Reassessment notice beyond four years fails without a live nexus between material relied on and nondisclosure of primary facts.

A reassessment notice issued beyond four years was examined against the escaped-assessment standard requiring relevant material and a bona fide belief that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The relied-upon factors, including later gifts, a director's loan, and the relationship between the director and managing director, did not show that the remuneration credited in the relevant year was bogus or fictitious. As the record already reflected scrutiny of directors' remuneration in other years, the material lacked a live nexus with any nondisclosure of primary facts. The notice was therefore not validly founded and was quashed.

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Issues: Whether the reassessment notice issued under section 148 of the Income-tax Act, 1961, could be sustained on the basis that the assessee had failed to disclose fully and truly all material facts necessary for assessment, and whether the recorded reasons had a rational connection with the belief that income had escaped assessment.

Analysis: The notice was issued beyond four years and was therefore referable to the escaped-assessment provision requiring a belief founded on relevant material and on failure to disclose material facts. The department's reliance on subsequent gifts and a loan made by the director, and on the relationship between the director and the managing director, did not establish that the remuneration credited to the director in the relevant year was bogus or fictitious. The assessment record already contained material showing scrutiny of the directors' remuneration in earlier and later years, including disputes raised and decided in appellate proceedings. On those facts, the alleged new material did not support a live nexus between the facts discovered and a belief that the assessee had withheld primary facts or had received excessive relief.

Conclusion: The reassessment notice was not validly founded and was liable to be quashed; the decision is in favour of the assessee.

Final Conclusion: The writ petition succeeded, the impugned notice was set aside, and further proceedings based on that notice were restrained.

Ratio Decidendi: A notice for reassessment is invalid where the materials relied upon do not have a rational connection with the formation of a bona fide belief that income escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts necessary for assessment.

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