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of <h1>Reopening of income-tax assessment requires tangible material and direct nexus; reassessment u/s 147/148 quashed for change-of-ground and natural-justice breach</h1> Dominant issue: validity of reopening assessment under s.147 read with ss.148 and 148A - the Court held that reopening requires 'tangible material' ... Validity of reopening of assessment - Issuance of notices u/s 148 as well as u/s 148A - reason to believe - “tangible material” to come to the conclusion that there is escapement of income from assessment.” HELD THAT:- The legal principles established by the Hon'ble Supreme Court in the case of Lakhmani Mewal Das [1976 (3) TMI 1 - SUPREME COURT] still remain foundational to the income tax jurisprudence. The requirement of “rational connection” which in terms of the said judgment “postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer” cannot be given a go-by. Thus direct nexus or live link between the information and the Income Tax Officer’s opinion that income has escaped assessment will have to be established. Reopening of assessment is a serious action and it must be done strictly in accordance with law. In the case at hand at least two conditions justifying invocation of writ powers stand satisfied – arbitrariness in changing the ground of reopening indicated in the show cause notice and consequential violation of principles of natural justice in passing an order against the petitioner based on a ground which the petitioner had no opportunity to deal with. In view of the aforesaid, the submission a Writ Court should keep its hands off the matter cannot be accepted. The judgment in the case of Akshat Pramodkumar Chaudhary [2023 (5) TMI 846 - GUJARAT HIGH COURT] cannot come to the rescue of the revenue inasmuch as the same was delivered in the peculiar facts of the case where the Court was satisfied that there was enough material to justify issuance of notice under Section 148 of the said Act of 1961. A meaningful reading of the provisions of Section 147 of the said Act of 1961 would make it clear that the same would get activated only after completing the drill in Section 148 and 148A (where applicable) and not before that. The power of the Assessing Officer to assess or reassess income in respect of issues which come to his notice subsequently can be exercised only after the assessment or reassessment proceedings have commenced. The emboldened and underscored portion of the Explanation to Section 147 of the said Act of 1961 makes the said aspect very clear. Renu Singh [2024 (4) TMI 54 - JHARKHAND HIGH COURT] relied on by the revenue was delivered in the context of a challenge thrown to an assessment order where there was an appellate remedy available. The case at hand is clearly not so. Further, as already discussed hereinabove, this case has been found fit for interference under Article 226 of the Constitution of India. For all the reasons aforesaid, the order impugned passed under Section 148A(3) and the consequential reopening notice issued under Section 148 of the said Act of 1961 in respect of Assessment Year 2019-20 fail to withstand judicial scrutiny. The same are set aside. Issues: (i) Whether the order under Section 148A(3) and the consequent notice under Section 148 for Assessment Year 2019-20 are sustainable where the notice under Section 148A(1) specified transactions with Reliance but the order reopened assessment on a different transaction with Prudent.Analysis: A meaningful reading of Section 148A(1) requires that the notice indicate the information which, according to the Assessing Officer, suggests escapement of income; issuance of notice under Section 148 is predicated on such information. The information supplied in the present case specifically alleged transactions with Reliance and quantified that transaction. The Assessing Officer, however, in the order under Section 148A(3) proceeded to reopen the assessment on the basis of alleged receipts through Prudent, a ground that was not the basis of the notice to show cause. Changing the basis of reopening without giving the assessee an opportunity to meet that new ground effectively denies the assessee the opportunity to be heard on the actual basis for reopening and constitutes arbitrariness and a jurisdictional flaw. The materials annexed to the notice (dissemination note, search statements) did not establish a direct nexus with the petitioner or demonstrate information that reasonably suggested escapement of income on the basis used by the Assessing Officer in the reopening order. Established principles require a rational connection between the material and the belief that income has escaped assessment; vague, remote or unrelated material cannot suffice to validate reopening.Conclusion: The order dated June 28, 2025 under Section 148A(3) and the reopening notice dated June 30, 2025 under Section 148 are set aside; decision is in favour of the assessee.
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