Reopening of assessment based on seized third-party document found vague and unsustainable, assessment reopening quashed and appeal allowed

Reopening of assessment was challenged on the basis that information relied upon was vague and derived from a seized third-party document which contained no direct or indirect link to the taxpayers; statements recorded under statutory witness provisions did not mention the taxpayers and did not connect the documents rates to them. The reasoning therefore found the invocation of reassessment proceedings to be ill-conceived and unsustainable for lack of evidentiary linkage and sufficiency, resulting in quashing of the reopening and allowance of the taxpayers appeal.

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Issues: Whether the issuance of notice under Section 148 of the Income-tax Act, 1961 for A.Y. 2021-22, based on an extract of an inquiry register seized during search proceedings (and the Assessing Officer's satisfaction note approved under Explanation 2 clause (iv) to Section 148), is valid where the seized extract does not directly or indirectly connect the information to the assessee.

Analysis: The Court examined the seized extract from search proceedings and compared its contents with the petitioner's sale deed and related record. The seized entry bore a date after the petitioner's sale, recorded the land status as non-agricultural whereas the petitioner's sale deed showed agricultural status, and named a different seller. Statements recorded under Section 131 did not mention the petitioner. In these circumstances the Court analysed whether the material relied upon by the Assessing Officer established the requisite nexus and reasonable satisfaction to reopen assessment under Section 148. The Court found that the seized extract was vague, inconsistent with the petitioner's documentary record, and lacked any direct or indirect link to the petitioner, thus amounting to conjecture rather than material capable of constituting a valid satisfaction for reopening.

Conclusion: The notice under Section 148 of the Income-tax Act, 1961 dated 31.03.2025 is quashed and set aside insofar as it relates to the petitioner; the reopening was founded on conjectures and surmises and is unsustainable. The writ petition is allowed in favour of the assessee.

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