Reassessment under Section 147 quashed where reopening based on incorrect info, mere suspicion, no independent verification or SEBI material

HC upheld the ITAT's decision quashing reassessment proceedings initiated on alleged manipulation in penny stocks. It held that the Assessing Officer reopened the assessment on patently incorrect information and mere suspicion, without independent verification or application of mind, and without any material showing SEBI had suspended trading in the specific shares involved. Reiterating that the statutory standard is "reason to believe" and not "reason to suspect," HC found the jurisdictional threshold for reopening unmet. The substantial question was answered against the Revenue, and the tax appeal was dismissed.

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The appeal concerned reassessment proceedings initiated in a case involving alleged "manipulation in penny stocks" (MKEL) and a supposed "planned modus operandi to rig the price of the scrip to claim LTCG." The Revenue's substantial question 5(b) challenged the Income Tax Appellate Tribunal's finding that the reassessment was invalid as being based on mere suspicion. The High Court treated the reassessment issue as a jurisdictional threshold: if reopening was invalid, no other questions on merits would arise. It upheld the ITAT's conclusion that jurisdictional parameters for reopening were not satisfied. The reassessment was founded on "patently incorrect information," with the Assessing Officer reopening the assessment without "independent verification or independent application of mind." Reference to SEBI's suspension of trading was unsupported by any material showing suspension of MKEL shares. The Tribunal had held, and the Court affirmed, that the reopening was based "solely on suspicion," contrary to settled law that reassessment requires "reason to believe" and not "reason to suspect." Finding no error in the Tribunal's reasoning, the Court decided question 5(b) against the Revenue and dismissed the appeal.

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