2024 (6) TMI 824 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - Alleged absence of reason to believe and live link between information and belief - case was reopened, on the basis of information uploaded by the ADIT (Inv) III, Nagpur on the insight portal of the Income Tax Department, which was designated under the category High Risk Transaction for the financial year 2016-17 as suspicious transaction report (STR) - HELD THAT - The loss was declared by the petitioner in the return of income for the assessment year 2017-18 filed on 17/10/2017, in pursuance to which an order u/s 143 (1) was passed on 25/05/2018 accepting the assessment, which would indicate that the loss of the aforesaid amount was considered and accepted by the AO. This being the position, any subsequent action in exercise of the power u/s 148 of the IT Act for reopening of the assessment could only be in terms of language of Section 148 of IT Act as it then existed. The language of Section 147 of the IT Act as it stood then, clearly mandates, that for reopening the assessment, there has to be existence of reason to believe available with the Assessing Officer that any income chargeable to tax has escaped assessment for a particular assessment year. Such reason to believe, has to be on the basis of information, which has subsequently been gathered or for that matter has to be in terms of Clause c of Explanation -2 to then existing Section 147 of the IT Act. The reason for this, is obvious, that a reassessment cannot be permitted, merely on the basis of change of opinion as that would denude the entire action of accepting the assessment of any finality, only on the basis of change of the AO. Thus, information and that too credible, which would permit the Assessing Officer to have reason to believe that the income chargeable to tax has escaped assessment is the very basis, for reopening of the assessment. It is necessary to note, that the loss claimed by the petitioner was already disclosed in its return filed for the assessment year 2017-18, as is indicated, from the intimation under Section 143 (1), accepting the return - It is also necessary to note, that in the order dated 19/12/2021 itself, the respondents, have categorically stated that in the AIR transaction details it is found that the assessee/petitioner has transacted (cumulative credit balance) to various Banks during the financial year 2016-17 and this information was not suspicious one and the Assessing Officer had rightly applied his mind in this regard. This being the position, merely because the CBDT inspection directs cases from non-filer management system (NMS) and other cases as flagged by the Directorate of Income Tax (Systems) as per risk profiling to be potential cases for taking action u/s 148 that by itself cannot be held to be a ground/information, giving reason to believe, to the Assessing Officer, to reopen the assessment in exercise of the powers u/s 147 of the IT Act. We find that the requirement of the then existing Section 147 does not stand satisfied which is also apparent from the language of the order which itself, is self-contradictory and silent as to a link being indicated between the information claimed to have been received and the reason to believe, in light of which, the impugned notice dated 31/03/2021 u/s 148 and so also the order dated 19/12/2021 cannot be sustained and are hereby quashed and set aside. Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment u/s 147 of the IT Act.
2. Validity of the notice issued u/s 148 of the IT Act.
3. Application of mind and satisfaction of the Assessing Officer.
4. Provision of prior approval/sanction.
5. Alleged absence of "reason to believe" and "live link" between information and belief.
6. Change of opinion as a basis for reopening assessment.

Summary:

1. Reopening of assessment u/s 147 of the IT Act:
The petitioner challenged the notice dated 31/03/2021 issued u/s 148 of the IT Act for reopening the assessment for the accounting year 2017-18. The petitioner argued that there was a total absence of any information and no reason to believe that income had escaped assessment, making all consequent actions non est.

2. Validity of the notice issued u/s 148 of the IT Act:
The petitioner contended that the notice was issued without independent application of mind and was based on borrowed satisfaction. The notice aimed at conducting a "fishing and roving enquiry" and was issued on mere suspicion without forming a "reason to believe."

3. Application of mind and satisfaction of the Assessing Officer:
The petitioner argued that the impugned order dated 19/12/2021 did not address the objections raised and lacked the provision of prior approval/sanction, indicating no application of mind and satisfaction by the respondent No. 2.

4. Provision of prior approval/sanction:
The respondents communicated that the approval for reopening was obtained online through ITBA, and no hard copy could be provided. The petitioner objected, stating that the basis for reopening was not available, requesting the dropping of proceedings u/s 148 of the IT Act.

5. Alleged absence of "reason to believe" and "live link" between information and belief:
The petitioner argued that there was no live link between the alleged information on the insight portal and the formation of belief that income chargeable to tax had escaped assessment. The court noted that the loss declared by the petitioner was already disclosed and accepted in the return filed for the assessment year 2017-18, and the reopening was based on flagged cases by the non-filer management system, which did not satisfy the requirement of "reason to believe."

6. Change of opinion as a basis for reopening assessment:
The court emphasized that a reassessment cannot be permitted merely on the basis of change of opinion, as it would denude the finality of the assessment. The court found that the reopening was not based on credible information but merely on flagged cases, which did not satisfy the requirement of "reason to believe."

Conclusion:
The court quashed and set aside the impugned notice dated 31/03/2021 u/s 148 of the IT Act and the order dated 19/12/2021, as the requirement of the then existing Section 147 of the IT Act was not satisfied. The writ petition was allowed with no order as to costs.

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