Reassessment notice under Section 148 quashed for lack of valid reason to believe income escaped assessment

The Bombay HC quashed a reassessment notice u/s 148 for lack of valid reason to believe. The petitioner's loss was already disclosed in the return for AY 2017-18 and accepted by the AO under s.143(1). The court held that mere flagging of transactions as "high risk" in the insight portal without establishing a live link between the information and belief that income escaped assessment was insufficient. The CBDT directive to examine flagged cases cannot alone constitute grounds for reopening assessment. The reassessment order was self-contradictory and failed to satisfy requirements of s.147, making the notice unsustainable.

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Issues Involved:
1. Reopening of assessment u/s 147 of the IT Act.
2. Validity of the notice issued u/s 148 of the IT Act.
3. Application of mind and satisfaction of the Assessing Officer.
4. Provision of prior approval/sanction.
5. Alleged absence of "reason to believe" and "live link" between information and belief.
6. Change of opinion as a basis for reopening assessment.

Summary:

1. Reopening of assessment u/s 147 of the IT Act:
The petitioner challenged the notice dated 31/03/2021 issued u/s 148 of the IT Act for reopening the assessment for the accounting year 2017-18. The petitioner argued that there was a total absence of any information and no reason to believe that income had escaped assessment, making all consequent actions non est.

2. Validity of the notice issued u/s 148 of the IT Act:
The petitioner contended that the notice was issued without independent application of mind and was based on borrowed satisfaction. The notice aimed at conducting a "fishing and roving enquiry" and was issued on mere suspicion without forming a "reason to believe."

3. Application of mind and satisfaction of the Assessing Officer:
The petitioner argued that the impugned order dated 19/12/2021 did not address the objections raised and lacked the provision of prior approval/sanction, indicating no application of mind and satisfaction by the respondent No. 2.

4. Provision of prior approval/sanction:
The respondents communicated that the approval for reopening was obtained online through ITBA, and no hard copy could be provided. The petitioner objected, stating that the basis for reopening was not available, requesting the dropping of proceedings u/s 148 of the IT Act.

5. Alleged absence of "reason to believe" and "live link" between information and belief:
The petitioner argued that there was no live link between the alleged information on the insight portal and the formation of belief that income chargeable to tax had escaped assessment. The court noted that the loss declared by the petitioner was already disclosed and accepted in the return filed for the assessment year 2017-18, and the reopening was based on flagged cases by the non-filer management system, which did not satisfy the requirement of "reason to believe."

6. Change of opinion as a basis for reopening assessment:
The court emphasized that a reassessment cannot be permitted merely on the basis of change of opinion, as it would denude the finality of the assessment. The court found that the reopening was not based on credible information but merely on flagged cases, which did not satisfy the requirement of "reason to believe."

Conclusion:
The court quashed and set aside the impugned notice dated 31/03/2021 u/s 148 of the IT Act and the order dated 19/12/2021, as the requirement of the then existing Section 147 of the IT Act was not satisfied. The writ petition was allowed with no order as to costs.

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