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Facts
The assessee, engaged in the waste paper business, filed a return for AY 2014-15 admitting a total income. The case was reopened after four years based on additions including unsecured loans and omitted business receipts. The CIT(A) sustained these additions, leading to the present appeal.
Held
The Tribunal held that for reopening an assessment beyond four years, it must be established that income escaped assessment due to the assessee's failure to disclose material facts. The reasons recorded did not provide any whisper of such failure.
Key Issues
Whether reopening of assessment beyond four years is valid without establishing the assessee's failure to disclose material facts, as required by the proviso to Section 147.
Sections Cited
147, 148, 143(3), 150(1), 139, 142
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI S. R. RAGHUNATHA
आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)
This appeal is preferred against the order of the Commissioner of Income Tax (appeals) [‘CIT(A)’ in short ], (NFAC), Delhi, dated 30.01.2025 for the assessment year 2014-15.
Assessee has raised 10 grounds of appeal, however, the Ld.Counsel for the assessee harped mainly on the jurisdictional ground no.2 which is as under:
….The Ld.CIT(A) erred in confirming the action of the Ld.AO by ignoring the fact that no acation can be initiated u/s. 147 after the expiry of 4 years from the end of the assessment year unless the income chargeable to tax has escaped assessment by reason for failure on the part of the taxpayer to disclose fully and truly all materials facts necessary for his assessment….
Brief facts of the case: The appellant, an individual engaged in the business of waste paper and waste material, has filed his return of income for the AY-2014-15 on 08.08.2014 admitting a total income of Rs.5,26,870/- on business receipts of Rs.98,81,803/-. The case was selected for scrutiny and the assessment was completed and after reconciling the bank statement, the Ld.AO estimated the income at Rs.15,44,126/- @ 12% of gross receipts of rs.1,28,67,766/- and disallowance of depreciation amounting to Rs.1,51,973/- and raised a demand of Rs.2,76,860/- in the original assessment and the same was paid by the appellant. Subsequently, the case was reopened u/s. 148 beyond 4 years from the AY-2014-15 vide notice dated 12.03.2020 where after in the assessment order the following additions were made: i) Disallownace of unsecured loan treated as cessation of liability of Rs.21,95,000/-. ii) Inadvertent omission of business receipts treated as business income Rs.36,94.141. Aggrieved by the additions, the appellant preferred an appeal before the Ld.CIT(A) who has sustained the additions. Hence, the present appeal.
During the course of the hearing, we have directed the Ld.DR for the Revenue to place on record the reasons recorded for initiating the proceedings u/s 147 of the Act. The Ld.DR has placed on record, the reasons recorded for reopening the assessment u/s.148 of the Act. The reasons recorded for reopening the assessment is as under: “….The assessee filed his return of income for the AY-2014-15 on 01.08.2014 admitting a total income of Rs.5,26,870/-. The same was processed u/s. 143(1) determining a refund of Rs.18,480/-. The case was selected for scrutiny and assessment was completed u/s.143(3) on 27.12.2016 and the total income was estimated as Rs.15,44,130/-. It is seen from P&L account that a sum of Rs.98,81,803/- was accounted as receipt, Rs.91,71,345/- claimed as expenditure and finally arrived a net profit of Rs.7,10,458/-. During the course of scrutiny, the assessee that admitted a sum of Rs.29,85,963/- as additional receipt. Thus the total receipts for the AY-2014-15 works out to Rs.1,28,67,766/- and from this, the expenditure of Rs.91,71,345/- claimed by the assessee has to be deducted and remaining amount of Rs.36,96,421/- has to be brought to tax. Instead, the assessing officer has estimated the income at 12% of the gross receipt of Rs.1,28,67,766, which is not in order. If this is considered, there would be an additional demand of Rs.9,60,782/- including interest. It is seen from ITR that the assessee received an unsecured loan of Rs.21,95,000/- otherwise than by an A/c payee check / Bank Draft. This needs further investigation and verification. Thus the provisions of sec. 150(1) are satisfied in this case for issue of notice u/s.
Since it is a fit case for reopening u/s.147, proposal is submitted for kind approval of the PCIT for issue of notice u/s.148 for AY 2014-15 as per provision to section 147 of the Act.
On the strength of reasons recorded for reopening the assessment supra, Ld. Counsel for the assessee vehemently submitted that the AO has completely ignored the fact that no proceedings can be initiated u/s. 147 of the Act after the expiry of four years from the end of the assessment year unless the income chargeable to tax has escaped assessment for reason for failure on the part of assessee to disclose fully and truly on material facts necessary for the assessment. He further relied upon the judgments of the various Hon’ble High Courts and Tribunals.
Per contra, the Ld.DR Ms.Gouthami Manivasagam, JCIT has submitted that AO rightly recorded the reasons for the reopening the assessment u/s.147 of the Act. She further submitted that proper sanction / approval has been accorded by the PCIT.
