Dismantling Reassessments Built on Erroneous Jurisdictional Foundations

By Editor6 Income Tax Articles August 24, 2026

Parv Kumar Gupta

Summary: The supplied material explains that assumption of jurisdiction under Sections 147 and 148 of the Income Tax Act, 1961 depends on valid, correct and verified jurisdictional facts, with reassessment proceedings required to be tested on the reasons recorded by the Assessing Officer. Relying on Hindustan Lever Ltd. v. R.B. Wadkar, it states that recorded reasons cannot be substituted, deleted, supplemented or improved subsequently. GKN Driveshafts (India) Ltd. v. ITO is cited for the requirement of valid “reasons to believe”, while Trans Logistics India Pvt. Ltd. v. Addl. CIT is cited for the principles that reopening cannot be exercised casually or mechanically and must rest on tangible material. The material further relies on Sagar Enterprises v. ACIT, Kissan Fats Ltd. v. Dy. CIT and Ashwin S. Mehta v. Dy. CIT to state that factually incorrect recorded reasons can invalidate reassessment. Section 148: Recording and Issue of Reasons The Supreme Court decision in ITO v. Lakhmani Mewal Das is cited for the rational connection or live link between material and the belief of escapement, while Saraswati Petrochem Pvt. Ltd. v. ITO distinguishes “reason to believe” from mere suspicion. The material concludes that Section 148 has a jurisdictional character and, as stated with reference to Smt. Asha Dubey v. Union of India, a valid notice is the first step for assumption of jurisdiction; defects going to jurisdiction cannot be cured by Sections 292B or 292BB.

Jurisdictional Foundations and the Primacy of Recorded Reasons

The assumption of jurisdiction under Section 147 and the issuance of a notice under Section 148 of the Income Tax Act, 1961 depend entirely upon the existence of valid, correct, and verified jurisdictional facts. It is a well-settled principle of tax jurisprudence that the validity of reassessment proceedings must be adjudged solely from the standpoint of the reasons recorded by the Assessing Officer (AO) at the time of initiating the proceedings. As authoritatively held by the Hon’ble Bombay High Court in the landmark decision of Hindustan Lever Ltd. v. R.B. Wadkar^l that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the Assessing Officer to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons.

The Strict Prohibition Against Post Facto Improvements

Under GKN Driveshafts (India) Ltd. v. ITO², the requirement of recording valid, factual “reasons to believe” is not a ritualistic or empty formality. Consequently, the validity of a reopening notice must be tested strictly on the terms of the recorded reasons on a standalone basis, and the Revenue is strictly prohibited from subsequently improving upon, supplementing, or shoring up those reasons through post facto explanations, affidavits, or the draft of subsequent assessment orders.

Fundamental Guardrails of Section 147 Jurisdiction

Furthermore, in Trans Logistics India Pvt. Ltd. v. Addl. CIT³, the Hon’ble Delhi High Court summarized the fundamental principles of Section 147/148:

1. The power to re-open an assessment under section 147 of the Income Tax Act, 1961, is a potent power and cannot be exercised lightly.

2. The power cannot be exercised or invoked casually or mechanically.

3. Formation of a belief by the A.O. that income had escaped assessment is at the heart of the provision.

4. The reasons recorded must be based on some tangible material and this should be evident from a reading of the reasons, and this constitutes the mandatory requirement of section 147.

Hon’ble Gujarat High Court in the case of Sagar Enterprises v. ACTT I noted that it was apparent that the fact of non-filing of the return for the assessment year 1991-1992 had weighted with the Assessing Officer for arriving at the satisfaction about the failure on the part of the assessee and escapement of assessment of income. However, the material on record showed that the return had been filed. “In such circumstances, it could not be said with certainty as to which fact would have weighed with the officer concerned and once it was shown that an irrelevant fact had been taken into consideration, to what extent the decision was vitiated would be difficult to say.”

