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Facts
The assessee's appeal was filed belatedly. The primary issue was whether the Assessing Officer (AO) had valid grounds to reopen the assessment after four years without any tangible material beyond what was already on record. The AO sought to disallow director remuneration and a capitalized expense, citing escapement of income.
Held
The Tribunal held that the reopening of assessment was without jurisdiction as the AO lacked tangible material beyond what was available during the original assessment. The reasons provided by the AO did not indicate any new information or a failure by the assessee to disclose material information, which is a prerequisite for reopening after four years.
Key Issues
Whether the Assessing Officer had valid jurisdiction to reopen the assessment after four years without tangible material, and whether the reasons for reopening were sufficient under Section 147 of the Income Tax Act.
Sections Cited
147, 148, 143(3), 80IA, 37
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 09.07.2024 for the Assessment Year (hereinafter referred to as ‘AY‘) 2014-15.
At the outset, the Ld.AR of the assessee brought to our notice that the appeal has been filed belatedly by ‘217’ days and assessee has filed an affidavit explaining the cause for the delay. Having gone through the contents of the same, we find that cause for delay as reasonable, so we excuse the same and proceed to hear the assessee’s appeal on merits.
The main grievance of the assessee is that the AO has erroneously reopened the assessment without having any tangible material other than the assessment records which was before him. According to the Ld.AR, the AO couldn’t have reopened the assessment after four (4) years from the end of the relevant assessment year without having in his possession any tangible material [other than the original records available in the assessment record] as held by the Hon’ble Madras High Court in the case of ACIT v. Indian Syntans Investments Pvt. Ltd., in Writ Appeal No.220 of 2024 vide order dated 19.06.2025 and in the case of Devaraj Ramasamy Mani v. ACIT in Writ Appeal No.1321 of 2024 vide Order dated 17.06.2025 wherein it has been held that when the reasons for reassessment / reopening was passed entirely upon the documentation accompanying the return, and no material extraneous to that already on record, or any new evidence has been discovered by the AO, indicating income has escaped taxation; and the assessee having disclosed fully and truly all material germane to the computation of income and forms part of the return of income, then in such circumstances, escapement of income, if any, can’t be attributed to the assessee [refer order of the Hon’ble High Court in the case of Indian Syntans Investments Pvt. Ltd., order dated 19.06.2025 at Page No.313 of the Paper Book at Para No.9]. The Ld.AR also drew our attention to the decision of the Hon’ble Madras High Court in the case of Devaraj Ramasamy Mani (supra) wherein the Hon’ble Madras High Court has observed at Para No.12 as under:
Therefore, it is clear, a reassessment made within four years or beyond four years has to be based on tangible material de hors that is available on record that has come to the notice of the Assessing Officer. Recourse to proceedings for reassessment is available only if the Department comes into possession of materials, apart from that already available as part of its records or if primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all materials necessary for the appreciation of issues arising for assessment including financials and annexures along with its return of income at the first instance.
In the light of the aforesaid decision of the Hon’ble Madras High Court, the Ld.AR drew our attention to the reasons recorded by the AO, which is found placed at Page No.190 of the Paper Book, which is reproduced as under:
a) It was noticed from the profit and loss account of the assessee that the assessee had credited Rs.3,29,50,21,151/- as total revenue and derived book profit of Rs.9,64,37,461/- after claiming various expenditure including director remuneration of Rs.5,40,00,000/-. The assessee had computed gross total income of Rs.10,13,16,048/- in the computation of total income and admitted Rs.97,10,962/- for taxation after claiming VIA deduction of Rs.42,05,428/- u/s 801A. In this regard it was observed in audit that the role of the director for receiving salary/remuneration to look into the functioning of the performance of all the departments within the company. The director is the key managerial position to plan strategic operating plan and to ensure all long term and short term targets. The salary of the director cannot be segregated or compartmentalized to particular work of the company. Hence the salary allowed to the director shall include the income/loss derived for the windmill also. As per the decision reported in the case of Rajasthan state mines Ltd Vs DCIT salary paid to the director is common expenditure of the company and while calculating net profit as per provision of 801A the assessee is bound to consider the proportion of these common expenditure. Hence proportionate salary of Rs.22,41,493/- has to be deducted from the 801A income and sec 801A deduction has to be allowed to the extent of Rs.19,63,935/- and the balance amount has to brought to tax as stated below:
GROSS TOTAL INCOME 10,13,15,048 SALARY TO DIRECTOR 5,40,00,000 PERCENTAGE OF SALRY TO GTI 53.30% Hence Rs.22,41,493/- @ 53.30% on Rs.42,05,428/- requires to be disallowed from the 801A deduction claimed by the assessee and brought to tax. b) It was noticed from the copy of the receipt dated 20.07.2013 issued by the TNEB that the assessee had paid Rs.61,91,510/- towards payment of estimate cost (Rs.500 towards registration fee and Rs.61,91,010 towards estimate charges) for the provision of dedicated feeder line. The assessee had debited the same to the P&L account as revenue expenditure (schedule 24 other administrative expenses sl.No.32 power charges-others). The estimate charges are contingent in nature for the installation of new plant and machinery or extension for the existing capital asset and it has to be accounted for in the asset side of the balance sheet. It was not allowable business expenditure and needs to be disallowed u/s 37 of IT Act. In the view of the above, I have reason to believe that income chargeable to tax more than Rs.1 lakh has escaped assessment for assessment year 2014-15 within the meaning of section 147 of the Income Tax Act, 1961.
