2025 (1) TMI 815 - HC - Income Tax

Reopening of assessment - loss on account of F O transactions - genuineness of such transactions remained unproved - HELD THAT - The specific issue of losses on account of F O trade was raised by the department, it cannot be held that the department was justified in reopening the assessment for Assessment Year 2013-14, which, we may add, has been done mechanically without application of mind, in the absence of any tangible material. 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. 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 Assessing Officer, 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 under section 143 (3) of the Act. There is no basis to form reasonable belief for escapement of income except the information made available on the insight portal - As 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 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 on the basis of the material on record vis-a-vis the petitioner is concerned. Petitioner had disclosed in its return for the Assessment Year 2013-14 the particulars of the loss under the head of future and options which was subsequently scrutinized and 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. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

Whether the reopening of the assessment for the Assessment Year 2013-14 under Section 148 of the Income Tax Act is justified.
Whether the reasons provided for reopening the assessment are valid and based on new and tangible material.
Whether the petitioner failed to disclose fully and truly all material facts necessary for the assessment.
Whether the reopening of the assessment constitutes a "change of opinion" rather than a discovery of new information.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Reopening the Assessment

Relevant legal framework and precedents: The reopening of an assessment is governed by Sections 147 and 148 of the Income Tax Act, which require a reason to believe that income has escaped assessment.
Court's interpretation and reasoning: The court emphasized that reopening must be based on new and tangible material, not merely a change of opinion.
Key evidence and findings: The court found that the reopening was based on information from the insight portal and not on independent verification or new material.
Application of law to facts: The court concluded that the reopening was unjustified as it was based on borrowed satisfaction without independent application of mind.
Treatment of competing arguments: The respondent argued that the reopening was based on new information about non-genuine transactions, but the court found this insufficient without independent verification.
Conclusions: The reopening of the assessment was deemed unjustified and invalid.

Issue 2: Validity of Reasons for Reopening

Relevant legal framework and precedents: The reasons for reopening must be specific and based on new evidence, as established in previous case law.
Court's interpretation and reasoning: The court found the reasons provided were vague and lacked specificity, failing to demonstrate any new material evidence.
Key evidence and findings: The court noted the absence of any independent verification or material evidence to support the claim of income escapement.
Application of law to facts: The court applied the legal requirement for specificity and new material evidence to the facts, finding the reasons insufficient.
Treatment of competing arguments: The petitioner argued the reasons were vague and based on incorrect assumptions, which the court agreed with.
Conclusions: The reasons for reopening were invalid due to lack of specificity and new evidence.

Issue 3: Full and True Disclosure by the Petitioner

Relevant legal framework and precedents: Full and true disclosure is required under Section 139 of the Income Tax Act to avoid reopening after four years.
Court's interpretation and reasoning: The court found that the petitioner had fully disclosed all material facts necessary for assessment.
Key evidence and findings: The court considered the petitioner's submissions during the original assessment, which included all necessary details.
Application of law to facts: The court found no failure on the part of the petitioner to disclose material facts, thus invalidating the reopening.
Treatment of competing arguments: The respondent's claim of non-disclosure was rejected based on the evidence of full disclosure by the petitioner.
Conclusions: The petitioner had fully and truly disclosed all material facts, negating the grounds for reopening.

Issue 4: Change of Opinion

Relevant legal framework and precedents: Reopening based on a change of opinion is not permissible under the Income Tax Act.
Court's interpretation and reasoning: The court determined that the reopening was based on a change of opinion rather than new material evidence.
Key evidence and findings: The court noted that the same issues had been scrutinized and accepted in the original assessment.
Application of law to facts: The court applied the principle that reopening cannot be based on a mere change of opinion, finding the reopening invalid.
Treatment of competing arguments: The respondent's reliance on new information was found to be a mischaracterization of a change of opinion.
Conclusions: The reopening was invalid as it constituted a change of opinion without new evidence.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The reopening of assessment after 4 years period amounts to 'change of opinion' only."
Core principles established: Reopening must be based on new and tangible material, not a change of opinion; full and true disclosure by the assessee negates grounds for reopening.
Final determinations on each issue: The court quashed the notice for reopening the assessment, holding it invalid due to lack of new evidence and constituting a change of opinion.

In conclusion, the court found that the reopening of the assessment was unjustified and based on invalid reasons. The petitioner had fully disclosed all necessary information, and the reopening was deemed a change of opinion rather than a discovery of new material evidence. Consequently, the notice for reopening was quashed.

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