Reason to Believe requirement: vague reasons cannot sustain reassessment; unexplained credits need satisfactory source and records.

Proceeds from sale of investments in the relevant year were held not to be taxable as unexplained credits because the assessee produced satisfactory explanations and contemporaneous records showing original funding from earlier share capital and share premium, banked sales and reconciliations, and no contrary corroborative material; therefore the unexplained credits standard was not met and no addition was warranted. Reassessment initiated on the basis of general and vague reasons was quashed for lack of a bona fide reason to believe: reopening requires cogent material and a direct nexus between discovered material and escapement of income, which was absent here.

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Issues: (i) Whether the proceeds from sale of investments received in AY 2013-14 could be treated as unexplained income under Section 68 of the Income-tax Act, 1961; (ii) Whether the reassessment proceedings initiated under Section 147/148 of the Income-tax Act, 1961 for AY 2013-14 were validly initiated on 'reason to believe'.

Issue (i): Whether the proceeds from sale of investments received in AY 2013-14 were liable to be treated as undisclosed income under Section 68 of the Income-tax Act, 1961.

Analysis: The assessee produced evidence that the investments were financed by share capital and share premium received in FY 2007-08 (relevant to AY 2008-09), that the source of those funds had been examined and accepted in assessment proceedings for AY 2008-09, and that the sales were transacted through banking channels to companies registered under the Companies Act. The assessee also furnished reconciliation and supporting documents; the Assessing Officer for AY 2012-13 had examined similar sales and accepted them. No corroborative material was produced to displace the explanations regarding nature and source of the receipts. Section 68 requires that unexplained credits may be taxed only where the assessee offers no satisfactory explanation as to nature and source; here satisfactory explanations and supporting records were on file.

Conclusion: The proceeds from sale of investments in AY 2013-14 are not to be treated as unexplained income under Section 68 of the Income-tax Act, 1961; this issue is decided in favour of the assessee.

Issue (ii): Whether the reassessment notice dated 31.03.2021 under Section 148 read with Section 147 of the Income-tax Act, 1961 was validly issued on sufficient reasons to form belief that income had escaped assessment.

Analysis: The reasons recorded for reopening were general, vague and referred to prior receipt of share capital in 2008 which had already been examined and accepted in AY 2008-09. The reasons did not identify specific transactions or entities nor adduce fresh material creating a direct nexus between discovered material and formation of belief regarding escapement of income for AY 2013-14. Reopening must rest on 'reason to believe' supported by cogent material and a rational connection; reopening based on mere suspicion or borrowed satisfaction is impermissible.

Conclusion: The reassessment proceedings under Section 147/148 of the Income-tax Act, 1961 are invalid for lack of proper reasons to form belief and are quashed; this issue is decided in favour of the assessee.

Final Conclusion: The overall effect of the decision is that the revenue appeal is dismissed and the assessee's cross-objection is allowed, resulting in the deletion of the addition and quashing of the reassessment for the year under consideration.

Ratio Decidendi: Reopening of assessment under Section 147/148 of the Income-tax Act, 1961 requires a bona fide 'reason to believe' supported by cogent material showing a rational connection between the material and the belief of escapement of income; unexplained credits under Section 68 can be taxed only where the assessee fails to satisfactorily explain the nature and source of the credited sums.

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