Reopening of assessment must follow recorded reasons; reassessment invalid when additions target an unrelated exemption claim.

Reopening of assessment was invalid where the only recorded reason concerned specified cash deposits but the assessing officer made additions on an unrelated exemption claim; the legal principle applied requires that reassessment proceedings be founded on the reasons recorded and maintain a direct nexus to issues addressed, and additional grounds may be admitted only if relevant facts are on record and they go to the root of the matter; consequently the reassessment initiated on cash-deposit grounds but converted into an exonera tion challenge to an exemption was quashed and the appeal allowed for the assessee.

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Issues: Whether the reopening of assessment under Sections 147/148 read with Section 144 of the Income-tax Act, 1961 was valid where the recorded reason for reopening related to specified cash deposits but the assessing officer made additions concerning an exemption claimed under Section 10(23C) of the Income-tax Act, 1961.

Analysis: Reopening of assessment under Sections 147/148 of the Income-tax Act, 1961 must be founded on the reasons recorded and those reasons must have a direct nexus to the issues addressed in the reopened assessment. Where the sole recorded reason for initiating reassessment proceedings pertains to specified cash deposits, any consequential assessment action must relate to that reason or facts on record that flow from it. An assessment reopened on one distinct ground cannot be sustained if the assessing authority proceeds to make additions or determinations on an unrelated ground-such as an exemption under Section 10(23C) of the Income-tax Act, 1961-without that issue forming part of the reasons recorded. Established precedents permit admission of additional grounds that go to the root of the matter provided relevant facts are on record; however, the foundational requirement remains that the reopening itself be validly initiated based on the recorded reasons.

Conclusion: The reopening under Sections 147/148 read with Section 144 of the Income-tax Act, 1961 is quashed as invalid because the assessing authority instituted reassessment on the basis of cash deposits but made additions on an unrelated issue of exemption under Section 10(23C) of the Income-tax Act, 1961. The appeal is allowed in favour of the assessee.

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