Reassessment invalid for want of service and incorrect reopening basis despite full disclosure of property transaction in return.

Service of the notice initiating reassessment was treated as a jurisdictional prerequisite, and the reassessment failed because notice under section 148 was not effectively served at the assessee's recorded address. The reopening was also invalid because it rested on incorrect AIR assumptions that the assessee had not filed a return and was a non-PAN holder, even though the original return disclosed the property sale, capital gains computation and section 54 claim; the approval under section 151 was likewise found uninformed. On merits, no escapement of income was established because the transaction had already been disclosed in the original return, so the reassessment and consequential addition were set aside.

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Issues: (i) Whether the reassessment proceedings were vitiated for non-service of notice under section 148 and lack of jurisdiction; (ii) Whether the initiation and approval for reassessment were invalid for being based on incorrect facts and without application of mind; (iii) Whether the assessment on merits could be sustained when the assessee had already disclosed the property transaction and related capital gains in the original return.

Issue (i): Whether the reassessment proceedings were vitiated for non-service of notice under section 148 and lack of jurisdiction.

Analysis: The notice under section 148 was stated to have been sent to the address of the sold property, while the assessee's return records and PAN-linked details reflected a different address. The record also did not show effective service of the statutory notice. Since service of the notice initiating reassessment is a jurisdictional requirement, absence of such service goes to the root of the proceedings.

Conclusion: The reassessment proceedings were held to be without jurisdiction for want of service of notice under section 148 of the Income-tax Act, 1961.

Issue (ii): Whether the initiation and approval for reassessment were invalid for being based on incorrect facts and without application of mind.

Analysis: The reassessment was triggered on AIR information treating the assessee as a non-PAN holder and assuming non-filing of return, although the assessee had filed the original return and disclosed the property transaction, capital gains particulars, and exemption claim. On the material placed, the foundation for belief that income had escaped assessment was factually unsound, and the approval for reopening was also not shown to be the product of an informed and independent examination of the material.

Conclusion: The initiation of reassessment and the approval under section 151 of the Income-tax Act, 1961 were held invalid.

Issue (iii): Whether the assessment on merits could be sustained when the assessee had already disclosed the property transaction and related capital gains in the original return.

Analysis: The original return disclosed the transfer of the house property, the cost figures, the capital gains computation, and the claim under section 54. The Departmental record also acknowledged filing of the return. In these circumstances, there was no escapement of income warranting reassessment, and the addition sustained in the reopened assessment could not stand.

Conclusion: The assessment on merits was not sustainable, as the disclosed return already covered the transaction and no escapement of income was established.

Final Conclusion: The reassessment and the consequential assessment were set aside, and the assessee succeeded on the jurisdictional as well as merits-based challenges.

Ratio Decidendi: Service of the notice initiating reassessment is a jurisdictional prerequisite, and reassessment cannot be sustained where it is founded on incorrect facts despite disclosure of the relevant transaction in the original return.

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