Prima facie reopening upheld, but unexplained income addition failed where CBI statements lacked corroboration and cross-examination.

Reopening of assessment under sections 147 and 148 was held valid where the Assessing Officer had a prima facie reason to believe, based on information from the CBI and material on record, that income had escaped assessment, and the sanction and objection-disposal requirements were complied with. However, the addition of unexplained income could not be sustained because it rested only on CBI-recorded statements without independent corroboration, and cross-examination of the statement maker was denied. The statement alone was held insufficient to justify the addition in income-tax proceedings, so the reassessment survived but the substantive addition was deleted.

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Issues: (i) Whether the reopening of assessment under sections 147 and 148 of the Income-tax Act, 1961 was valid; (ii) whether the addition of Rs. 60 crores as unexplained income was sustainable.

Issue (i): Whether the reopening of assessment under sections 147 and 148 of the Income-tax Act, 1961 was valid.

Analysis: Reopening requires only a prima facie reason to believe that income has escaped assessment. Information received from the CBI, coupled with the material available with the Assessing Officer, was treated as sufficient at the stage of initiation. The Court accepted that final proof was not necessary for reopening and that the sanction and objection-disposal requirements stood complied with.

Conclusion: The reopening of assessment was upheld and the challenge was rejected.

Issue (ii): Whether the addition of Rs. 60 crores as unexplained income was sustainable.

Analysis: The addition rested only on statements recorded by the CBI and no independent corroborative evidence was brought on record. The assessee was denied cross-examination of the person whose statement was relied upon, and the material from the CBI was not sufficient by itself to justify the addition. The Court held that statements recorded by investigating authorities cannot, without supporting evidence, form the sole basis for an addition in income-tax proceedings.

Conclusion: The addition of Rs. 60 crores was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded in full, with the reassessment upheld but the substantive addition set aside, resulting in an overall relief to the assessee.

Ratio Decidendi: For reassessment, the Assessing Officer needs only a prima facie reason to believe based on relevant material, but an income addition cannot rest solely on uncorroborated statements recorded by another investigating agency, especially where cross-examination is denied.

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