Reassessment under section 147 fails when recorded reopening reasons lack factual support, despite reliance on Explanation 3.

Reassessment under section 147 can survive only if the recorded reasons for reopening are legally and factually sustainable. Here, the reopening was based on an assumed taxable gain from property transactions, but the sale deed had already been cancelled by the State Government, so the factual basis for the belief of escapement of income failed. The attempt to justify the reassessment under Explanation 3 to section 147 was rejected because that provision does not cure a reopening where the original recorded reasons are untenable. Accordingly, once the recorded reasons collapsed, the reassessment proceedings could not be sustained and were quashed.

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Issues: Whether the reassessment initiated under section 147 of the Income-tax Act, 1961 was valid when the reasons recorded for reopening were found to be unsustainable and the additions made on those very reasons were deleted.

Analysis: The reopening was founded on the premise that the assessee had derived taxable income from property transactions during the relevant year. On the facts, the sale deed itself had already been cancelled by the State Government and no taxable income could be attributed to the assessee on that basis. The reasons recorded for reopening therefore lost their factual foundation. The attempt to sustain the reassessment by invoking Explanation 3 to section 147 was rejected because that provision does not validate a reopening where the recorded reasons themselves fail. The validity of reassessment must be tested only on the reasons actually recorded, and once those reasons are held untenable, the reassessment cannot survive.

Conclusion: The reopening was invalid and the reassessment proceedings were quashed.

Ratio Decidendi: Reassessment under section 147 can stand only if the recorded reasons for forming the belief of escapement of income are legally and factually sustainable; if those reasons collapse, the reassessment fails notwithstanding Explanation 3 to section 147.

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