JUDGMENT :

SUSHRUT ARVIND DHARMADHIKARI, C.J.

This appeal filed by the Revenue under Section 260A of the Income-tax Act, 1961 ("the Act") challenges the order dated 2.2.2026 passed by the Income Tax Appellate Tribunal, Madras "C" Bench, Chennai, in I.T.A.No.2756/Chny/2025 for the Assessment Year 2017–18.

2.1. The respondent-assessee is a registered stock-broker regulated by the Securities and Exchange Board of India (SEBI). For Assessment Year 2017–18, the assessee filed its return of income on 9.9.2017, declaring a total income of Rs.48,04,980/-. The return was initially processed under Section 143(1) of the Act. Subsequently, the Assessing Officer received information from the Investigation Wing stating that search operations were conducted in the case of one Shirish C.Shah, who was allegedly involved in providing accommodation entries through various shell entities, including Orange Mist Productions Pvt. Ltd. The information indicated that the assessee had received funds amounting to Rs.7,15,11,173/- from Orange Mist Productions Pvt. Ltd during the relevant financial year.

2.2. On 18.3.2021, the Assessing Officer issued a notice under Section 148 of the Act to reopen the assessment. The reasons recorded by the Assessing Officer for initiating reassessment proceedings were as follows:

“M/s.Aryan Share and Stock Brokers Ltd, PAN: AADCA1233H had received fund to the tune of Rs.7,15,11,173/- from M/s. Orange Mist Productions Pvt. Ltd. During the Financial Year 2016-17. M/s. Orange Mist Productions Pvt. Ltd. Was not involved in genuine business activities and has made suspicious transactions with various parties including M/s. Aryan Share and Stock Brokers Ltd.

After the analysis of the Return of Income (T.O admitted Rs.4,01,42,244/-), Form 3CD and other documents (26AS) available on record, I have reason to belief that the income has escaped assessment."

2.3. The Assessing Officer rejected the objections filed by the assessee and completed the reassessment under Section 147 read with Section 144B of the Act on 21.3.2022, treating the entire receipt of Rs.7,15,11,173/- as an unexplained credit under Section 69A of the Act.

2.4. The Commissioner of Income Tax (Appeals) confirmed the addition. On further appeal, the Income Tax Appellate Tribunal quashed the reopening notice and the reassessment order, holding that the Assessing Officer had acted without jurisdiction as the statutory preconditions under Section 147 of the Act were not satisfied. Aggrieved, the Revenue has preferred this appeal.

3.1. Learned Senior Standing Counsel appearing for the appellant submitted that the information received from the Investigation Wing constituted credible "tangible material" establishing a live link with the formation of the belief that income had escaped assessment.

3.2. It is argued that at the stage of issuing notice under Section 148 of the Act, the Assessing Officer is only required to form a prima facie view regarding escapement of income and is not expected to conclusively establish the escapement.

3.2. Relying on the decision of the Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd, (2007) 291 ITR 500 (SC), learned Senior Standing Counsel contended that since the original return was merely processed under Section 143(1) of the Act, the Assessing Officer had wide latitude to reopen the assessment, and the Tribunal erred in testing the sufficiency or adequacy of the reasons recorded. He also relied on the decision of the Supreme Court in Raymond Woollen Mills Ltd v. Income-tax Officer, (1999) 236 ITR 34 (SC).

4. We have carefully considered the submissions of the learned Senior Standing Counsel for the appellant and perused the records.

5. Under Section 147 of the Act, the existence of a valid "reason to believe" that income chargeable to tax has escaped assessment is a jurisdictional condition precedent. While the court will not judge the ultimate adequacy of the material, it must ensure that the recorded reasons disclose a rational c