The Ld.AR drawing our attention to the first sentence [of the reasons recorded supra] wherein the AO has admitted that on perusal of the P&L a/c of the assessee, he discovered certain facts which led him to believe that certain income has escaped assessment [₹22,41,493/-] which needs to be disallowed u/s.80IA of the Act; and then the Ld.AR also drew our attention to Para No.2(b) and pointed out that there also the AO admits taking notice of fact (payment to Electricity Board) which fact he came to know from perusal of assessment records, wherein he found copy of the receipt dated 20.07.2013 issued by the Tamil Nadu Electricity Board (TNEB) that assessee had paid ₹61,91,510/- towards payment of estimate cost for the provision of dedicated feeder-line; and the AO further taking note of the P&L account noticed that the assessee had debited the same to the P&L a/c as ‘Revenue expenditure’. Then the AO formed a view that such a payment by estimation are contingent in nature paid for installation of new plant & machinery and has to be accounted for in the assets side of the balance sheet and is not allowable as ‘business expenditure’ and needs to be disallowed u/s.37 of the Act.
According to the Ld.AR, thus, it can be noticed that there was no other material which was extraneous to that of material already available on record and therefore, the AO couldn’t have reopened the assessment and therefore prayed that the impugned action of the AO to reopen the assessment be quashed.
Per contra, the Ld.DR vehemently opposing the submission of the Ld.AR brought to our notice, another fact which vitiates the Ld.CIT(A) order and showed us that the Ld.CIT(A) has erroneously cut & pasted the order for AY 2020-21 instead of the order to be passed for AY 2014-15. In order to correct such an apparent mistake, he brought to our notice that the AO has already taken steps requesting the Ld.CIT(A) to pass a rectification order and therefore, he want us to set aside the impugned order of the Ld.CIT(A) back to the file of the Ld.CIT(A) for de novo adjudication of the grounds of appeal raised by the assessee.
We have heard both the parties and perused the records, we first of all note that the Ld.CIT(A) has mistakenly cut & pasted his order for AY 2020-21 instead of AY 2014-15 and therefore, the impugned action of the Ld.CIT(A) is erroneous, since it pertains to some other year, which action of the Ld.CIT(A) can’t be countenenced. Having said so, we also take note of the legal issue that has been raised by the assessee against the re-opening of assessment which led the AO passing of the re-assessment order dated 30.03.2022 u/s.147/143(3) of the Act. Since the assessee has challenged the jurisdiction of the AO to have re-opened the assessment u/s.147 of the Act, we are inclined to examine the validity of the legal issue.
Brief facts relating to the legal issue are that the assessee company is noted to have been incorporated in the year 1989 and is engaged in the business of manufacturing of TMT Steel Bars. The assessee company is noted to have filed its ITR/RoI for AY 2014-15 on 29.09.2014 which was selected for scrutiny and consequent assessment order was passed u/s.143(3) of the Act dated 18.12.2017 by making two additions. Out of which, one of the addition was made by reducing the claim of deduction u/s.80IA of the Act to the extent of ₹3,19,523/-. Later, the case of the assessee was reopened by issuance of notice u/s.148 of the Act on 31.03.2021 [after four (4) years from the end of the assessment year] and pursuant to it, the assessee is noted to have filed the RoI. And the AO is noted to have given reasons for re-opening of assessment and the assessee is noted to have objected to the re-opening of assessment but the AO have repelled the objections raised by the assessee against re- opening of assessment, and then passed re-assessment order u/s.147 of the Act, which action of the AO is under challenge before us. According to the Ld.AR, the AO ought not to have issued the notice u/s.148 of the act on 31.03.2021 without having in his possession any tangible material which was otherwise not available in the assessment folder of the assessee for AY 2014-15. According to the Ld.AR, the reasons recorded by the AO for justifying the reopening of the assessment [supra] shows that there has been no other material other than the material already in possession of the Assessing Officer [which was furnished by the assessee to the AO during the original assessment u/s.143(3) of the Act, which culminated in him passing the original assessment u/s.143(3) of the Act on 18.12.2017]. Therefore, according to the Ld.AR, the AO couldn’t have reopened the assessment by issuing impugned notice u/s.148 of the Act on 31.03.2021. For such a proposition, he has relied on the decision of the Hon’ble jurisdictional High Court in the case of Indian Syntans Investments Pvt. Ltd. (supra). Having taken note of the reasons recorded by the AO for reopening the assessment (supra), we note that the AO has reopened the assessment on two (2) issues alleging escapement of income viz (i) for disallowing ₹22,41,493/- u/s.80IA of the Act and (ii) for disallowing expenditure of ₹61,91,510/- which was debited by the assessee in its P&L account as ‘revenue expenditure’ which according to the AO was contingent in nature and therefore, not allowable as ‘business expenditure’. Both these issues according to the AO has been discovered