doit.cen14@incometax.gov.in> To: rastogi.donald@gmail.com Tue, May 8, 2018 at 2:03 PM Sir/madam, Reasons for reopening of the assessment in case of Sh. Rajeev Bahl. for A.Y. 2013-14 u/s 147 of the Act Original return in this case was filed on 19/09/2013 which was processed u/s 143(1) of the Income Tax Act, 1961. The assessment of the assessee company was completed u/s 143(3) of the Income Tax Act on 29/01/2016 determining a income of J 20,88,740/- against the returned income of Rs 20,71,500/- It is found that on perusal of balance sheet it has been noticed that Closing Stock has been shown to the tune of Rs.5,36,11,906/-. Further on going through details filed, it is noticed that Closing Stock has not been taken into consideration while preparing Profit & Loss a/c. As far as accounting rules on treatment of Closing Stocks are concerned, treatment of Closing Stock could be done in following two methods (1) If the closing stock is hown in trial balance, it has to be taken in P&L a/c only (2) if closing stock is not taken into consideration while preparing trial balance and shown in adjustments then must be shown in balance sheet also. Hence it is crystal clear that in all circumstances closing balance in toto should be shown in P&L a/c. so the assessee has suppressed this profit to the tune of Rs. 5,36,11,906/-. Please note the Assessment year which is A.Y. 2013-14, Regards, Sanjiv Kumar Deputy Commissioner of Income Tax Central Circle-14, New Delhi.
From the above it is obvious that reopening has been made after four years and the original assessment was already completed under Section 143(3) of the Act. In this case there is no failure on the part of the assessee to disclose fully and truly all material facts. It is absolutely clear that there is no external information emanating out of records so as to reopen after 4 years. The AO has reopened the case upon perusal of the financial statement of the assessee which was very much before him at the time of completing the original assessment under Section 143(3). In this regard we consider it relevant to refer to the decision of Hon’ble Jurisdictional High Court of Delhi in the case of CIT v. Usha International Ltd. (ITA No. 2026/2010 dated 19th July, 2012) “16. Frankly, I am unable to see any difference between a case where a query is raised by the assessing officer which is replied to by the assessee with supporting evidence or material, but the opinion of the assessing officer on the assessee‘s reply is not recorded in the ITA 2026/2010 (FB) Page 40 of 48 assessment order, and a case where even without a query from the assessing officer, the assessee voluntarily discloses full and true particulars necessary for his assessment, which are not referred to in the assessment order and the opinion of the assessing officer has not been expressly recorded therein. The distinction which was sought to be made on behalf of the revenue between the two types of cases was that in the former the assessing officer has manifested his intention to examine the matter by raising a query, whereas in the latter type of cases he has not even done that. The distinction is too simplistic for acceptance. The question is not whether any query was raised or not. The question is whether the assessee fulfilled his duty of disclosing fully and truly, all material particulars and primary facts necessary for the assessment of his income. Even in a case where a query is raised and a reply is furnished with all supporting material, if the assessing officer chooses to keep silent in the assessment order, what difference does it make that he did not even raise a query and also chose to be silent in the assessment order? In both the cases the basic requirement that the assessee should have adduced all material particulars and primary facts fully and truly, stands satisfied. The raising of a query may only indicate that the assessing officer had inquired into the matter; but if nothing is recorded in the assessment order, that would still not show what opinion he took of the matter, and one has to only presume that he did accept the assessee‘s version, which is what the Full Bench has held. In my opinion, there is thus qualitatively no difference between the two types of cases. The ruling of the Full Bench of this Court would apply with equal force to both types of cases, since the assessee has furnished, fully and truly, all material ITA 2026/2010 (FB) Page 41 of 48 particulars and primary facts necessary for his assessment. The presumption under section 114(e) is applicable to both types of cases.
In my understanding of the judgment of the Full Bench of this court in Kelvinator (supra), the ruling is applicable to all cases where the assessment was completed under section 143(3) of the Act, subject only to the condition that the assessee has furnished fully and truly all material particulars and primary facts necessary for the assessment. It is not a question of deemed formation of opinion alone; it goes beyond that, and the substratum of the ruling is that the assessing officer cannot take advantage of the perfunctory manner in which he completed the assessment. This does not necessarily mean that wherever the assessing officer has completed the assessment under section 143(3) it must be taken as if he has discharged his duties in a perfunctory manner. The ratio of the judgment is rooted to the salutary principle that the assessees shall not be subjected to harassment if they have furnished full and true particulars at the time of the original assessment, which is what the Supreme Court observed in the judgment in Srikrishna Pvt. Ltd. (supra). It certainly does not imply that every assessment order passed under section 143 (3) without an elaborate discussion of various contentions and claims put forth by the assessee is necessarily a wrong order to be corrected later by resorting to section 147. Making an assessment to income tax represents the quantification of the charge to tax; it is a serious task. Legal consequences follow. A return of income is not a mere scrap of paper. It is to be treated with the respect it deserves. I think the real principle laid down by the Full Bench in Kelvinator (supra) is that if the ITA 2026/2010 (FB) Page 42 of 48 assessee has discharged his duty of furnishing full and true particulars at the time of the assessment, it may be fairly taken that the assessing officer has equally discharged his functions in the manner required of him. If he passes an assessment order under section 143(3) of the Act, it hardly matters that he has not recorded his agreement with the assessee on every issue or point; that could be reasonably inferred.
