Recorded investment sale proceeds cannot be treated as unexplained cash credit; reassessment based on mistaken facts lacks legal basis.

Reassessment under section 147 was found unsustainable because the recorded reasons proceeded on a appreciation of the basic facts: the receipt was sale consideration for shares held as investments and was received through banking channels, not unexplained funds from a shell company. Section 68 was also held inapplicable because the shares were reflected as investments in earlier audited balance sheets, and the source and nature of the receipt stood explained as sale proceeds. The ratio is that consideration for sale of recorded investments cannot be treated as an unexplained cash credit.

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Issues: (i) Whether reassessment initiated under section 147 was valid on the basis of the recorded reasons; (ii) Whether section 68 applied to the amount received on sale of shares held as investments.

Issue (i): Whether reassessment initiated under section 147 was valid on the basis of the recorded reasons.

Analysis: The recorded reasons did not identify the true nature of the impugned receipt and proceeded on the assumption that the assessee had received funds from a shell company. The material on record showed that the transaction was a sale of shares held as investments and that the amounts were received through banking channels. Since the reopening was founded on a misapprehension of the basic facts and not on a correct appreciation of the assessee's records, the initiation of reassessment was not sustained.

Conclusion: The reassessment was held to be invalid and not in accordance with law.

Issue (ii): Whether section 68 applied to the amount received on sale of shares held as investments.

Analysis: The assessee had shown the shares as investments in its audited balance sheet from earlier years and the receipts represented sale consideration for those investments. The amount was neither share capital nor share premium, and the source and nature of the receipt stood explained by the sale of recorded investments. On these facts, the deeming fiction for unexplained cash credits could not be invoked.

Conclusion: The addition under section 68 was not justified and was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded, and the reassessment as well as the addition were set aside.

Ratio Decidendi: A receipt shown by the assessee as consideration for sale of investments recorded in the balance sheet cannot be treated as an unexplained cash credit under section 68, and reassessment founded on a mistaken understanding of the transaction lacks legal basis.

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