2016 (10) TMI 1134 - HC - Income Tax

Validity of reopening of assessment - scrutiny of a valid opinion based upon tangible material - Held that - Neither is the notice containing the reasons nor is the official file forthcoming about what the Assessing Officer meant by an information in respect of a suspicious transaction to qualify for a valid re-assessment notice in terms of the Supreme Court ruling in Kelvinator ( 2010 (1) TMI 11 - SUPREME COURT OF INDIA ). The notice or the materials should be objective i.e. apart from what exists. The ruling in Kelvinator (supra) is also clear that a change of opinion or review as it were based upon the existing materials with no more, is inadequate to justify reopening of a completed assessment. Furthermore, the materials on record show that in both the cases, the original assessments were completed under Section 143 (3). Having regard to all these facts, the court is of the opinion that the impugned notices and further proceedings cannot stand the test of law; they are hereby quashed. - Decided in favour of assessee.

Summary

Issues:
Re-assessment notice validity under Sections 147/148 of the Income Tax Act based on suspicious transactions.

Analysis:
The judgment concerns the validity of re-assessment notices issued by the Income Tax Authorities under Sections 147/148 of the Income Tax Act based on suspicious transactions. The notices were challenged by the assessee/writ petitioner as lacking a valid "opinion" based on tangible material, as required by the Supreme Court ruling in Commissioner of Income Tax v. Kelvinator Ltd. The petitioner's counsel argued that the reasons recorded for the notices did not meet the standard set by the law. In response, the respondent's counsel contended that the reference to information and subsequent inquiries constituted sufficient "reasons to believe" under Section 147(1) of the Act. The respondent also relied on relevant file notings presented in court to support their position.

Upon review of the submissions and the material on record, the court found that the notice did not contain clear reasons or official documentation explaining the basis for considering the transactions as suspicious. The court emphasized that the reasons provided for re-assessment must be objective and supported by tangible evidence beyond mere existence. Citing the Supreme Court's ruling in Kelvinator Ltd., the court highlighted that reopening a completed assessment based solely on a change of opinion without new material is insufficient. Additionally, it was noted that the original assessments in both cases were already completed under Section 143(3) of the Income Tax Act.

Considering these factors, the court concluded that the impugned notices and subsequent proceedings did not meet the legal requirements and were therefore quashed. The writ petitions filed by the assessee/writ petitioner were allowed in favor of the petitioner, leading to the cancellation of the re-assessment notices based on the suspicious transactions.