Relying on the above judgement the Hon’ble ITAT Chandigarh Bench in Kissan Fats Ltd. v. Dy. CIT⁵ has decisively held that the reasons recorded were factually incorrect which could not have led the Assessing Officer to arrive at a valid satisfaction that income for the year under consideration had escaped assessment. The plea of the Department that the recording of wrong facts by the Assessing Officer was an inadvertent mistake, is of no avail and did not validate the recorded reasons. Thus, the reassessment order was quashed as void ab initio.

In Ashwin S. Mehta v. Dy. CIT⁶, the Tribunal relying on Sagar Enterprises (Supra) observed that once there was a factually incorrect basis about the formation of belief about escapement of income, such reasons could not be taken to be valid even if the alternate reasons relied upon may be correct. Thus, as the recording of reasons was based on an incorrect assumption of fact, it invalidated the formation of belief envisaged under section 147 / 148 of the Act. As a consequence, thereof, the assumption of jurisdiction under section 147 / 148 of the Act was untenable and liable to be set aside.

“Reason to Believe” Distinguished from Mere Suspicion

The statutory requirement of Section 147/148 is the existence of a “reason to believe,” which is a much stronger expression than “reason to suspect” or “reason to satisfy”. As laid down by the Hon’ble Supreme Court in the locus classicus of ITO v. Lakhmani Mewal Das⁷ that the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief. It is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information.

This is not a case of a mere “assumption of fact” as erroneously argued by the Revenue under a misconstruction of the decision in Raymond Woollen Mills Ltd. v IT0⁸. The Hon’ble Delhi High Court in Saraswati Petrochem Pvt. Ltd. v. ITO⁹has observed that while correctness of the material is not fully adjudicated at the stage of reopening, there must be a valid, objective, and correct factual link to make it a “reason to believe” rather than a “reason to suspect”.

Conclusion

Section 148 is not a mere procedural or machinery provision that can be dispensed with or treated lightly. Following the decisions of the Hon’ble Supreme Court in Amarchand N. Shroff ⁹, the Hon’ble Bombay High Court in Sumit Balkrishnall , and the Hon’ble Delhi High Court in Savita Kapila¹², the Hon’ble Allahabad High Court in the recent landmark case of Smt. Asha Dubey v. Union of India¹³ has clarified the dual and paradoxical nature of Section 148, holding that section 148, at the very inception of reassessment should be construed strictly, as it is not merely a machinery provision but also a jurisdictional provision by reason of its dual and paradoxical nature. The High Court further laid down that the notice under Section 148 constitutes the very first step for assumption of jurisdiction and initiation of reassessment proceedings. In absence of a valid notice, no reassessment proceedings can lawfully continue or culminate into an assessment order.

A fundamental jurisdictional defect of this nature cannot be rescued by Section 292B or Section 292BB of the Act, even if the assessee subsequently participated in the assessment proceedings. Under the rules of strict interpretation of fiscal and taxing statutes, as reaffirmed by the Hon’ble Supreme Court in Calcutta Knitwears¹⁴ and Union of India v. Rajeev Bansal⁵ where the statutory conditions precedent for the assumption of jurisdiction are not strictly satisfied, the entire proceeding is void ab initio. There can be no waiver of a statutory requirement that goes to the root of jurisdiction.

Notes:-

¹ (2004) 268 ITR 332 (Born)

² (2003) 259 ITR 19 (SC)

³ 474 ITR 131

⁴ (2002) 257 ITR 335 (Guj)

⁵ (2024) 116 ITR 59 (Trib) (SN)(Chd)(Trib)

⁶ (2020) 78 ITR (Trib.) 214

⁷ (1976) 103 ITR 437 (SC)

⁸(1999) 236 ITR 34 (SC)

⁹[2023] 156 taxmann.com 471

¹⁰[1963] 48 ITR 59 (SC) /1962 SCC OnLine SC 193

¹¹[2019] 103 taxmann.com 188/414 ITR 292/262 Taxman 61 (Bombay) /2019 SCC OnLine Bom 13178