Reassessment based on bank transactions failed where books, audit records and supporting material did not show escapement of income.

Reopening based on high-value bank transactions was held unsustainable where the credits and debits were recorded in the books, the audited accounts reflected the transactions, and the fund providers were regular return filers. Mere transaction volume, absence of an NBFC licence, and non-charging of interest did not by themselves show escapement of income. The M2M loss allegation could not be relied on because it was not put to the assessee in the notice, and the bullion allegation lacked supporting material. The reassessment notices and the related orders were quashed.

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Issues: Whether reopening under Sections 147, 148 and 148A of the Income-tax Act, 1961 for the relevant assessment years was sustainable on the basis of high-value bank transactions, alleged inconsistency with business activity, absence of NBFC licence, non-charging of interest, alleged M2M loss and alleged purchase of bullion.

Analysis: The impugned reasons were founded on the assessee's bank credits and debits, but the transactions were reflected in the books of account and the audited records, and the entities from whom funds were received were regular return filers. The material did not show any live nexus between the information relied upon and escapement of income. Mere high-value transactions, without evidence of unexplained income, could not justify reassessment. The assumptions regarding absence of an NBFC licence and non-charging of interest were not sufficient to establish escapement. The M2M loss issue had not been put to the assessee in the notice under Section 148A(1), and the allegation regarding bullion was unsupported by material.

Conclusion: The reopening was unsustainable and the notices under Section 148 and the orders under Section 148A(3) were quashed.

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