Penny-stock share purchase and abnormal price rise linked to accommodation entries; tax reassessment reopening u/s147 upheld.

Where the return was processed under s.143(1) without scrutiny, no opinion is formed by the AO; consequently, the doctrine of "change of opinion" does not bar reopening under s.147, and the AO has wider latitude to reassess. Reopening was upheld because the recorded reasons disclosed tangible information about accommodation-entry/penny-stock manipulation, and the assessee's purchase of shares at a low price followed by abnormal price rise and sale at a high price supplied a live link to the formation of belief that income chargeable to tax had escaped assessment. The writ challenge to reassessment was dismissed.

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Issues Involved:
1. Validity of the notice of re-assessment issued by the assessing officer.
2. Sufficiency of the reasons recorded by the assessing officer for reopening the assessment.
3. Applicability of the concept of "reason to believe" in the context of reopening assessments.

Detailed Analysis:

1. Validity of the notice of re-assessment:
The petitioner challenged the notice of re-assessment dated 13.02.2020, issued for reopening the assessment for the assessment year 2015-2016. The initial return filed by the petitioner was accepted under Section 143(1) of the Income Tax Act, 1961, without scrutiny. The assessing officer issued the notice based on detailed reasons indicating that the petitioner had claimed an exempt income of Rs. 2,47,99,000 from trading in shares of Life Line Drugs & Pharma Limited, identified as a penny stock involved in a manipulation scam. The court held that in cases where the return is accepted without scrutiny, the assessing officer has greater latitude to reopen the assessment, as elaborated by the Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd.

2. Sufficiency of the reasons recorded by the assessing officer:
The petitioner argued that the reasons recorded by the assessing officer lacked validity and did not establish a live link between the material available and the belief that income had escaped assessment. The court, however, found that the assessing officer had sufficient material indicating that the petitioner had engaged in transactions involving penny stocks, which were part of a manipulation scam. The reasons included detailed information on the modus operandi of the scam, the financial status of Life Line Drugs & Pharma Limited, and the unusual price movements of its shares. The court concluded that the reasons recorded were adequate to form a belief that income had escaped assessment.

3. Applicability of the concept of "reason to believe":
The court emphasized that the term "reason to believe" does not require the assessing officer to have conclusive evidence of income escapement at the initiation stage. It is sufficient if the assessing officer has cause or justification to believe that income has escaped assessment. The court cited the Supreme Court's decision in Rajesh Jhaveri Stock Brokers P. Ltd., which clarified that the formation of belief is within the realm of subjective satisfaction of the assessing officer. The court found that the assessing officer had a bona fide belief based on the material available, which included detailed investigations and findings by SEBI on the manipulation of penny stocks.

Conclusion:
The court dismissed the petition, holding that the assessing officer had sufficient material to form a belief that income chargeable to tax had escaped assessment. The reasons recorded were found to be valid and demonstrated a clear link between the information available and the formation of belief. The court also noted that the judgments relied upon by the petitioner were based on different factual contexts and did not apply to the present case. The interim order was vacated.

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