Reassessment requires prima facie material and full disclosure; reopening upheld for one receipt but not unrelated income.

Reassessment under section 147(a) was upheld for the Rs. 7 lakhs receipt because later inquiry material prima facie showed the assessee may not have disclosed fully and truly all primary facts, and the Income-tax Officer had relevant material to form a bona fide belief that income had escaped assessment. However, the reassessment notice could not be sustained for the Rs. 2 lakhs and interest, as those amounts did not arise in the relevant accounting year and had no nexus with income assessable for that year. The reopening was therefore confined to the Rs. 7 lakhs item and could not extend to the later amount.

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Issues: (i) Whether reassessment proceedings under section 147(a) of the Income-tax Act, 1961 were validly initiated in respect of the sum of Rs. 7 lakhs received by the assessee. (ii) Whether the reassessment notice could be sustained in respect of the sum of Rs. 2 lakhs and interest thereon.

Issue (i): Whether reassessment proceedings under section 147(a) of the Income-tax Act, 1961 were validly initiated in respect of the sum of Rs. 7 lakhs received by the assessee.

Analysis: The original assessment had proceeded on the footing that the employment agreement was genuine and that the payment was compensation for premature termination of service. The later material from the inquiry commission prima facie indicated that the appointment letter may have been forged and antedated, and therefore the assessee may not have disclosed fully and truly all primary facts necessary for assessment. The Court applied the settled principle that jurisdiction under reassessment provisions arises only where the Income-tax Officer has reason to believe, in good faith and on relevant material, that income has escaped assessment because of non-disclosure of material facts.

Conclusion: Reassessment under section 147(a) was validly initiated in respect of the Rs. 7 lakhs item, and this part of the notice was upheld in favour of the Revenue.

Issue (ii): Whether the reassessment notice could be sustained in respect of the sum of Rs. 2 lakhs and interest thereon.

Analysis: The Rs. 2 lakhs and the related interest did not arise during the relevant accounting year and had no nexus with income assessable for the assessment year in question. The material on record did not support reopening on that item, and it could not be treated as escaped income for the relevant year.

Conclusion: The reassessment notice was not sustainable in respect of the Rs. 2 lakhs and interest thereon, and that part was quashed in favour of the assessee.

Final Conclusion: The petition failed overall, but the reopening was confined to the Rs. 7 lakhs receipt and could not extend to the Rs. 2 lakhs item and interest.

Ratio Decidendi: For reassessment, the Income-tax Officer must possess prima facie relevant material showing both escapement of income and failure to disclose fully and truly all primary facts; where such material exists, a later inquiry suggesting that an original factual premise may have been false can justify action under the reopening provision.

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