2024 (12) TMI 1430 - HC - Income Tax

Validity of reassessment proceedings - reasons to believe - borrowed satisfaction or independent application of mind - Speculation Profit on currency derivatives - reopening relying upon the information made available on the insight portal - HELD THAT - It appears from the reasons recorded that the no verification of the material on record is made by the respondent and there is no independent opinion that any income has escaped assessment due to any failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment. From the reasons recorded it appears that the initiation of reopening proceedings are on the borrowed satisfaction as no independent opinion is formed and on bare perusal of the reasons recorded, it emerges that the AO considering the information received from the insight portal, has issued impugned notice forming reason to believe that the income has escaped the assessment on the presumption that the petitioner has been involved in creating the non-genuine profit which is already offered to tax in the return of income which is accepted in the regular course of assessment by passing the order u/s 143 (3) of the Act. AO has not considered the material on record to come to the conclusion that there is failure on the part of the petitioner to disclose truly and fully all material facts to have reason to believe for escapement of income. Therefore, on the basis of the information received from another agency on insight portal or from the SEBI report, there cannot be any reassessment proceedings unless the respondent, after considering such information/material received from other sources, consider the same with the material on record in the case of the petitioner assessee and thereafter, is required to form independent opinion that income has escaped assessment. Without forming such opinion solely and mechanically relying upon the information received from the other sources, the respondent-Assessing Officer could not have assumed the jurisdiction to reopen the assessment based on such information. This view is fortified by the decision of this Court in case of Harikishan Sunderlal Virmani 2016 (12) TMI 1558 - GUJARAT HIGH COURT - Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the notice for reopening the assessment under section 148 of the Income Tax Act, 1961, for the Assessment Year 2014-15, is valid.
Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.
Whether the Assessing Officer had valid reasons to believe that income had escaped assessment, justifying the reopening of the assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Notice for Reopening Assessment

Relevant Legal Framework and Precedents: The reopening of assessment is governed by section 147 of the Income Tax Act, which requires the Assessing Officer to have "reason to believe" that income has escaped assessment. The precedents emphasize the necessity of independent application of mind by the Assessing Officer.
Court's Interpretation and Reasoning: The court found that the Assessing Officer did not form an independent opinion and relied solely on information from the insight portal and SEBI report, which is insufficient for reopening an assessment.
Key Evidence and Findings: The petitioner had disclosed the profits from trading activities in its tax returns, and the original assessment was completed under section 143(3) of the Act, accepting the returned income.
Application of Law to Facts: The court applied the legal requirement for "reason to believe" and found that the Assessing Officer acted on borrowed satisfaction without verifying the material facts independently.
Treatment of Competing Arguments: The respondent argued that the information from the insight portal justified reopening, but the court held that mere receipt of information does not substitute for the independent application of mind.
Conclusions: The notice for reopening was invalid as it was based on borrowed satisfaction without independent verification of facts.

Issue 2: Disclosure of Material Facts

Relevant Legal Framework and Precedents: Full and true disclosure of material facts is a prerequisite to avoid reopening under section 147. The court referred to established precedents requiring clear failure to disclose for reopening.
Court's Interpretation and Reasoning: The court found that the petitioner had disclosed all necessary facts during the original assessment proceedings.
Key Evidence and Findings: The petitioner provided all relevant financial documents, which were considered during the original assessment.
Application of Law to Facts: The court determined that there was no failure on the petitioner's part to disclose material facts, as the profits were already reported and assessed.
Treatment of Competing Arguments: The respondent's claim of non-disclosure was rejected due to lack of evidence showing any omission by the petitioner.
Conclusions: There was no failure to disclose material facts by the petitioner, invalidating the basis for reopening the assessment.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The respondent-Assessing Officer could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion."
Core Principles Established: The necessity for the Assessing Officer to independently verify and form a reasoned belief before reopening an assessment; reliance on external information must be supplemented by independent assessment.
Final Determinations on Each Issue: The court quashed the notice for reopening the assessment, holding that the petitioner had fully disclosed all material facts and that the Assessing Officer acted without jurisdiction by relying on unverified external information.

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