Reassessment jurisdiction under section 147 fails where reasons rest on suspicion, not a live nexus or proper belief of escapement.

Reassessment under section 147 was invalid where the recorded material did not establish a live nexus between the information before the Assessing Officer and a bona fide reason to believe that income had escaped assessment for the relevant year. Suspicion based on subsequent-year assessment, cash deposits and property transactions was insufficient, and mere inadequacy of returned income to explain investments or deposits did not meet the statutory threshold without further enquiry. Explanation 2(b) to section 147 was also inapplicable because there was no recorded finding of understatement of income within its scope. The reassessment was therefore without jurisdiction and the assessment was quashed.

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Issues: Whether the reassessment under section 147 of the Income-tax Act, 1961 was validly initiated on the basis of material giving rise to a reason to believe that income had escaped assessment, and whether Explanation 2(b) to section 147 could be invoked on the facts.

Analysis: The reasons recorded for reopening were founded on the assessment made for a subsequent year and on the similarity of cash deposits and property transactions, but the recorded material did not establish a live nexus between the information in possession of the Assessing Officer and a formed belief that income had escaped assessment in the year under consideration. The basis disclosed only a suspicion that the transactions might have been sourced from undisclosed income. Mere inadequacy of returned income to explain the investments and deposits, without further enquiry, did not satisfy the statutory requirement of belief. Explanation 2(b) was also inapplicable because the Assessing Officer had only suspected understatement of income and had not recorded a finding that the assessee had understated income within the meaning of that provision.

Conclusion: The reassessment was held to be without valid jurisdiction and the assessment made under section 147 was quashed.

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