2023 (3) TMI 486 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - large sums of cash debit/credits - information on the INSIGHT PORTAL from the Financial Intelligence Unit - HELD THAT - No new tangible material as contended by the respondents. Debits and Credits can in no way disclose the nature of transactions or lead to an inference of income escaped assessment. The respondents have not taken any ground of extrapolation. The debits and credits cannot be a ground for further enquiry and verification and the same is impermissible. We find no live link or nexus between the information received and the income escaping assessment. The Petitioner is carrying on a retail business of electronic appliances. Usually appliances would be supplied to clients wherever required and payment would be received in cash upon delivery. Therefore the cash deposits from various places cannot be doubted be considered suspicious transactions. In our view there is no prima facie case made out that income has escaped assessment. The Petitioner has fully and truly disclosed all the material facts and there is no specific averment to show what material fact was required to be disclosed by the Petitioner that is not disclosed. The ratio of the Judgment in the case of Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT that the reasons for formation of the belief must have rational connection with or relevant barring on formation of belief is squarely applicable to the present case. The decision of the Apex Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers(P) Ltd. ( 2007 (5) TMI 197 - SUPREME COURT ) is vaguely relied upon. There is no reason provided as to why the debit and credit transaction had no mention in the recorded reasons nor was there meaningful averment with regard to the nature of transaction. It is pertinent to note that whilst the order has been passed by NFAC the reasons are recorded by respondent No. 1 to which there is no explanation in the affidavit in reply. In our view the response in the impugned order as to the nature of transaction and as to how it makes it suspicious are missing. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Adequacy and verification of the reasons provided for reopening the assessment.
3. Compliance with procedural requirements and judicial precedents.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31st March 2021 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2016-17. The notice was based on the "reason to believe" that income chargeable to tax had escaped assessment. The petitioner contended that the notice was issued without proper jurisdictional conditions being met, as the reasons were based solely on vague and ambiguous information from the "INSIGHTS PORTAL" under the "High Risk Transaction cases" category. The court agreed with the petitioner, finding no new tangible material to justify reopening the assessment and noting that the reasons provided were vague and unsubstantiated.

2. Adequacy and verification of the reasons provided for reopening the assessment:
The petitioner argued that the reasons for reopening the assessment were not adequately verified and lacked a live link or nexus between the information received and the purported escaped income. The court noted that the reasons recorded mentioned the need for further verification of high-risk transactions, but there was no substantial information or detail about the nature of the transactions or accounts. The court found that the reasons were insufficient to establish a "reason to believe" that income had escaped assessment, and the reopening of the assessment based on such reasons would lead to a fishing and roving enquiry, which is impermissible.

3. Compliance with procedural requirements and judicial precedents:
The petitioner contended that the notice under Section 143(2) of the Act was issued in contravention of the Supreme Court judgment in GKN Driveshafts (India) Ltd. v/s. Income-tax Officer, which requires the assessing officer to supply reasons for reopening the assessment, allow the assessee to file objections, and dispose of the objections by a speaking order. The court found that the procedural requirements were not followed, as the reasons recorded did not provide sufficient detail, and the approval for reopening the assessment was granted without proper application of mind. The court also noted that the impugned order was passed by the National Faceless Assessment Centre (NFAC) while the reasons were recorded by the jurisdictional assessing officer, leading to procedural inconsistencies.

Conclusion:
The court concluded that the reopening of the assessment was not justified as there was no new tangible material, and the reasons provided were vague and unsubstantiated. The court set aside the impugned notice dated 31st March 2021 and the impugned order dated 11th March 2022, staying all consequential proceedings. The writ petition was allowed with no order as to cost.