Reassessment - validity

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 August 2015 In a recent case I came across, The AO has issued notice for reassessment to Mr.A based on an entry in the diary of Mr.X.

Mr A had sold a property to Mr.X for 50 Lakhs. Now an entry in the diary of X(Not in his books of accounts) acquired during a search/survey proceeding marked the consideration as 70 lakhs.

Would that evidence acquired by a different jurisdictions AO be sufficient for the formation of reason to believe to issue such notice?

Also help on how to tackle the issue.

Querist : Anonymous

Querist : Anonymous (Querist)

07 August 2015 I still dot know if the AO has such documents in his posession, He just told me so and I am yet to ask for reasons for reopening in writing..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2025 This is a classic issue about the validity of reopening assessments under Section 147/148 based on “reason to believe” formed from material gathered by another jurisdiction’s AO during search or survey.

Here’s a detailed answer:

1. Can AO rely on diary entry of Mr. X (from another jurisdiction) as reason to believe?
The AO can form “reason to believe” based on any tangible material or information that suggests income has escaped assessment.
Material gathered during search or survey proceedings, even by a different jurisdiction AO, can be valid grounds for reopening.
The diary entry showing higher consideration (70 lakhs vs 50 lakhs) is a piece of “information” that may justify issuance of notice.
However, AO must ensure the information is credible and reliable, not mere suspicion or vague talk.
The AO must record the reasons in writing if asked by the assessee.
2. Is it necessary that AO must have possession of the diary physically?
AO must have possession or access to the material (like diary extract or copy).
Mere oral statement about existence of diary is insufficient.
Assessee has the right to demand copy of reasons and material relied upon.
3. How to tackle the issue?
Ask for written reasons for reopening and copies of documents relied upon, including diary extract.
Check if the AO has followed due process: reasons must be specific, credible, and connected to escaped income.
Challenge reopening if:
Reasons are vague or based on suspicion only.
There is no fresh material to show income escape.
Diary entry is not corroborated by other evidence.
You can file a preliminary objection or writ petition challenging the validity of reopening if procedural lapses occur.
During reassessment, you can explain the discrepancy in consideration (e.g., market value vs sale price) with supporting evidence.
4. Relevant Case Laws:
CIT vs Kelvinator of India Ltd (1981) 128 ITR 294 (SC) — AO must have tangible material, mere suspicion not enough.
Godfrey Phillips India Ltd. vs CIT (2005) 274 ITR 104 (SC) — AO must disclose reasons and material on which belief is based.
PCIT vs Kantilal L. Haria (2018) ITA 369/2018 (SC) — Reliance on material from another jurisdiction is valid if credible.
Shiv Shakti Sugars Ltd. vs CIT (2013) 357 ITR 526 (SC) — AO cannot reopen for mere change of opinion.

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