Reassessment cannot rest on fund-level misconduct allegations without a live nexus to the assessee’s escaped income.

The Revenue initiated reassessment proceedings for A.Y. 2016–17 based on information under its Risk Management Strategy alleging that the petitioner had received dividends from JM Balanced Fund and claimed a short-term capital loss, resulting in alleged escapement of income of ₹88,05,567.

The petitioner’s case was that it had disclosed the relevant investment details and that the allegations arose from alleged manipulation by JM Financial Asset Management Ltd., rather than from any conduct by the petitioner.

The petitioner challenged the order dated 28 March 2023 under Section 148A(d) of the Income-tax Act, 1961, and the notice dated 29 March 2023 under Section 148.

1. Whether the order under Section 148A(d) and notice under Section 148 could be sustained where the reassessment was based on allegations concerning JM Financial’s conduct and transactions involving its mutual fund.

2. Whether the information relied upon disclosed a sufficient rational nexus or live link to support the formation of a belief that the petitioner’s income had escaped assessment.

Sections 148A and 148 of the Income-tax Act, 1961, govern the pre-notice inquiry and issuance of a reassessment notice.

The belief that income has escaped assessment must rest on relevant material having a rational connection or live link to the alleged escapement; although a court does not assess the sufficiency of the material, it may examine its relevance and nexus (Income Tax Officer v. Lakhmani Mewal Das).

The Court also relied on Pranav Ramesh Parikh v. Deputy Commissioner of Income Tax, (2025) 174 taxmann.com 384 (Guj.), which followed the Bombay High Court’s decision in Karan Maheshwari on materially similar allegations concerning JM Financial and JM Balanced Fund.

Applying the reasoning in Pranav Ramesh Parikh, the Court treated the petitioner’s challenge as arising from the same issue concerning alleged transactions involving JM Financial.

The allegations related to the fund’s accounting methodology and purported sham transactions; the material, as described in the judgment, did not establish a sufficient link between those allegations and the petitioner’s own conduct or alleged escapement of income.

The Revenue did not controvert that the issue had already been addressed in the cited decisions.

The Court therefore followed that precedent and held that the impugned reassessment action could not stand.

The Rule was made absolute.