We are not concerned here with the case of a derelict assessee who has failed to furnish full and true particulars at the time of assessment. It is nobody‘s case that the assessee did not do so. As noted by me earlier, the 147 can be resorted to only if the assessee has not discharged the duty. Where the assessee has discharged his duty and the assessment completed under section 143 (3) is reopened within the period of 4 years from the end of the assessment year, the assessing officer has to either show that the disclosure is not full and true or he has come into possession of some ―tangible materialǁ, to borrow with respect the expression used by the Supreme Court in Kelvinator (supra), to come to the conclusion that there is escapement of income. The material must have a live link with the formation of the belief regarding escapement of income. When there is no failure on the part of the assessee to furnish full and true particulars and there is no tangible material on the basis of which the assessing officer can allege escapement of income, the only consequence would be that the assessing officer was exercising the power of review on the very same materials which he is presumed to have examined. This would amount to abuse of the power to re-assess and has to be checked. The solution to this problem lies in deciding ITA 2026/2010 (FB) Page 43 of 48 the question whether there was full and true disclosure by the assessee. It does not lie in pigeon-holing the ruling of the Full Bench of this court in Kelvinator (supra), affirmed by the Supreme Court, only to cases where there is overt evidence in the assessment order framed under section 143(3) to show that the assessing officer had originally formed an opinion in favour of the assessee. That, with respect, would water down the ratio of not only the Full Bench judgment of this court in Kelvinator (supra), but also the judgment of the Supreme Court which affirmed the Full Bench judgment and would also introduce an area of uncertainty despite the categorical pronouncements. I do not think that within the parameters of judicial discipline and comity I can take the liberty of putting such gloss or embellishment upon those binding rulings. To argue or hold that when the assessing officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion, notwithstanding that the assessee had made a full and true disclosure and notwithstanding that the assessment was completed under section 143 (3) and to further hold that it would be a case of ―no opinionǁ, would be to fly in the teeth of the two rulings. It is not even open to the revenue to urge such a proposition.
I must now refer to the judgment of the Supreme Court in A.L.A Firm Vs. CIT (1991) 189 ITR 285, wherein the provisions of section 147(b) of the Act as they stood before 01.04.1989 were being examined. That case was predominantly concerned with the question as to what would constitute 147(b). It was held that the statute does not require that the ITA 2026/2010 (FB) Page 44 of 48 information must be extraneous to the record and that it is sufficient that if the material, on the basis of which the assessment is sought to be reopened, came to the notice of the assessing officer subsequent to the original assessment and that such material may come to the notice of the assessing officer from the record itself. It was also observed that if the income tax officer had considered the material in the original assessment and formed an opinion, then he would be powerless to reopen the assessment. These observations do not in any way – in my humble understanding – impinge on the question before us. What was decided by the Full Bench of this court in Kelvinator (supra) is that when once an assessment order is framed under section 143(3) and the assessee had undisputedly furnished full and true particulars at the time of original assessment, then he must be presumed to have formed an opinion; and if he reopened the assessment within two years without proving any failure on the part of the assessee to furnish full and true particulars, that would only amount to a change of opinion not permissible in law.
However, the further observations of the Supreme Court in A.L.A. Firm (supra) broadly support the view taken by the Full Bench of this court. These observations are as under: -
“We think there is force in the argument on behalf of the assessee that, in the face of all the details and statement placed before the Income-tax Officer at the time of the original assessment, it is difficult to take the view that the Income-tax Officer had not at all applied his mind to the question whether the surplus is taxable or not. It is true that the return was filed and the assessment was ITA 2026/2010 (FB) Page 45 of 48 completed on the same date. Nevertheless, it is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before him. It is not as if the assessment record contained a large number of documents or the case raised complicated issues rendering it probable that the Incometax Officer had missed these facts. It is a case where there is only one contention raised before the Income-tax Officer and it is, we think, impossible to hold that the Income-tax Officer did not at all look at the return filed by the assessee or the statements accompanying it. The more reasonable view to take would, in our Income-tax Officer looked at the facts and accepted the assessee's contention that the surplus was not taxable. But, in doing so, he obviously missed to take note of the law laid down in G.R. Ramachari and Co. [1961] 41 ITR 142 (Mad) which, there is nothing to show, had been brought to his notice. When he subsequently became aware of the decision, he initiated proceedings under section 147(b). The material which constituted information and on the basis of which the assessment was reopened was the decision in G.R. Ramachari and Co. [1961] 41 ITR 142 (Mad). This material was not considered at the time of the original assessment. Though it was a decision of 1961 and the Income-tax Officer could have known of it had he been diligent, the obvious fact is that he was not aware of the existence of that decision then and, when he came to know about it, he rightly initiated proceedings for reassessment.