We have heard the rival submissions and perused the reasons recorded for reopening the assessment as referred supra. We find that there is no whisper in the reasons recorded for reopening the assessment. The proviso to Section 147 is reproduced as under: “….Provided that where an assessment under sub-section(3) of the 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….” [Emphasis supplied by us] 8. A plain reading of the said proviso makes it more than clear that where the provisions of Section 147 are being invoked after the period of four years from the end of the relevant assessment year, in addition to the Assessing Officer having reason to believe that any income chargeable to tax has escaped assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee failing to make a return under Section 139 etc. or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. In the present case, the question of making of a return is not in issue and the only question is with regard to the second portion of the proviso, which relates to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Insofar as this pre-condition is concerned, there is not a whisper of it in the reasons recorded by the AO. Therefore, it is presumed that the assessee had fully and truly disclosed all the material facts necessary for the assessment, the pre-condition for invoking the proviso to Section 147 of the said Act had not been satisfied.
In this connection, it may be relevant to note the following decisions: (a) Duli Chand Singhania v. Asstt. CIT [2004] 136 Taxman 725/269 ITR 192 (Punj. & Har.): ''that the reasons recorded for issue of notice showed that the satisfaction recorded therein wes merely about the escapement of income. There was not even a whisper of an allegation that such escapement had occurred by reason of failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment. Absence of this finding which is a "sine qua non" for assuming jurisdiction under section 147 of the Act in a case falling under the proviso thereto, made the action taken by the Assessing Officer wholly without jurisdiction. The notice was not valid and was liable to be quashed. " (b) CIT v. Elgi Ultra Industries Ltd. [2008] 296 ITR 573 (Mad.) "the reopening of the assessment under s. 148 beyond the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. in this case there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts".
(c) CIT v. Premier Mills Ltd. [2009] 179 Taxman 13/[2008] 296 ITR 157 (Mad.) "6. In case where the assessment is completed under section 143(3) of the Income-tax Act, the reopening of the assessment under section 148 beyond the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. In this case there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts. Further, all the material facts are available at the time of making original assessment. The Tribunal has correctly followed the principles enunciated in the Supreme Court judgment reported in CIT v. Foramer France, [2003] 264 ITR 566, as well as this court judgment reported in the case of CIT v. Elgi Finance Ltd., [2006] 286 ITR 674 and came to the correct conclusion." (d) CIT v. A.V. Thomas Exports Ltd. [2007] 163 Taxman 718/[2008] 296 ITR 603 (Mad.) "6. The Tribunal has applied the correct principle of law and held as follows: "But whether recourse to section 147 could be made beyond four years is the real question in the present appeal. Circumstances for extending limitation beyond four years do not exist in the facts of the present case. As such on the ground of limitation assumption of jurisdiction under section 147 is bad. In the case of CIT v. Foramer France, [2003] 264 ITR 566 (SC), it was held that if there is no failure to file return or to disclose fully and truly all material facts, issuance of notice beyond the period of four years is barred by limitation. In the case of CIT v. Annamalai Finance Ltd., [2005] 275 ITR 451 (Mad) it was held that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion. It is incumbent on the Assessing Officer to prove that there was a failure to disclose material facts necessary for the assessment for the issuance of notice beyond the period of four years." (e) Caprihans India Ltd. v. Tarun Seem, Dy. CIT [2003] 132 Taxman 123/[2004] 266 ITR 566 (Bom.) "8. The Assessing Officer seeks to reopen the assessment after a period of four years from the end of the assessment year and in view of the judgment of this court in the case of IPCA Laboratories Ltd. v. Gajanand Meena, Deputy CIT (No. 2)[2001] 251 ITR 416, the Assessing Officer cannot act in the matter of reopening of assessment beyond four years, unless he has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. He submitted that a bare reading of the reasons shows that reopening is sought to be effected only on the basis of the case records. He submitted that on two out of three points mentioned in the reasons, the Assessing Officer merely states "that the issue needs to be looked into". That, on those two issues regarding subsidy and provident fund being disallowed, the Assessing Officer does not even say that there is escapement of income from assessment. He therefore submits that the proviso to section 147 is not attracted. That, on the said two points, there is nothing to indicate escapement of income. That, on the said two points, there is nothing to indicate failure on the part of the assessee to disclose fully and truly all material facts. That, on these two points, there is nothing to show as to on what basis the Assessing Officer has formed his belief regarding escapement of income from assessment. It is submitted that on the face of the given reasons, there is a total non-application of mind on the part of the Assessing Officer.
Therefore, respectfully following the judgment of the Hon'ble jurisdictional High Court in the case of ACIT Vs Seshasayee Paper and Board Ltd [2023] taxmann.com 432 (Madras): 455 ITR 291 (Madras) referred supra and other judgments referred above, we held that there was no whisper regarding failure on the part of assessee to disclose fully and truly all material particulars which would confer jurisdiction to proceed/initiate reassessment proceedings beyond four years and within six years. Therefore, in the light of the factual matrix of this case, reopening of assessment u/s 148 of the Act is set aside. Other issues raised become academic.
In result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16th day of July 2025 at Chennai.