2022 (5) TMI 839 - HC - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - tangible material and reasons must have a live link with the formation of the belief - unexplained cash deposits in bank account - HELD THAT - After the assessing officer had earlier made assessment for the same assessment year and accepted the explanation of the petitioner regarding cash deposits in bank, reassessment proceedings for the alleged escapement of the income from assessment to tax on the ground of cash deposits in bank which were earlier considered by the assessing officer in regular assessment proceedings, would amount to change of opinion . Since the assessing officer, during the course of the regular assessment proceedings, consciously applied his mind to the cash deposits in bank by the petitioner, then initiation of the reassessment proceedings on the same set of facts would tantamount to change of opinion . Therefore, the assessing officer could not assume jurisdiction to initiate reassessment proceeding in the facts and circumstances of the present case. Apart from above, reason to believe recorded by the assessing officer was neither bonafide nor based upon reasonable ground. It was based on vague feeling that there might have been some escapement of income from assessment. Therefore, reason to believe recorded by the Assessing Officer could not give jurisdiction to the assessing officer to issue notice u/s 148. The stand taken by the respondents in the counter affidavit dated 25.04.2022 reveals that the case of the petitioner was selected for reassessment under Section 147/148 on the basis of CBDT Circular dated 04.03.2021 being potential case for taking action under Section 148 - AO has blindly applied the aforesaid Circular of the CBDT, without looking into the facts of the present case and in complete ignorance of the direction of the CBDT in paragraph 3 of the said Circular. In paragraph 3 of aforesaid Circular the CBDT has clarified that action under Section 148 of the Act shall be taken by the assessing Officer in respect of the specified categories of cases after forming a reasonable belief that income chargeable to tax has escaped assessment. Thus reason to believe recorded by the AO for issuing the impugned notice under section 148 blindly applying the Circular of CBDT dated 04.03.2021 and without forming reasonable belief that income chargeable to tax has escaped assessment, cannot authorise the AO to assume jurisdiction to issue notice to the petitioner under Section 148. There was no material before the AO to hold that the cash deposited by the petitioner in Bank during the Assessment Year in question has escaped assessment to tax, inasmuch as , AO has abruptly and without recording any reason has held Rs. 38,83,000/- as undisclosed income for Assessment Year 2017-18. There is no whisper in the impugned reassessment order as to how the AO has arrived at the aforesaid amount as undisclosed income and that how the aforesaid amount represents undisclosed income of the petitioner/assessee. Thus the reassessment proceeding initiated by the AO against the petitioner for the AY 2017-18 was not only without jurisdiction but also it was abuse of power - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Jurisdiction of the assessing officer to initiate reassessment proceedings.
3. Whether the reassessment was based on a "change of opinion."
4. Adequacy and relevance of the "reason to believe" for reassessment.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act for the assessment year 2017-18. The court examined whether the notice was issued based on a valid "reason to believe" that income had escaped assessment. It was found that the notice was issued based on information from the Investigation Wing, stating that the petitioner had deposited a significant amount of cash during the demonetization period, which was treated as undisclosed income. However, the court concluded that the notice was issued without forming a reasonable belief and was based on vague and irrelevant grounds, thus invalidating the notice.

2. Jurisdiction of the Assessing Officer to Initiate Reassessment Proceedings:
The court scrutinized whether the assessing officer had jurisdiction to initiate reassessment proceedings under Section 147 of the Act. It was held that the assessing officer lacked jurisdiction as the "reason to believe" was not bona fide and was based on mere suspicion. The court emphasized that the belief must be that of an honest and reasonable person based on reasonable grounds, not on arbitrary, irrational, or irrelevant material.

3. Whether the Reassessment was Based on a "Change of Opinion":
The court analyzed whether the reassessment proceedings were initiated due to a change of opinion by the assessing officer. It was found that during the original assessment, the assessing officer had already scrutinized the cash deposits and accepted the petitioner's explanation. The court held that initiating reassessment on the same set of facts amounted to a change of opinion, which is impermissible under the law. The court reiterated that reassessment cannot be made on a change of opinion if the assessing officer had previously formed an opinion on the matter.

4. Adequacy and Relevance of the "Reason to Believe" for Reassessment:
The court evaluated the adequacy and relevance of the "reason to believe" recorded by the assessing officer. It was determined that the reasons were neither adequate nor relevant, as they were based on a vague feeling of possible income escapement without concrete evidence. The court cited several precedents, emphasizing that the reasons must have a rational connection with the belief and must be based on tangible material. The court found that the reasons recorded by the assessing officer lacked a live link with the formation of the belief, rendering the reassessment proceedings invalid.

Conclusion:
The court quashed the notice dated 31.03.2021 and the reassessment order dated 30.03.2022, declaring them without jurisdiction and an abuse of power. The writ petition was allowed with costs of Rs. 5000 to be deposited with the High Court Legal Services Committee.

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