Reason to believe lacked material where reopening relied on search information without verification; reopening notices invalidated.

Reopening notices under Section 148/147 were held invalid because the Assessing Officer lacked a formed reason to believe: the AO relied on information from a search at a principal contractor and did not apply mind or verify extensive corroborative documents submitted by the assessee (audited accounts, bank statements, project bills, measurement books, VAT declarations and LOIs). The CIT(A) and ITAT found the AO recorded suspicion and factually incorrect figures; information from the searching authority supplied grounds for enquiry only and did not establish escapement of income, so assessments framed consequentially were quashed.

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Issues: (i) Whether the notice issued under Section 148 read with Section 147 of the Income-tax Act, 1961 for AY 2016-17 and AY 2017-18 was validly issued by the Assessing Officer, having requisite "reasons to believe" that income had escaped assessment.

Analysis: The issue turns on whether the Assessing Officer possessed and applied relevant material to form a reason to believe before issuing the reopening notice. The Assessing Officer acted on information received from the ACIT, Central Circle, Ahmedabad arising from search operations at the principal contractor, and issued enquiries under Section 133(6). The assessee furnished detailed documentary material in response including audited accounts, bank statements, project-wise bills, measurement books certified by government engineers, VAT-12 declarations, photographs, and copies of letters of intent; these documents showed project execution and banked receipts. The first appellate authority found that the AO neither sought the missing LOI from the principal contractor nor properly appreciated or verified the extensive corroborative material placed on record and recorded reasons based on suspicion and factually incorrect figures. The Tribunal agreed with the CIT(A), holding that the reopening was based on mere surmise, non-application of mind and factual errors; the information forwarded from the searching authority amounted to grounds for enquiry but did not itself constitute material establishing escapement of income in the assessee's case.

Conclusion: The notice issued under Section 148/147 of the Income-tax Act, 1961 is invalid. The revenue's appeals against the CIT(A) orders are dismissed and the assessments framed consequential to those notices are quashed.

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