from perusal of the P&L account as well as from the contents of the copy of the receipt dated 20.07.2013 issued by the Electricity Board [which assessee had produced during the original assessment and found in the assessment folder of the assessee when the original assessment was framed on 18.12.2017]. Therefore, we find that there was no tangible material in the possession of the AO other than the material already filed by the assessee during the original assessment in 2017. Since, we find that the reasons for reopening as stated by the AO indicates that the AO didn’t had any other material which was extraneous to that already on record or new material has been discovered or came to his possession which would indicate escapement of income and since four (4) years have passed and original assessment has been framed u/s.143(3) of the Act, the first proviso to Section 147 bars the AO from reopening the assessment without making an allegation that the assessee failed to make fully and truly disclosure at the time of assessment. The reasons recorded by the AO as reproduced supra doesn’t spell out such an allegation made by the AO for justifying the reopening. Therefore, we are of the view that the AO didn’t had the jurisdiction to reopen the assessment which has already been completed u/s.143(3) of the Act on 18.12.2017 because it
:: 9 :: does not satisfy the requirement of Law as laid down by the Hon’ble Supreme Court in the case of Kelvinator India Limited reported in 320 ITR 561 wherein the Hon’ble Supreme Court has held that if reasons for reopening merely reiterated materials that was already available on record, then in such an event, the action of AO cannot be termed as reassessment but one of review which is impermissible under the Act. The relevant portions of the judgment read as under:
"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which.. we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of. "mere change of opinion", which cannot be per se reason to. reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment.. review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have. a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words ?reason to believe? but also inserted the word 'opinion' in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words 'reason to believe', Parliament re- introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:
"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147. - - A number of representations were received against the omission of the words 'reason to believe-from Section 147 and their substitution by the `opinion- of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe- in place of the words 'for reasons to be recorded by him in writing, is of the opinion-. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs. (emphasis supplied)
It will also be gainful to refer to the decision of the Hon’ble High Court of Madras in the case of Indian Syntans Investments Pvt. Ltd., wherein their Lordships have clearly held that reassessment made within four (4) years or beyond four (4) years has to be based on tangible material de hors that is available on record that has come to the notice of the AO. Recourse to proceedings for reassessment is available only if the department comes to possession of materials, apart from that already available as part of its records or if primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all materials necessary for the appreciation of issues arising for assessment including financials and annexures along with its return of income at the first instance [refer Para No.12 of the Hon’ble High Court’s order]. We also refer to the decision of the Hon’ble Delhi High Court in the case of CIT v. Orient Craft Limited reported in [2013] 29 taxmann.com 392 [Delhi] wherein it was held that in absence of tangible material available with the AO to form the requisite belief regarding escapement of income, it will tantamount to review of the assessment in the guise of reopening.
In the light of the aforesaid discussions, we find that in the present case, the reasons disclose that the AO reached the belief that there was escapement of income, ongoing through the return of income filed by the assessee as well as the financials [P&L account as well as the balance sheet filed by the assessee as well as the documents to prove the expenditure claimed by the assessee which were already in the assessment folder of the assessee for AY 2014-15] which culminated in the AO scrutinizing the same and passing the original assessment order u/s.143(3) of the Act dated 18.12.2017. Therefore, the impugned action of the AO issuing notice on the strength of the reasons recorded for reopening of the assessment shows that there was no tangible material which came to the possession of the AO subsequent to the original assessment order having been passed on 18.12.2017. Therefore, the action of the AO to have reopened the assessment without any tangible material and without alleging that the assessee didn’t furnish fully and (AY 2014-15) M/s. Agni Steels Pvt. Ltd. truly all relevant material for the assessment i.e. as provided for under the first proviso to section 147 of the Act, the impugned action of the AO to reopen the assessment is held to be wholly without jurisdiction and therefore quashed.
In the result, appeal filed by the assessee is allowed. Order pronounced on the 18th day of September, 2025, in Chennai.