We may point out that the position here is more favourable to the Revenue than that which prevailed in the Madras cases referred to earlier. There, what the Income-tax Officer had missed earlier was the true purport of the relevant statutory provisions. It seems somewhat difficult to believe that the Income-tax Officer could have failed to read properly the statutory provisions applicable directly to the facts before him (though that is what seems to have happened). Perhaps, an equally plausible view on the facts could have been taken that he had considered them and decided, in one case, not to apply them and, in the other, on a wrong construction thereof. In the present case, on the other hand, the material on which the Income-tax Officer has taken action is a judicial decision. This had been pronounced just a few months earlier to the original assessment and it is not difficult to see that the Incometax Officer must have missed it or else he could not have completed the assessment as he did. Indeed it has not been suggested that he was aware of it and yet chose not to apply it. It is, therefore, much easier to see that the initiation of reassessment proceedings here is based on definite material not considered at the time of the original assessment.”
Quite apart from the fact that A.L.A. Firm (supra) was a case where a binding judgment of the jurisdictional High Court was overlooked when the original assessment was made, the earlier part of the observations of the Supreme Court in the aforesaid paragraph show the reluctance or disinclination of the court to accept the broad proposition, that even if full and true particulars had been furnished by the assessee at the time of the original assessment, it cannot be said that the assessing officer had applied his mind to the claims or contentions put forth by the assessee. The observation of the court that ―.....it is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before himǁ is in substance and effect echoed in the judgment of the Full Bench of this court in Kelvinator (supra). Again the emphasis is as to whether the assessee has discharged his duty, and if so, he should not be asked to go over the grind again merely on the ground that the assessing officer has not examined the facts disclosed fully and truly and, therefore, was in no position to form an opinion
I find it difficult to assent to the contention of the revenue that section 114(e) of the Evidence Act was incorrectly invoked by the Full Bench of this court in Kelvinator (supra). It has been held by the Full Bench that the section applies to an assessment order made under section 143(3) of the Act and the judgment has been affirmed by the Supreme Court. The last word on the subject has been said. The contention cannot even be heard.
On the first question referred to this Full Bench as to the meaning of the term ―change of opinionǁ, I have nothing to add to the draft proposed. As to the first part of the second question my answer would be that the assessment proceedings cannot be validly reopened under section 147 of the Act even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3). My answer to the second part of the second question is that the issue is concluded by the judgment of the Full Bench of this court in Kelvinator (supra).
My answer to the third question is this. So long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed under section 143(3) of the Act, it matters little that the assessing officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. Again the answer to this question stands concluded by the judgment of the Full Bench of this court in Kelvinator (supra). My answer to question No.(iv), in respectful agreement with the judgment of the Full Bench of this court in Kelvinator (supra), is a limited answer. It is that section 114(e) of the Evidence Act can be applied to an assessment order framed under section 143(3) of the Act, provided that there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. I do not in the circumstances consider it necessary to answer the broad question as to what are all the circumstances under which section 114(e) of the Evidence Act can be applied.
First proviso to Section 147 of the Income Tax Act, 1961, reads as under:
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year. unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
The Ld. Sr. DR has placed a copy of note sheets with respect to issue and service of notice u/s 148. The relevant portion is extracted below: 30.03.2018: Reasons were recorded for initiation of proceeding u/s 148 of the Income Tax Act and sent for approval to the JCIT, Central Range-4, New Delhi.
30.03.2018 Approval for initiating proceedings u/s 148 is received from the JCIT, Central Range-4, New Delhi vide F. No. Joint CIT/CR-4/2017-18/2289 dated 30.03.2018.
31.03.2018 Notice u/s 148 of the I.T. Act, 1961 is sent and duly served to the assessee.
06.05.2018 Reply of the assessee is received dated 04.05.2018.
08.05.2018 The reasons for reopening of the assessment proceedings were provided to the assessee through official e-mail and also intimated that the case was re-opened u/s 148 for A.Y. 2013-14 instead of A.Y. 2012-13. For this another correct notice was also issued.
It is excruciating to note that AO himself is candidly admitting that the earlier notice dated 31.03.2018 was wrong as it was erroneously mentioned A.Y. 2012-13instead of A.Y. 2013-14. So once the notice dated 30.03.2018 is unsustainable, the impugned notice is issued beyond 4b years from end of assessment year. It is also crystal clear that approval from PCIT was never obtained.
Upon pointing out the facts, the Ld. Sr. DR failed to controvert the issue. She even could not clarify as to who was the approving authority for issuing notice under Section 148. Be that as it may, we fail to apprehend as to how the reopening can be sustained on the basis of such laches and infirmities which are glaring. The reopening is accordingly quashed and consequently the entire addition is liable to be deleted. Accordingly, the assessee’s appeal is allowed. Order pronounced in open court on 30.05.2025.