Court quashes tax notice lacking 'reason to believe' for assessment reopening, deeming actions arbitrary.

The court found that the notice issued under Section 148 of the Income Tax Act lacked tangible material to support the 'reason to believe' requirement for reopening assessments under Section 147. The failure to provide reasons for reopening assessments rendered the actions arbitrary and without jurisdiction. As a result, the court quashed the notice, assessment order, and penalty proceedings initiated under Section 271D. The court held that the Assessing Officer did not meet the jurisdictional conditions and procedural requirements, leading to the allowance of the writ petition without costs.

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Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the procedure prescribed by the Apex Court in GKN Driveshafts (India) Ltd. V/s. Income Tax Officer.
3. Validity of the assessment order under Section 147 r/w Section 144B.
4. Initiation of penalty proceedings under Section 271D.

Summary:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:
The Petitioner sought the quashing of the notice issued under Section 148 dated 31st March, 2021, arguing that it was issued contrary to the procedure prescribed under the Act and the judgment in GKN Driveshafts (India) Ltd. V/s. Income Tax Officer. The court noted that the power to reopen an assessment under Section 147 requires a 'reason to believe' that income has escaped assessment, which must be based on tangible material. The notice under Section 148 was found to lack such tangible material, rendering it unsustainable.

2. Compliance with the procedure prescribed by the Apex Court in GKN Driveshafts (India) Ltd. V/s. Income Tax Officer:
The Petitioner argued that the Assessing Officer (A.O.) failed to furnish reasons for reopening the assessment, as mandated by the Apex Court in GKN Driveshafts. The court observed that the A.O. recorded the reasons for reopening as 'null', indicating an absence of reasons. This failure to provide reasons violated the procedural requirements, making the reopening of the assessment arbitrary and without jurisdiction.

3. Validity of the assessment order under Section 147 r/w Section 144B:
The assessment order dated 28th March, 2022, was challenged on the grounds that it was passed without furnishing the reasons for reopening the assessment. The court held that the absence of reasons and tangible material invalidated the jurisdictional foundation for the assessment order, leading to its quashing.

4. Initiation of penalty proceedings under Section 271D:
The Petitioner contended that the penalty proceedings initiated under Section 271D for allegedly accepting a cash loan of Rs. 85 lakhs were unsustainable, as the reopening of the assessment itself was invalid. The court agreed, stating that if the reopening was unsustainable, the consequent penalty proceedings were also unsustainable in law.

Conclusion:
The court concluded that the A.O. failed to satisfy the jurisdictional conditions for invoking powers under Sections 147/148 and did not comply with the procedural requirements set by the Apex Court. Consequently, the notice under Section 148, the assessment order, and the penalty notice were set aside. The writ petition was allowed, and no order as to costs was made.

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