Reasonable belief requirement vitiated where reopening rests on incorrect factual premises, leading to reassessment being quashed.

Whether the Assessing Officer validly assumed jurisdiction under Section 147 by reopening AY 2015-16 on alleged bogus purchases was examined: the reassessment followed a search under Section 132 and notice under Section 148, but the assessee produced ledger entries, bills, confirmations, stock records and bank payments showing payments related to earlier years and no purchases debited in the relevant year. The Tribunal found the reopening rested on an incorrect factual premise, vitiating the reasonable belief required for reopening under Section 147; consequently reassessment was quashed as void ab initio.

---

---

Issues: Whether the Assessing Officer was justified in assuming jurisdiction under Section 147 of the Income-tax Act, 1961 by reopening the assessment for AY 2015-16 on the basis that purchases from M/s. Surya Diamond Pvt. Ltd were bogus.

Analysis: The reassessment was initiated after a search under Section 132 of the Income-tax Act, 1961 in the case of an alleged accommodation entry provider, followed by issuance of notice under Section 148 of the Income-tax Act, 1961. The assessee had filed return processed under Section 143(1) of the Income-tax Act, 1961 and furnished documentary evidence (purchase bills, ledger entries, confirmations, stock register, bank payments) showing that payments during the year related to purchases made in earlier years and that no purchases were debited to the profit and loss account for the year under consideration. The Tribunal examined the ledger and the documentary record and found that no purchases were actually made in the relevant year; payments made were for earlier years. Reopening based on an incorrect factual premise (i.e., that purchases occurred in the relevant year and were bogus) meant that the Assessing Officer did not have a reasonable belief that income had escaped assessment for that year. Where the recorded reasons for reopening rest on incorrect factual assumptions, the formation of reasonable belief required by Section 147 of the Income-tax Act, 1961 is vitiated and the assumption of jurisdiction is invalid.

Conclusion: The reassessment proceedings under Section 147 of the Income-tax Act, 1961 are quashed as void ab initio and the appeal is allowed in favour of the assessee.

---