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Judgment
PER ANUBHAV SHARMA, JM:
This appeal is filed by the assessee against the order u/s 250 of the Income Tax Act [hereinafter referred to as ‘the Act’] dated 27.10.2025 passed by Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the First Appellate Authority] in regard to assessment order dated 26.03.2022 u/s 147 read with section 144B of the Act passed by NFAC, Delhi [hereinafter referred as ‘the AO].
Heard and perused the records. The relevant facts are that the Appellant is engaged in the business of providing business advisory services along with business and management consultancy services to different industry sectors. As for the year under consideration the Appellant filed its return of income (ROI) u/s 139(1) of the Act and the case of Appellant was picked up for scrutiny assessment. Pertinent to mention is that during the assessment proceedings, the case of the Appellant was referred to Transfer pricing officer, (‘Ld. TPO’), and ld. TPO accepted the transactions between Appellant and its associated enterprises ('AE') to be at arm's length. The assessment was concluded without any adjustments to the returned income.
Thereafter, notice u/s 148 of the Act dated 31 March 2021 was issued for initiation of re-assessment and in response to which the Appellant filed its ROI declaring a total income of Rs. 91,42,82,540 as filed u/s 139(1) of the Act. The re-assessment proceedings were concluded by NFAC making addition amounting to Rs. 17,70,42,768 in respect of expenses classified as recruitment and training expenses in books of accounts, by holding them to be capital in nature and addition of Rs. 4,40,381 on account of delay in deposition of employee contribution to welfare funds. NFAC confirmed the additions and assessee is in appeal raising following grounds;
Ground No. 1 That on the facts and circumstances of the case and in law, the present proceedings under section 147 of the Act are liable to be quashed as the same are without jurisdiction.
Ground No. 2- That on the facts and circumstances of the case and in law, the NFAC erred in computing the total income as Rs. 109,17,65,689, as against the returned income of Rs. 91,42,82,540, by making disallowances amounting to Rs. 17,74,83,149.
Ground No. 3-That on the facts and circumstances of the case and in law, the NFAC has erred in treating the recruitment and training expenses amounting to Rs. 17,70,42,768, as expense of capital nature and adding back the same to the income of the Appellant.
Ground No. 4-Without prejudice to the above, on the facts and circumstances of the case and in law, the NFAC, while sustaining the disallowance of Rs. 17,70,42,768, has erred in not allowing corresponding reduction in revenue of Rs. 21,24,51,322, ignoring that the Appellant is a cost-plus entity.
Ground No. 5- That on the facts and circumstances of the case, the NFAC has erred in charging interest under section 234A of the Act amounting to Rs. 4,90,392, while computing the tax liability on the assessed income, ignoring the fact that the return of income of the w filed within the prescribed due date under the Act.
Ground No. 6-That on the facts and circumstances of the case, the NF AC has erred in charging additional interest under sections 2348 and 234C of the Act, while computing the tax liability on the assessed income.
Ground No. 7-That on the facts and circumstances of the case, the NF AC has erred in initiating the penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income.
The above grounds are independent and without prejudice to one another. Any consequential relief, to which the Appellant may be entitled under the live in pursuance of the aforesaid grounds of appeal, or otherwise, may be thus granted.
The Appellant craves leave to add, alter, omit, or substitute any or all of the above grounds of appeal, at any time before or at the time of hearing of the appeal.”
Both sides were heard on Ground No. 1, as the same goes to the root of assumption of jurisdiction. Ld. Counsel has submitted that all necessary information were filed in the assessment proceedings and the re-opening is vitiated as same is merely a change of opinion and reasons as stand recorded do not even mention of the source of information and how the initiation of re-assessment proceedings after 4 years from end of AY was valid, in absence of any failure on the part of Appellant to disclose materials.
Ld. DR has however, supported the reopening jurisdiction.
We find from the reasons for reopening that apparently there is no allegation or finding recorded by Ld. AO in respect of failure on part of the Appellant to disclose fully and truly any material fact or information. Thus, the mandatory conditions of failure on account of assessee to disclose fully and truly all material facts necessary for initiation of reassessment proceedings beyond the prescribed time limit of 4 years is not satisfied. On the contrary ld. Counsel has demonstrated that the Appellant had made a full and true disclosure of the expenses incurred in its audited financial statements (Note No. 18 under the head 'Employee Benefit Expenses under the row number 6 of the FS), placed on records of L.d. AO during the assessment proceedings u/s 143(3) of the Act. Further, in its return of income filed u/s 139(1) dated 28 November 2014 the expenditure was duly disclosed under Part A-P&L under row 14 'Compensation to employee's under point (1) salaries and wages’ stands reported.
Then the settled law is that assessing officer must record reasons to believe based on the tangible material and should come to a conclusion that there is escapement of income. Reliance for this is placed on Madhukar Khosla vs CIT (2014) [W. P. (C) (367)-ITR-0165] and CIT vs Kelvinator of India Ltd (2010) [320 ITR 561] (SC). However, from the narration of reasons, it appears that no new material on record seems to have been available with ld.AO and reopening solely based upon mere change of opinion. It is not discernable from the reading of the "reasons to believe” that whether the reopening is based on any information received from any other wing of income tax department or any third party. In the alleged reasons supplied to assessee there is no reference to the source of information. Hence, it is a case of mere change of opinion. Accordingly, the reopening of the assessment is without jurisdiction, as it is based solely on a re-examination of the material already available on records and considered by the Ld. AO during original assessment proceedings u/s 143(3) of the Act.
We thus sustain ground no. 1 and allow the appeal of assessee. The impugned assessment stands quashed.