Reopening of assessment requires independent belief of escaped income due to non-disclosure; conjectural cash transaction insufficient, relief granted to assessee.

Reopening of assessment requires a genuine belief that income has escaped assessment because the assessee failed to disclose material facts; that belief must follow independent application of mind and verification by the assessing officer. A mere recital that material facts were not disclosed, or a borrowed satisfaction, is insufficient to validate reassessment. An inference of undisclosed income based on conjecture about a large cash transaction, without factual verification or finding that disclosure was untrue or incomplete, does not satisfy the conditions precedent for reopening. The reassessment was therefore held invalid and decided in favour of the assessee.

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Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose full and true particulars of the transaction.
3. Basis for reopening the assessment beyond four years.
4. Alleged receipt of unaccounted cash by the petitioner.
5. Application of mind by the Assessing Officer in reopening the assessment.
6. Borrowed satisfaction and reliance on third-party information.

Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the legality and validity of the notice dated 28th March 2018 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the petitioner’s income tax assessment for the Assessment Year 2011-12. The petitioner argued that the notice was illegal, contrary to law, and without jurisdiction. The court noted that the petitioner had already been assessed under Section 143(3) of the Act and had disclosed all relevant details during the original assessment.

2. Alleged Failure to Disclose Full and True Particulars of the Transaction:
The petitioner contended that there was no failure on their part to make a full and true disclosure of the transaction. The capital gains earned on the sale of land were duly disclosed in the return of income. The original Assessing Officer, after examining all relevant aspects, chose not to make any addition in respect of the capital gains while framing the assessment under Section 143(3) of the Act. The court agreed with the petitioner, stating that the reopening was based on borrowed satisfaction and that the Assessing Officer did not apply his mind independently.

3. Basis for Reopening the Assessment Beyond Four Years:
The court observed that the reopening was initiated beyond the period of four years from the end of the relevant Assessment Year. According to the first proviso to Section 147 of the Act, reopening beyond four years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court found no such failure on the part of the petitioner and held that the reopening was not justified.

4. Alleged Receipt of Unaccounted Cash by the Petitioner:
The reasons for reopening the assessment included an allegation that the petitioner received unaccounted cash of Rs. 2,90,61,775. The petitioner vehemently denied this allegation and argued that the sale consideration was received as per the document value only. The court found that the information relied upon by the Assessing Officer was based on an estimate sheet prepared by a third party (M/s. K.Star Corporation) and not on any concrete evidence of unaccounted cash receipts by the petitioner.

5. Application of Mind by the Assessing Officer in Reopening the Assessment:
The court emphasized that the Assessing Officer must independently apply his mind to the material on record before forming a belief that income has escaped assessment. In this case, the court found that the Assessing Officer relied solely on information received from the DCIT, Central Circle-4, Surat, without conducting an independent inquiry or verification. This amounted to borrowed satisfaction, which is not permissible under the law.

6. Borrowed Satisfaction and Reliance on Third-Party Information:
The court held that the reopening of the assessment was based on borrowed satisfaction from the information received from the DCIT, Central Circle-4, Surat, which was itself based on a search and survey operation at the premises of M/s. K.Star Corporation. The court reiterated that third-party information alone does not constitute "reason to believe" unless it is subjected to investigation and independent reasons are recorded by the Assessing Officer. The court found that the Assessing Officer had not applied his mind independently and had merely relied on the third-party information.

Conclusion:
The court quashed the impugned notice dated 28th March 2018 issued under Section 148 of the Income Tax Act, 1961, and set aside the reopening of the assessment for the Assessment Year 2011-12. The court held that the conditions precedent for reopening the assessment were not satisfied and that the reopening was based on borrowed satisfaction without independent application of mind by the Assessing Officer. The court allowed the writ application and the connected two writ applications, thereby quashing the impugned notices challenged in those applications.

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