INCOME TAX ACT, 1961

--Reassessment --Notice under section 148Validity--The petitioner was a company incorporated under the laws of Singapore and is wholly owned by the Government of Singapore. The petitioner claims to be a tax resident of Singapore and a non-resident for the purposes of the IT Act, 1961. The Petitioner was incorporated on 20-10-1995 and carries on the business of investment in different jurisdictions across the world, including in India. For the financial year 2005-06 the petitioner had a profit of Rs. 131.70 crores from the business of investment in Indian securities. The petitioner filed a return of income on 31-10-2006 for assessment year 2006-07 returning a nil income taxable in India on the basis of the provisions of the Double Taxation Avoidance Agreement, between India and Singapore. The returns initially filed by the petitioner on 20-10-2006 before the assessing officer were in the electronic form. The petitioner filed a conventional copy of the return on 31-10-2006. On 28-3-2008, the petitioner received an intimation under section 143(1). On 16-3-2011 a notice was issued to the petitioner under section 148 proposing to reopen the assessment. This was followed by a communication of the reasons on the basis of which the assessment was sought to be reopened. The objections of the assessee have been rejected by the assessing officer on 20-12-2011. According to the assessing officer, the petitioner filed electronically, only certain sketchy details. The assessing officer further noted that the petitioner had not chosen to disclose as to how it had conducted its business affairs, which scrips were bought and sold, who was the custodian, broker or agent for such sale and purchase of shares and how payments were made or collected. The concern of the assessing officer, it has been stated, was that income arising out of the transactions of the petitioner may be liable to be taxed as short-term capital gains and the possibility of escapement cannot be ruled out. According to the assessing officer, the transactions in securities were subject to stringent regulation covering investments by foreign companies in India and what was permitted was only investment and not a business venture. According to the assessing officer, what had arisen to the petitioner was capital gains and not business income. The assessing officer made reassessment after issuing notice under section 148 which was upheld by the CIT(A). Held: If the test of whether there exists any tangible material were to be applied in the present case, it would be evident that the assessing officer has not acted within his jurisdiction in purporting to reopen the assessment in exercising the powers conferred by section 148. There was a disclosure clearly by the assessee that it is a body corporate, incorporated in Singapore, the principal business of which is to invest in Indian securities; that the assessee is a tax resident of Singapore and that the profits which the assessee realised from its transactions in securities constituted its profits from business. The validity of the notice reopening the assessment under section 148 has to be determined on the basis of the reasons which are disclosed to the assessee. Those reasons constitute the foundation of the action initiated by the assessing officer of reopening the assessment. Those reasons cannot be supplemented or improved upon subsequently. The assessing officer was not entitled, when he disposed of the objections, to travel beyond the ambit of the reasons which were disclosed to the assessee. For all these reasons, exercise of the jurisdiction under sections 147 and 148 in the present case is without any tangible material. The notice of reopening does not meet the requirements as elucidated in the judgment of the Supreme Court in Kelvinator of India Ltd. For reasons, this court makes the rule absolute by quashing and setting aside the notice dt. 16-3-2011 and the order passed by the assessing officer on 20-12-2011.