Reassessment — Notice after four years — Condition precedent — Notice issued on basis of information received subsequent to search and seizure of another party — Nexus between undisclosed loan activity of searched party and assessee not established — Notice and consequential assessment order quashed and set aside

Reassessment — Notice after four years — Condition precedent — Notice issued on basis of information received subsequent to search and seizure of another party — Nexus between undisclosed loan activity of searched party and assessee not established — Notice and consequential assessment order quashed and set aside

For the A.Y. 2012-13, an order u/s 143(3) read with section 153A of the Income-tax Act, 1961 was passed on 30th December, 2016 against the assessee. After a period of four years, the Assessing Officer issued a notice u/s 148 dated 30th March, 2019 for reopening the assessment u/s 147 of the Act. He recorded reasons that information was received from the Deputy Director that a search and seizure operation was conducted u/s 132 in the case of an entity EE and based on the statement recorded of the partner of EE and documentary evidence found in the search, an undisclosed activity of money lending and borrowing in unaccounted cash was found being operated at the premises of EE, that the assessee had indulged in lending of cash loan and the amount of Rs. 30 lakhs had escaped assessment within the meaning of section 147. Consequent reassessment order was passed on 5th September, 2019.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) Under the substituted section 147 of the Income-tax Act, 1961 if the Assessing Officer has reason to believe that income has escaped assessment that is enough to confer jurisdiction to reopen the assessment. But the Assessing Officer has no power to review an assessment which has been concluded. After a period of four years even if the Assessing Officer has some tangible material to come to the conclusion that there is an escapement of income from assessment, he cannot exercise the power to reopen unless he discloses what was the material fact which was not truly and fully disclosed by the assessee.

ii) The reasons for the reopening of assessment have to be tested or examined only on the basis of the reasons recorded at the time of issuing a notice u/s 148 seeking to reopen the assessment. These reasons to believe cannot be improved upon or supplemented much less substituted by affidavit or oral submissions. The reasons for reopening an assessment should be those of the Assessing Officer alone who is issuing the notice and he cannot act on the dictates of any another person in issuing the notice. The tangible material upon the basis of which the Assessing Officer entertains reason to believe that income chargeable to tax has escaped assessment can come to him from any source, but the reasons for the reopening have to be only of the Assessing Officer issuing the notice.

iii) In the reasons for the reopening, the Assessing Officer had not stated anywhere that one BS was an employee of the assessee. Further, he did not even disclose when the search and seizure u/s 132 was carried out in the case of the entity EE, whether it was before the assessment order dated 30th December, 2016 against the assessee was passed or afterwards. The reasons for reopening were absolutely silent on how the search and seizure on EE or the statement referred to or relied upon in the reasons recorded had any connection with the assessee.

iv) The notice dated 30th March, 2019 issued u/s 148 and the subsequent order dated 5th September, 2019 passed were without jurisdiction and hence, quashed and set aside. Any consequent notice or demand, if issued, was also quashed and set aside.”