The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings holding that the reopening of assessment beyond four years was legally unsustainable as the Assessing Officer (AO) failed to record that the assessee had failed to fully and truly disclose all material facts necessary for assessment. 

The bench of Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) has observed that  reassessment initiated beyond four years cannot survive where the recorded reasons fail to allege any failure by the assessee to disclose fully and truly all material facts. Consequently, the notice under Section 148 and the reassessment order were quashed, and the Tribunal refrained from adjudicating the merits of the additions.

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The appeal arose from an order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which had upheld the reassessment made under Sections 147 and 144 of the Income Tax Act, 1961.

The reassessment stemmed from information received by the Investigation Wing, Faridabad, alleging that the company had received accommodation entries in the form of share capital and share premium amounting to ₹6.96 crore from entities allegedly controlled by an entry operator, Himanshu Verma. Based on this information, the Assessing Officer added ₹6.96 crore under Section 68 as unexplained share capital/share premium; and ₹13.64 lakh under Section 69C as alleged commission paid for obtaining accommodation entries. 

Before the Tribunal, the assessee primarily challenged the legality of the reassessment proceedings rather than the additions themselves.

The company argued that the original assessment had already been completed under Section 143(3); the reopening was initiated after the expiry of four years from the end of the relevant assessment year; and the reasons recorded by the Assessing Officer nowhere stated that income had escaped assessment because of any failure on the part of the assessee to disclose fully and truly all material facts.

According to the assessee, compliance with the first proviso to Section 147 is mandatory in such cases and failure to satisfy this jurisdictional requirement rendered the entire reassessment void. 

The Revenue contended that the reopening was based on fresh information received from the Investigation Wing regarding accommodation entries and subsequent search proceedings conducted against Himanshu Verma.

It argued that the information constituted tangible material; the Assessing Officer had independently applied his mind before recording reasons; proper approval under Section 151 had been obtained; and reopening based on investigation reports revealing bogus share capital transactions was legally permissible under various judicial precedents.

The Department further maintained that the assessee had failed to establish the genuineness, identity and creditworthiness of the alleged investor entities. 

The Tribunal examined the recorded reasons for reopening and observed that although they referred extensively to information received from the Investigation Wing and alleged accommodation entries, they did not contain any finding that the assessee had failed to disclose fully and truly all material facts necessary for assessment.

The Bench noted that this omission assumes decisive importance because the reassessment notice was issued beyond four years from the end of AY 2012-13; and the original assessment had already been completed under Section 143(3).

Under the first proviso to Section 147, reopening after four years is permissible only if the escaped income is attributable to the assessee’s failure to make a full and true disclosure of material facts.

The Tribunal referred to several judicial precedents governing reopening beyond four years and observed that the statutory requirement under the first proviso to Section 147 is jurisdictional in nature.

It held that merely relying upon investigation reports or information regarding accommodation entries cannot cure the absence of the mandatory jurisdictional satisfaction required under the law.

The Tribunal further distinguished the authorities relied upon by the Revenue, observing that those decisions did not address the specific legal defect present in the case—namely, the failure of the Assessing Officer to record the assessee’s alleged non-disclosure of material facts.

After analysing the reasons recorded for reopening, the Tribunal concluded that the jurisdictional conditions prescribed under the first proviso to Section 147 had not been fulfilled.

Accordingly, it held that the reopening of assessment was invalid in law and quashed the notice issued under Section 148; and the consequential reassessment order.

Since the appeal succeeded on this legal ground, the Tribunal found it unnecessary to examine the additions on merits relating to the alleged accommodation entries and commission payment. 

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