Borrowed satisfaction in reassessment failed where reopening lacked independent enquiry and tangible nexus to escaped income.

Reassessment under sections 147 and 148 was treated as invalid where the reopening rested only on Investigation Wing information from a search in another concern, without independent application of mind or tangible material showing a live nexus to escapement of income. The reasons recorded did not link any seized material directly to the assessee, and borrowed satisfaction was held insufficient to confer jurisdiction; the reassessment was therefore void ab initio. An ad hoc disallowance of expenditure was also found unsustainable because it was made on estimate without proper verification of the business character of the expenses. The reassessment additions accordingly did not survive.

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Issues: (i) Whether the reassessment initiated under section 147 of the Income-tax Act, 1961, was valid when the reopening was based only on information from the Investigation Wing and not on independent application of mind by the Assessing Officer; (ii) Whether the ad hoc disallowance of expenditure was sustainable.

Issue (i): Whether the reassessment initiated under section 147 of the Income-tax Act, 1961, was valid when the reopening was based only on information from the Investigation Wing and not on independent application of mind by the Assessing Officer.

Analysis: The reopening was founded on information received from the Investigation Wing following a search in the case of another group concern. The reasons recorded did not show any seized material directly linking the assessee to escapement of income, and the Assessing Officer acted on borrowed satisfaction without first making an independent enquiry despite the relevant information being already reflected in the return and books. The record also indicated that the material placed by the assessee had been submitted during assessment proceedings, and the Assessing Officer ought to have examined the same before invoking reassessment jurisdiction. In these circumstances, the initiation of proceedings was held to be without proper jurisdiction and void ab initio.

Conclusion: The reassessment under sections 147 and 148 was invalid and the jurisdictional challenge succeeded.

Issue (ii): Whether the ad hoc disallowance of expenditure was sustainable.

Analysis: The disallowance was made on an estimated basis without proper verification of the business nature of the expenses. The expenses related to the assessee's business operations, and ad hoc disallowance was not justified on the material available.

Conclusion: The ad hoc disallowance was not sustainable.

Final Conclusion: The assessment was set aside on the jurisdictional defect, and the additions made in the reassessment did not survive.

Ratio Decidendi: Reassessment cannot be sustained where it is initiated on borrowed satisfaction from third-party information without independent enquiry or tangible material establishing a live nexus to escapement of income.

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