Point of Law : Power to reopen an assessment must be conditioned on the existence of “tangible material” and that “reasons must have a live link with the formation of the belief”.

JUDGMENT :

1. Heard Shri Nishant Mishra, learned counsel for the petitioner and Shri Manu Ghildyal, learned Standing Counsel for the respondent-Income Tax Department.

2. By order dated 11.04.2022, this Court specifically directed the respondent no.2, vide paragraph 10 of the order, as under :-

"10. In view of the aforesaid, we direct the respondent no.2 to file a short counter affidavit by means of his personal affidavit stating as to how the notice under Section 148 of the Act, 1961 issued by him to the petitioner was a valid notice and how the respondent no.2 could get jurisdiction to issue notice under Section 148 of the Act, 1961 when the very basis of issuing notice, i.e., 'reason to believe', recorded by him was totally unfounded, non-existent and wholly baseless."

3. Today, a counter affidavit dated 22.04.2022 on behalf of the respondent no.2 has been filed by Kumari Sukanya Kirti, Assistant Commissioner of Income Tax, Circle 5(3)(1), Noida. In paragraph 3 thereof, the respondent no.2 has stated as under :-

"3. That, vide order dated 11.04.2022, the Hon'ble Court has specifically sought reply to the following questions:-

(i) how the notice under Section 148 of the Act, 1961 issued by him to the petitioner was a valid notice?

(ii) how the respondent no.2 could get jurisdiction to issue notice under Section 148 of the Act, 1961 when the very basis of issuing notice, i.e., 'reason to believe', recorded by him was totally unfounded, non-existent and wholly baseless."

4. Perusal of the counter affidavit shows that there is not even a whisper with respect to the query of the Court (as itself mentioned by the respondent no.2 in paragraph 3(ii) of her counter affidavit). On the other hand, in the re-assessment order, it has been specifically mentioned that "on perusal of the documentary evidence submitted by the assessee in reference to the information available on record, no inference is drawn in connection with the amount of Rs.45 lakhs". It shall not be out of place to mention that the petitioner submitted objection to the 'reason to believe' recorded by the assessing authority. In his objection, the petitioner has specifically stated that the petitioner has not entered into any transaction amounting to Rs.45 lakhs during the year under consideration which has been made basis for recording the "reason to believe" and to issue notice under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act, 1961'). The petitioner has also produced documentary evidences to show that no transaction of Rs.45 lakhs as alleged was entered by the petitioner. Despite of these facts, on totally baseless and unfounded grounds, a notice under Section 148 of the Act, 1961 was issued by the respondent no.2 and, in a most arbitrary manner, the objection of the petitioner was not considered by the asssessing authority and was arbitrarily rejected.

5. Despite our order dated 11.04.2022, the respondent no.2 has deliberately filed an evasive affidavit (counter affidavit) in which there is no whisper with regard to the second query of the Court.

Reason to Believe - Meaning, Scope and Consequence:-

6. In the case of State of Uttar Pradesh & Others vs. Aryaverth Chawal Udyog & Others reported in (2015) 17 SCC 324 (paragraphs 28 to 30), the Hon'ble Supreme Court has held as under:

"28. This Court has consistently held that such material on which the assessing Authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the assessing Authority in pursuance of such belief. In case of absence of such material, this Court in clear terms has held the action taken by assessing Authority on such "reason to believe" as arbitrary and bad in law.

In case of the same material being present before the assessing Authority during both, the assessment proceedings and the issuance of notice for re-assessment proceedings, it cannot be said by the assessing Authority that "