Reopening of assessment under section 147 invalidated for lack of fresh tangible material and required approvals; proceedings quashed

Reopening of assessment under section 147 was held impermissible where the Assessing Officer lacked fresh and tangible material and relied on a mere change of opinion; the court applied the Kelvinator test and confirmed that information suggesting escaped income and prior approval of the specified authority are preconditions to valid notice. The decision emphasised that a pre reopening enquiry with opportunity to be heard and reply is required and time limits for reassessment must be met. For absence of requisite material and approvals, the reassessment proceedings were quashed by the High Court.

---

---

Issues Involved:
1. Jurisdiction of the impugned proceedings.
2. Limitation period for initiating reassessment proceedings.
3. Change of opinion without new tangible material.
4. Validity of reassessment proceedings under amended provisions of the Income Tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of the Impugned Proceedings:
The petitioner challenged the impugned notice dated 23.02.2024 under Section 148A(b) of the Income Tax Act, 1961, and the consequential order dated 26.03.2024 under Section 148A(d) for the Assessment Year 2017-2018. The petitioner argued that the proceedings were without jurisdiction, asserting that the respondent misconstrued the provisions of Section 148A(d). The petitioner contended that the major borrowings and expenses were already scrutinized and accepted in the original assessment order dated 27.12.2019 under Section 143(3). The learned Senior Counsel for the petitioner cited several judgments supporting the argument that reassessment cannot be initiated without new tangible material and that the proceedings were a mere review in disguise.

2. Limitation Period for Initiating Reassessment Proceedings:
The petitioner argued that under the amended provisions of the Income Tax Act, 1961, effective from 01.04.2021, a notice under Section 148 could only be issued if it could have been validly issued under the old regime prior to 01.04.2021. The petitioner referred to the first proviso to Section 149(1) and contended that the reassessment proceedings were barred by limitation as the time limit for initiating reassessment for the Assessment Year 2017-2018 expired on 31st March 2022. The respondent, however, argued that the time limit under the old Section 149 was six years from the end of the relevant Assessment Year, which would lapse only on 31.03.2024, making the notice issued on 26.03.2024 within time.

3. Change of Opinion Without New Tangible Material:
The petitioner asserted that the reassessment proceedings were based on a mere change of opinion without any new material. The petitioner cited the decision of the Hon'ble Supreme Court in CIT vs. Kelvinator of India Ltd., emphasizing that reassessment should be based on new tangible material and not a review of the original assessment. The petitioner highlighted that all relevant details were furnished during the original assessment, and no new information was available to justify the reassessment. The respondent countered that the original assessment was a "Limited Scrutiny" under CASS, and the reassessment was based on tangible information regarding processing charges, legal and professional charges, and borrowings.

4. Validity of Reassessment Proceedings Under Amended Provisions:
The court examined the amended provisions of the Income Tax Act, 1961, effective from 01.04.2021, which introduced significant changes to Sections 147, 148, 148A, 149, and 151. The court noted that the amended Section 147 no longer required the Assessing Officer to have "reason to believe" that income had escaped assessment and emphasized the new procedural requirements under Sections 148 and 148A. The court referred to the decisions of the Hon'ble Supreme Court and High Courts, emphasizing that reassessment should not be based on a mere change of opinion and should be supported by new tangible material.

Conclusion:
The court concluded that the impugned proceedings were without jurisdiction as they were based on a mere change of opinion without new tangible material. The court quashed the impugned notice and order, allowing the writ petition. The court emphasized that the reassessment proceedings under the amended provisions of the Income Tax Act, 1961, should be based on new tangible material and not a review of the original assessment. The court also highlighted the procedural requirements under the amended Sections 148 and 148A, ensuring that reassessment proceedings are initiated within the prescribed time limits and with proper approval from the specified authority.

---