Reassessment jurisdiction fails on incorrect facts, while disclosed investment sale proceeds cannot be treated as unexplained credits.
Reassessment jurisdiction requires a reason to believe founded on correct facts and independent verification. Recorded reasons based on the incorrect premise that only summary processing occurred, despite a completed scrutiny assessment, cannot be cured as a clerical defect. Similarly, unverified Investigation Wing information unsupported by corresponding bank credits does not establish a valid basis for reopening. Sale proceeds of investments previously recorded in the books and balance sheet, received through banking channels, are not loans, deposits, share application money, or unexplained cash credits. Such disclosed investment realisations cannot be added as unexplained credits.
Issues: (i) Whether the reassessment proceedings initiated on incorrect factual premises and on Investigation Wing information without independent application of mind were valid; (ii) Whether sale proceeds of investments disclosed in preceding years could be treated as unexplained cash credits.
Issue (i): Whether the reassessment proceedings initiated on incorrect factual premises and on Investigation Wing information without independent application of mind were valid.
Analysis: For assessment year 2011-12, the recorded reasons incorrectly stated that the return had only been processed under Section 143(1), although a scrutiny assessment under Section 143(3) had already been completed. This foundational factual error could not be treated as a curable clerical defect under Section 292B. For assessment year 2013-14, the Investigation Wing information relied upon for reopening included alleged receipts from parties from whom no corresponding credits were found in the assessee's bank records; that factual position had also been accepted in the first appellate order. The recorded reasons therefore disclosed reliance on unverified information rather than an independently formed belief based on correct facts.
Conclusion: The reassessment proceedings for both assessment years were invalid and were quashed, in favour of the assessee.
Issue (ii): Whether sale proceeds of investments disclosed in preceding years could be treated as unexplained cash credits.
Analysis: The investments had been acquired in earlier years, recorded in the books, and reflected on the asset side of the balance sheet without any action having been taken to disturb their disclosure. Amounts received during the relevant year represented proceeds on sale of those investments and were credited through the bank. Such receipts were not loans, deposits, share application money, or unexplained credits contemplated by Section 68.
Conclusion: No addition under Section 68 could be made in respect of the sale proceeds of disclosed investments, in favour of the assessee.
Final Conclusion: The jurisdictional defects invalidated the reassessments, and the remaining sale proceeds were not taxable as unexplained cash credits.
Ratio Decidendi: Reassessment jurisdiction requires a reason to believe founded on correct and independently verified facts; unexamined Investigation Wing information and factually erroneous recorded reasons cannot sustain reopening.