2025 (7) TMI 1696 - HC - Income Tax

Reopening of assessment - reasons to believe - investment in purchase of a property but not disclosed in the return of income - HELD THAT - AO formed reason to believe that investment for purchase of property was not offered to tax and therefore there was an escapement of income being suppression of investment made by the petitioner. As per the say of the petitioner there was a sale of the petitioner and income of sale was already part of the total income offered to tax by the petitioner for the year under consideration. Thus it is apparent that the respondent AO has assumed jurisdiction on incorrect facts which is not tenable in the eye of law for issuance of the impugned notice for reopening. Assessee appeal allowed.

Summary

ISSUES:

Whether the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment is valid when based on an incorrect reason to believe.Whether the Assessing Officer can assume jurisdiction to reopen assessment on the basis of information contrary to facts on record.Whether failure to disclose investment in purchase of property justifies reopening under section 147 when the transaction was actually a sale already disclosed and offered to tax.Whether the petitioner has an alternative remedy by way of appeal before the Commissioner of Income Tax (Appeals) against additions made in reassessment proceedings.

RULINGS / HOLDINGS:

The notice under section 148 was issued on an incorrect premise, namely that the petitioner made an undisclosed investment in property, whereas in fact the petitioner had sold the property and offered the income to tax; therefore, the reopening notice is not tenable in law.The Assessing Officer cannot assume jurisdiction to reopen assessment based on "incorrect facts" as the jurisdictional requirement of a "reason to believe" must be founded on correct and relevant material.The failure to disclose alleged investment cannot justify reopening when the transaction was a sale already disclosed and included in total income, negating escapement of income under section 147.The petitioner has an alternative remedy by way of appeal before the CIT (Appeals) if any addition is made in the reassessment proceedings, but this does not validate the initial reopening notice issued without proper basis.Accordingly, the impugned notice under section 148 and the order disposing of objections are quashed and set aside.

RATIONALE:

The Court applied the statutory framework under sections 139, 147, and 148 of the Income Tax Act, 1961, which require that reopening of assessment must be based on a valid "reason to believe" that income has escaped assessment.The "reason to believe" must be founded on correct facts and cannot be based on incorrect or contrary information, as jurisdiction to reopen is jurisdictional and strictly construed.The Court emphasized that reopening on the basis of "assumed" facts or without considering material on record is impermissible.The judgment aligns with established precedents that the Assessing Officer's reason to believe must be bona fide and supported by material evidence.No dissent or doctrinal shift was indicated; the decision reiterates the principle that reopening must not be arbitrary or based on erroneous assumptions.