Reopening cannot be based on incorrect or non-existent facts: ITAT Hyderabad
The Indian Income Tax Act, 1961 provides a mechanism for the reopening of completed assessments under Section 147, where the Assessing Officer (AO) has “reason to believe” that any income chargeable to tax has escaped assessment. However, this power is not unbridled and must be exercised judiciously, based on tangible material and correct facts.
Here is one case before ITAT Hyderabad – Somnath Konduru v. ITO-No.- ITA. No. 179/Hyd. /2024 Dated.- April 21, 2025 wherein the legality of Reopening Assessment Under Section 147 Based on Incorrect Assumptions was challenged.
Let us have a Short Overview of the case:
The assessee, Mr. Somnath Konduru, a non-resident, filed his original return of income for AY 2015–16 on 22.12.2015, declaring an income of Rs. 17,230/-. The AO, based on 50C information from the I&CI Wing, discovered a sale of immovable property by the assessee on 11.03.2014 for Rs. 58,48,000/-, with the same amount being the value adopted for stamp duty purposes.
Subsequently, notice under Section 148 was issued on 28.03.2021, stating that the assessee had not filed his return or disclosed the capital gains.
However, the assessee responded by providing documentary evidence – including the ITR, computation, and sale deed – proving that the capital gains had been disclosed in the return filed in December 2015.
Despite this, a draft assessment order under Section 144C(1) was passed on 06.03.2023, computing capital gains of Rs. 32,09,022/-. The assessee filed objections with the DRP, but these were rejected on technical grounds – delay in filing objections (filed on 06.04.2023 against a due date of 05.04.2023). A final assessment order followed on 26.12.2023.
Core Legal Issues
1. Was the reopening under Section 147 valid when the reason recorded was factually incorrect?
2. Does the mere issuance of a notice based on incorrect assumptions render the proceedings void ab initio?
3. What is the legal impact of an objection to the DRP being rejected on technical grounds (1-day delay)?
Judicial Reasoning and Analysis:-
The ITAT Hyderabad held that the reopening was based on an incorrect factual premise – that the assessee had not filed a return or disclosed capital gains. This was factually inaccurate, as the return was filed in 2015 and included the capital gains. Therefore, the entire foundation for issuing notice under Section 148 stood collapsed.
Quoting precedents including:
• Vijay Harishchandra Patel v. ITO (Gujarat High Court)
• Mrs. Tahera Abida Ghori v. DCIT (ITAT Hyderabad)
The Tribunal reiterated the principle that reopening cannot be based on incorrect or non-existent facts. If the AO fails to verify the records or applies the law without due diligence, such action is invalid and non-est in law.
Moreover, the Tribunal criticized the mechanical approach of the AO in recording reasons without verifying the ITRs available on the system. This lack of application of mind violates the essential requirement under Section 147 for “reason to believe”.
The copy of the order is as under:
