Reassessment notice based on incorrect facts and absent income escapement is legally unsustainable.

The petitioner filed its return for AY 2014–15 on 19.11.2014, declaring income of ₹26,24,120.

The return was scrutinised and assessment under Section 143(3) of the Income-tax Act, 1961 (“the Act”) was completed on 30.09.2016 at the returned income.

Subsequently, the Assessing Officer issued a notice under Section 148 dated 22.03.2019, relying on an investigation report concerning alleged transactions between the petitioner and M/s Manibhadra Textile Company.

The reasons alleged that the petitioner had deposited ₹14,14,883 in that concern’s bank account and that the amount was subsequently withdrawn in cash or through self-cheques.

The petitioner contended that it had made no payment to M/s Manibhadra Textile Company during AY 2014–15 and that ₹14,14,883 represented only the opening balance in the ledger.

The objections were rejected by the Assessing Officer on 11.12.2019, following which the petitioner challenged the reopening proceedings.

Whether the notice issued under Section 148 was sustainable when the reasons for reopening were based on the incorrect factual premise that the petitioner had made a payment of ₹14,14,883 to M/s Manibhadra Textile Company during AY 2014–15?

Whether the investigation information constituted a valid basis for reopening the assessment, particularly when there was no payment during the relevant assessment year and consequently no apparent escapement of income?

The Court applied Section 148 of the Income-tax Act, 1961, which permits reopening of an assessment only when the statutory conditions for reassessment are satisfied, including the existence of a legally sustainable basis to believe that income has escaped assessment.

Information received from an investigation wing may provide material for examination, but reopening cannot be founded on incorrect or undisputedly erroneous facts.

Where the foundational fact relied upon for reopening is absent, the notice is invalid because there can be no genuine escapement of income.

The Court also proceeded on the principle that the sufficiency of material is generally not examined in writ jurisdiction, but the existence and correctness of the basic jurisdictional facts may be examined.

The Court found that the reassessment was premised on the allegation that the petitioner had deposited ₹14,14,883 with M/s Manibhadra Textile Company during AY 2014–15.

However, the petitioner had specifically demonstrated in its objections that the amount was merely the opening ledger balance and that no payment had been made to the concern during the relevant year.

This factual position was not disputed by the Revenue.

Since the foundational transaction relied upon in the reasons for reopening did not occur during the relevant assessment year, the investigation information could not establish any escapement of income.

The notice was therefore based on incorrect facts and could not validly sustain reassessment proceedings.

It held that the reopening was based on an incorrect factual premise and that, in the absence of any payment to M/s Manibhadra Textile Company during AY 2014–15, there was no question of escapement of income.

The writ petition was allowed, and the notice issued under Section 148 dated 22.03.2019 was quashed and set aside.