Reassessment proceedings quashed as tax officer's reasons constituted mere change of opinion on existing information

The Bombay HC allowed the petition challenging reassessment proceedings initiated by the AO. The court held that the AO's reason for reopening - that other forex dealers in Goa had average gross profit of 0.5% versus assessee's 0.05% - was not a fresh fact but merely a change of opinion on existing information. Regarding large cash deposits allegedly made without proper KYC documentation, the court found the AO should have sought explanations during original assessment proceedings rather than reopening. The court emphasized that while AO's belief sufficiency isn't for judicial review, the assessee can establish lack of bona fide belief or reliance on vague information. The reassessment was deemed reviewable rather than based on escaped income, making it impermissible under law.

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Issues Involved:

1. Validity of the impugned notice under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of assessment constitutes a change of opinion.
3. Compliance with KYC requirements and its relevance to the case.
4. Adequacy of the information provided by the assessee during the initial assessment.
5. Jurisdictional challenge to the reopening of assessment under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of the Impugned Notice under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice dated 31.03.2022 issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961. The petitioner argued that the issuance of the impugned notice was illegal and without satisfaction of the jurisdictional requirement. The petitioner contended that the reopening sought to be carried out was in the nature of a change of opinion and/or review, in the absence of fresh tangible information. The court examined the jurisdictional requirement for issuance of show cause notice under Section 148A(b) of the Act and found that the details of the information and enquiry enclosed with the notice in Annexure-A stated "cash deposits made in various bank accounts by the assessee company during the Financial Year 2017-18 (Assessment Year 2018-19) of Rs. 65,41,72,500/-."

2. Whether the Reopening of Assessment Constitutes a Change of Opinion:

The petitioner argued that the reopening of the assessment was based on a change of opinion. The court referred to the Supreme Court's decision in Mangalam Publications Vs Commissioner of Income Tax, which exhaustively dealt with the expression 'change of opinion.' The court noted that the principle is well settled by the Supreme Court that a mere change of opinion cannot be a basis for reopening completed assessments. The court found that the NP/GP ratio and the large cash deposits were already available with the Assessing Officer when the assessment was concluded. The court concluded that the reasons for reopening the assessment were not based on fresh facts that had come to light but were based on facts that were previously disclosed.

3. Compliance with KYC Requirements and Its Relevance to the Case:

The respondents argued that the large cash deposits made in the accounts of the assessee appeared to be on account of unauthorized transactions of forex, which were made without requisite KYC of the forex purchasing party. The court noted that the KYC requirements did not form part of the show cause notice under Section 148A(b) of the Act. The court found that the fact that unauthorized transactions of forex were made without requisite KYC of the forex purchasing party could not be said to be a fresh fact that had come to light, which was not previously disclosed.

4. Adequacy of the Information Provided by the Assessee During the Initial Assessment:

The court noted that the assessee had submitted all details and answered all queries during the initial assessment. The assessee had enclosed cash flow statements, registers of sale and purchase of foreign currency, daily summaries, balance books, and RBI audit letters. The court found that the information provided by the assessee during the initial assessment was adequate and that the Assessing Officer could have called for the KYC documents if there was any doubt in his mind about the large cash deposits.

5. Jurisdictional Challenge to the Reopening of Assessment under Article 226 of the Constitution of India:

The court referred to the Supreme Court's decision in Anshul Jain Vs Principal Commissioner of Income Tax, which held that the High Court should not interfere at a premature stage when the proceedings initiated are yet to be concluded by a statutory authority. The court noted that the test to be applied at this stage is whether there was reason to believe that the income has escaped assessment and whether the Assessing Officer has sufficient reason for forming that belief. The court found that the reopening of the assessment in the present case was not based on fresh facts but was a mere change of opinion.

Conclusion:

The court concluded that the reopening of the assessment in the present case was not justified and that the impugned notice under Section 148 of the Income Tax Act, 1961, was invalid. The court allowed the petition and quashed the impugned notice.

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