Quashed FIR and no independent evidence cannot support reassessment-based additions under the Income-tax Act

An assessment under sections 147 and 148 of the Income-tax Act cannot be sustained where it is founded only on allegations in an FIR that was later quashed on compromise and there is no independent inquiry or material showing undisclosed income. The absence of concrete evidence meant the additions could not rest on assumptions or presumptions. Continued ex parte proceedings were also noted against the backdrop that the assessee was said to be in a vegetative state and unable to participate. The ex parte assessment order and consequential demand notices were therefore set aside.

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Issues: Whether the ex parte assessment order and consequential demand notices could be sustained when they were founded only on an FIR later quashed on compromise, without any independent inquiry or evidence of undisclosed income, and when the assessee was unable to participate due to his medical condition.

Analysis: The assessment was based on the allegations contained in the FIR lodged by the assessee's daughter. That FIR stood quashed on compromise. The record did not show any independent investigation or material establishing that the assessee had earned undisclosed income of the amount added. The proceedings were also continued ex parte despite the respondent being informed that the assessee was in a vegetative state and could not participate. In the absence of concrete evidence, the demand could not rest on assumptions or presumptions.

Conclusion: The ex parte assessment order and the consequential demand notices were unsustainable and were set aside in favour of the assessee.

Ratio Decidendi: An assessment under sections 147 and 148 of the Income-tax Act, 1961 cannot be sustained where it rests only on a quashed criminal complaint and lacks independent evidence of undisclosed income.

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