Reopening of assessment sustained where prima facie material suggested undervalued stock and possible profit understatement.

Reopening of assessment under section 147(a) was upheld because the recorded reasons showed prima facie material suggesting undervaluation of closing stock and possible understatement of profits by excluding fiscal duty and direct manufacturing costs. At the threshold stage, the court held that only the existence of relevant material mattered; the sufficiency, correctness, or ultimate truth of the allegations could not be decided then. The assessee remained free to contest the factual basis before the assessing authority and to show that no new facts had emerged after the original assessment. The reopening could therefore not be invalidated at this stage.

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Issues: Whether the reopening of the assessment under section 147(a) of the Income-tax Act, 1961 could be invalidated at the threshold for want of sufficient material or on the merits of the alleged suppression of facts.

Analysis: The recorded reasons disclosed material suggesting that, while valuing closing stock, fiscal duty and other direct manufacturing costs had not been included, resulting in possible undervaluation of inventories and understatement of profits. At the stage of examining the validity of reopening, only the existence of prima facie material was relevant. The sufficiency or correctness of that material, and the truth of the factual assumptions in the notice, were not matters for final determination at that stage. The assessee was left free to challenge the factual basis before the assessing authority and to show that no new facts had come to light after completion of the original assessment.

Conclusion: The reopening could not be struck down at this stage, and the appeal was dismissed.

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