Valid reassessment notice and genuine share transactions determined the tax treatment, while invalid service defeated jurisdiction.

Reassessment under section 148 requires valid recording of reasons based on relevant material and lawful service of notice; here the recorded belief of escapement was supported, but service on the assessee's wife without the conditions for substituted service was invalid, so the reassessment lacked jurisdiction. The addition as income from undisclosed sources was not sustained where documentary evidence showed purchase, transfer, holding and sale of shares through a registered broker; the transactions were treated as genuine share dealings, with the sale proceeds recognised as capital gains rather than unexplained income.

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Issues: (i) Whether the reassessment proceedings initiated under section 148 were invalid for want of proper recording of reasons, absence of application of mind, or improper service of notice. (ii) Whether the addition of Rs. 2,07,384 as income from undisclosed sources, instead of long-term capital gains, was justified.

Issue (i): Whether the reassessment proceedings initiated under section 148 were invalid for want of proper recording of reasons, absence of application of mind, or improper service of notice.

Analysis: The reasons recorded by the Assessing Officer were found to be supported by the information received and by the return already filed, and the belief of escapement of income was treated as sufficiently founded on relevant material. The challenge based on the manner of service succeeded because the notice was served on the assessee's wife without the conditions necessary for substituted service on an adult family member being shown to exist, and such improper service was held not to be cured by later participation in the proceedings.

Conclusion: The challenge to the reassessment failed on the ground of recording of reasons and formation of belief, but succeeded on the ground of invalid service of notice, rendering the reassessment proceedings without jurisdiction.

Issue (ii): Whether the addition of Rs. 2,07,384 as income from undisclosed sources, instead of long-term capital gains, was justified.

Analysis: The assessee produced documentary evidence showing purchase, transfer, holding, and sale of shares through a registered broker, including share certificates, transfer documents, and supporting market quotations. The Revenue's material gathered in investigation was not treated as overriding these documents, and the transactions were accepted as genuine to the extent that the sale proceeds represented consideration from share transactions, with only the cost element to be excluded in computing capital gain.

Conclusion: The addition was not sustainable as income from undisclosed sources; the receipt was held to be sale consideration from genuine share transactions giving rise to long-term capital gains.

Final Conclusion: The reassessment was quashed for invalid service of notice, and the major addition was deleted on merits, leaving only the consequential tax matters undisturbed.

Ratio Decidendi: A reassessment notice must be validly served in the manner prescribed by law, and an addition cannot stand as unexplained income where reliable documentary evidence establishes a genuine share transaction and its sale consideration.

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