Court quashes assessment proceedings, emphasizing need for tangible evidence in reopening assessments.

The court ruled in favor of the petitioner, quashing all proceedings related to the assessment. The court found that the notice issued fell within the limitation period and that the Assessing Officer lacked jurisdiction to compel the production of records without tangible material. It was emphasized that tangible evidence is necessary for reopening assessments. The court held that the reopening was invalid and not supported by sufficient grounds. The petitioner's writ petition was allowed, and no costs were awarded.

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Issues Involved:
1. Limitation under Section 149 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer under Section 147 to compel the production of records.
3. Availability of tangible material for reopening the assessment.
4. Scope of Explanation 3 attached to Section 147 regarding disallowance of expenses.

Detailed Analysis:

Issue (a): Limitation under Section 149 of the Act
The court found that the notice issued under Section 148 on 22.03.2018 was within the limitation period prescribed under Section 149, as the returns were originally filed on 30.03.2012. Therefore, the initiation of the proceedings was not barred by limitation.

Issue (b): Jurisdiction to Compel Production of Records
The court noted that the Assessing Officer initiated an enquiry under Section 133(6) requiring the petitioner to furnish various documents related to agricultural income. The court emphasized that the advisory issued by the Principal D.G.I.T. (S), New Delhi, which led to the reopening, did not constitute an information or live link between the materials available and the reasons to believe for reopening the assessment. The court held that the Assessing Officer could not compel the petitioner to produce records in the absence of tangible material, as this power should have been exercised at the stage of the original assessment under Sections 142/143.

Issue (c): Availability of Tangible Material
The court scrutinized the reasons recorded by the Assessing Officer, which indicated that the petitioner had not produced concrete evidence to substantiate the agricultural income. The court concluded that the absence of material evidence could not form the basis for a belief that income had escaped assessment. The court reiterated that tangible material must be present for the formation of such a belief, as established in the Supreme Court judgment in Commissioner of Income Tax versus Kelvinator of India. The court found that the reopening of the assessment was based on a search for tangible material rather than its possession.

Issue (d): Scope of Explanation 3 Attached to Section 147
The court did not find it necessary to express an opinion on the expanded scope of Explanation 3 attached to Section 147, given that the entire exercise of reopening the assessment was held to be illegal and de hors the statutory provisions.

Conclusion:
The court quashed the entire proceedings, including the notice dated 22.03.2018, the final order dated 26.12.2018, and the demand notice issued thereunder. The writ petition was allowed with no order as to costs. The court underscored that the reopening of the assessment was not supported by tangible material and was based on an advisory that did not constitute valid reasons to believe that income had escaped assessment.

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