Reassessment reasons must show a live link to escapement of income; vague reopening grounds are invalid.

Reassessment under sections 147 and 148 is valid only if the recorded reasons show a live link between the material relied on and the belief that income escaped assessment. The reasons here merely recited the return, scrutiny assessment, project facts and offshore consultancy income, but did not explain how those facts justified reopening or why the original assessment was wrong. A bare assertion that the project created a permanent establishment and that income had escaped assessment was insufficient, as vague or inchoate reasons amount only to suspicion. The reassessment notice and the order disposing of objections were therefore set aside.

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Issues: Whether the reassessment notice under sections 147 and 148 of the Income-tax Act, 1961 was valid when the recorded reasons did not disclose a rational connection between the material relied upon and the belief that income had escaped assessment.

Analysis: The recorded reasons merely narrated the return, scrutiny assessment, project details and the offshore consultancy amount offered to tax. Beyond stating that the project constituted a permanent establishment under Article 5(3) of the double tax treaty and that income had escaped assessment, they did not explain how the stated facts led to that belief or how the original assessment was wrong. Reassessment can be initiated only where reasons are recorded before issue of notice and those reasons must show a live link between the material and the belief of escapement of income. Vague, incomplete or inchoate reasons amount only to suspicion and do not satisfy the statutory condition precedent for reopening.

Conclusion: The reassessment notice and the order disposing of objections were invalid and were set aside.

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