2025 (3) TMI 94 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe -information made available on the insight portal relied upon - Petitioner has entered into transactions with ASE capital Markets Ltd - HELD THAT - We find that at no point of time was there any failure on the part of the petitioner (i) to make a return u/s. 139 or in response to the notice issued under sub-section (1) of section 142 or section 148; (ii) to disclose fully and truly all material facts necessary for his assessment for that Assessment Year It cannot be held that the department was justified in reopening the assessment for Assessment Year 2014-15 which we may add has been done mechanically without application of mind in the absence of any tangible material. It also appears from the reasons recorded that 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. Moreover from the reasons recorded it appears that the initiation of reopening proceedings are on 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 the impugned notice forming his reason to believe that the income has escaped assessment on the presumption that the petitioner has been involved in creating the non-genuine losses which is already reflected in the return of income which is accepted in the regular course of assessment by passing the order under section 143(3) of the Act. Besides there is no clarity in the reasons whether the transaction value in question or the loss that resulted from such transaction amounts to Rs. 27, 61, 650/-. Further the petitioner had reported a total loss of Rs. 41, 56, 218/- in F O Trade in its return. Why only a portion thereof namely Rs. 27, 61, 650/- is considered to be non-genuine loss and the rest of the loss is considered to be genuine is also baffling. There is no basis to form reasonable belief for escapement of income except the information made available on the insight portal. The respondent-Assessing Officer 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 AO 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 AO could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion on the basis of the material on record vis-a-vis the petitioner is concerned. This Court is of the opinion that the petitioner had disclosed in its return for the Assessment Year 2014-15 the particulars of the loss under the head of future and options which was subsequently accepted by the Department. Therefore the notice for re-opening the assessment on the exact entry under the head of future and options is based on change of opinion. The assessee cannot be said to have failed to have fully and truly disclosed all materials facts which would warrant the re- opening after a period of four years anyways. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

(a) Whether the reopening of the assessment for the Assessment Year 2014-15 under Section 148 of the Income Tax Act, 1961, is justified.

(b) Whether the reasons provided for reopening the assessment satisfy the legal requirements for such action, particularly in light of the petitioner's claim of full and true disclosure of all material facts during the original assessment.

(c) Whether the reopening of the assessment is based on a "change of opinion," which is not permissible under the law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification for Reopening the Assessment

- Relevant Legal Framework and Precedents: The reopening of an assessment is governed by Section 147 of the Income Tax Act, 1961, which allows for reopening if the Assessing Officer has reason to believe that income has escaped assessment. This must be based on tangible material and not merely on a change of opinion.

- Court's Interpretation and Reasoning: The Court found that the reopening was not justified as it was based on information from the insight portal without independent verification or assessment by the Assessing Officer. The Court emphasized the need for tangible material and independent satisfaction of the Assessing Officer to justify reopening.

- Key Evidence and Findings: The Court noted that the petitioner had disclosed the loss from Futures & Options (F&O) transactions in its return, which was accepted in the original assessment. The reopening was based on information from another agency, which the Court found insufficient for reopening.

- Application of Law to Facts: The Court applied the principles from previous judgments, such as the decision in Harikishan Sunderlal Virmani vs. Deputy Commissioner of Income Tax, to conclude that mere information from another source without independent assessment does not justify reopening.

- Treatment of Competing Arguments: The respondent argued that the reopening was based on new information indicating non-genuine losses. However, the Court found that this information was not independently verified and did not constitute new tangible material.

- Conclusions: The Court concluded that the reopening of the assessment was not justified as it was based on borrowed satisfaction and lacked independent verification.

Issue (b): Adequacy of Reasons for Reopening

- Relevant Legal Framework and Precedents: The reasons for reopening must be specific, clear, and based on tangible material. A mechanical reopening without independent application of mind is not permissible.

- Court's Interpretation and Reasoning: The Court found the reasons provided for reopening to be vague and lacking in specificity. The reasons were based on assumptions and borrowed satisfaction rather than independent assessment by the Assessing Officer.

- Key Evidence and Findings: The Court noted discrepancies in the amounts cited in the reopening notice and the petitioner's actual reported losses, indicating a lack of clarity and independent verification.

- Application of Law to Facts: The Court applied the principle that reasons for reopening must be based on independent assessment and tangible material, which was not the case here.

- Treatment of Competing Arguments: The respondent's argument that the reopening was based on new information was rejected due to the lack of independent verification and clarity in the reasons provided.

- Conclusions: The Court concluded that the reasons for reopening were inadequate and did not meet the legal requirements for such action.

Issue (c): Reopening Based on Change of Opinion

- Relevant Legal Framework and Precedents: Reopening an assessment based on a change of opinion is not permissible under the law. This principle is well-established in tax jurisprudence.

- Court's Interpretation and Reasoning: The Court found that the reopening was effectively based on a change of opinion, as the original assessment had accepted the petitioner's disclosures, and no new tangible material was presented to justify reopening.

- Key Evidence and Findings: The Court noted that the petitioner had fully disclosed the F&O losses in its return, which were accepted in the original assessment. The reopening was based on the same information, indicating a change of opinion.

- Application of Law to Facts: The Court applied the principle that reopening based on a change of opinion is not permissible, as established in previous cases such as CIT Vs. The Kelvinator of India Ltd.

- Treatment of Competing Arguments: The respondent's argument that the reopening was based on new information was rejected, as the Court found no new tangible material or independent assessment.

- Conclusions: The Court concluded that the reopening was based on a change of opinion and was therefore invalid.

3. SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: "The reopening of assessment on the basis of such newly disclosed material is fully justified." However, the Court found that the material was not independently verified, rendering the reopening invalid.

- Core Principles Established: Reopening of assessment must be based on tangible material and independent assessment by the Assessing Officer. Mere information from another source without independent verification does not justify reopening.

- Final Determinations on Each Issue: The Court quashed the notice for reopening the assessment, holding that it was based on borrowed satisfaction, lacked independent verification, and constituted a change of opinion.