VENSAR CONSTRUCTIONS COMPANY LIMITED,HYDERABAD vs. ACIT, CIRCLE-17(2), HYDERABAD

PER RAVISH SOOD, JM:

The present appeal filed by the assessee company is directed against the order passed by the CIT(Appeals), dated 24.12.2019, which in turn arises from the order passed by the AO under Section 143(3) r.w.s. 147, dated 24.12.2019, for the Assessment Year 2013-14. The 2 Vensar Constructions Company Limited vs. ACIT assessee company has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us:

“1. The order of Learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

3 Pandhe Group, reopened its concluded assessment by issuing notice under Section 148 of the Act, dated 30.03.2019. 5. During the course of the reassessment proceedings, the AO, based on the information received from the Investigation Wing pursuant to search proceedings conducted in the case of “Pandhe Group”, observed that the assessee company had, during the subject year, received amounts aggregating to Rs. 25 lacs. The AO, observing that the assessee company, despite being afforded sufficient opportunity, had failed to substantiate the genuineness of the transactions by producing supporting documents, viz. agreements, bills, etc., held the aforesaid amount of Rs. 25 lacs as its unexplained income. Accordingly, the AO framed the reassessment vide his order passed under Section 143(3) r.w.s. 147 of the Act, dated 24.12.2019, determining the income of the assessee company at Rs. 4,54,49,174/-.

4 Vensar Constructions Company Limited vs. ACIT enabling him to form a prima facie belief that the income of the assessee company had escaped assessment. Also, it was observed by him that at the stage of reopening, the AO is only required to form a “reason to believe” and is not required to conclusively establish escapement of income. The CIT(A) also rejected the contention of the assessee company that the reopening was based on borrowed satisfaction, and observed that the AO had applied his mind to the information received. On merits, the CIT(A) sustained the addition by observing that the assessee company had failed to substantiate its claim with supporting evidence and that the material gathered during the course of search proceedings clearly indicated that the transactions were accommodation entries. Accordingly, the CIT(A), after considering the submissions of the assessee company, found no infirmity in the view taken by the AO and upheld his order.

5 Vensar Constructions Company Limited vs. ACIT assessment was framed by the AO, vide his order passed under Section 143(3) of the Act, dated 11/03/2016, wherein all primary facts were duly disclosed (copy of assessment order placed on record). The Ld. AR took us through the copy of the “reasons to believe” based on which the concluded assessment of the assessee company was reopened and submitted that there was no whisper in the same that the case was being reopened for any failure of the assessee company to fully and truly disclose all material facts necessary for framing of its assessment. The Ld. AR to support his contention that, now when the AO had not stated in the “reasons to believe” that the concluded assessment framed in the case of the assessee company was being reopened for the reason that it had failed to fully and truly disclose all material facts necessary for its assessment, there was no valid assumption of juri iction by him to initiate the impugned proceedings, had relied on the judgment of the Hon’ble High Court of Andhra ITR 491 (AP). Accordingly, it was submitted by the Ld. AR, that the AO had grossly erred in law and facts of the case in assuming juri iction and reopening the concluded assessment of the assessee company beyond a period of four years from the end of the assessment year, i.e., in contravention of the “1st proviso” to Section 147 of the Act. DR submitted that the assessee company had failed to substantiate the genuineness of the subject transactions with “Pandhi group” even during the course of the reassessment proceedings.

7 Before proceeding further, we deem it apposite to cull out the “reasons to believe” based on which the concluded assessment was reopened by the AO, as communicated to the assessee company, which reads as under (relevant extract):

“Sir/ Madam/M/s. Subject: Reasons for re-opening in your own case for A.Y 2013-14:-Reg With regard to the issue of notice u/s 148 dated 31.03.2019 for the A.Y. 2013-14 in your case, as requested by you, the reasons recorded for re-opening the assessment are provided as under: "As per the information provided by the Investigation Wing, Mumbai, it is noticed that the assessee company has received an amount to the tune of Rs 25,00,000/-from M/s Patel Engineering Ltd, operated by one Sri Anil Kumar Kabra, which was found to be an accommodation entry provider without having any business. Hence, the amount of Rs 25 lakhs received during the F.Y 2012-13 relevant to A.Y 2013-14 from the shell company needs to be added to the total income and is to be brought to tax." In view of the above, the case is reopened u/s 147 of the IT Act, 1961. VENUDHARGODESI CIRCLE-17(2), HYDERABAD”

8

9 Vensar Constructions Company Limited vs. ACIT that the absence of any allegation in the “reason to believe” that the concluded assessment of the assessee company was being reopened beyond a period of four years from the end of the assessment year, as there was failure on its part to fully and truly disclose all material facts necessary for its assessment, goes to the root of assumption of juri iction by the AO for initiating the impugned proceedings. Our view is fortified by the judgment of the Hon’ble High Court of Andhra ITR 491 (AP), wherein the Hon’ble Court had, inter alia, for the reason that there was no mention in the “reasons to believe” that the concluded assessment of the assessee was being reopened beyond a period of four years from the end of the relevant assessment year, i.e., AY 2010- 11, as there was a failure on his part to fully and truly disclose all material facts necessary for framing the assessment, quashed the notice issued u/s 148 of the Act, dated 31/03/2017, as well as the consequential assessment framed on the basis of the same. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble High Court, as under:

“In the cases on hand, as already stated supra, neither in the notices dated 31.03.2017 nor in the reasons furnished in September/ October, 2017, did the AO record the presence of the aforestated juri ictional conditions for reopening the subject assessments. Even thereafter, when she rejected the petitioners’ objections under her letters dated 17.11.2017, the AO did not do so. Thus, as matters stand, the AO never opined that issue of the subject notices was warranted on the ground that the petitioners did not disclose fully and truly all material facts necessary for their assessment or that the income that escaped assessment during that year amounted to or was likely to amount to one lakh rupees or more. The absence of these juri ictional conditions in her reasons for seeking to reopen the assessments beyond four years is fatal to 10 Vensar Constructions Company Limited vs. ACIT the very issuance of the impugned notices. Trite to state, the reasons communicated by the AO to the petitioners must be the same reasons furnished to the competent authority for seeking approval under Section 151 of the Act of 1961, as the AO cannot modify, add to or delete from such reasons to suit her own purposes at different points of time. Further, when the reasons recorded by the AO are the only material that can be looked into by the competent authority for granting approval under Section 151 of the Act of 1961, the absence of such juri ictional conditions therein would invariably vitiate the approval, if any, by the competent authority, as he could not have recorded the requisite satisfaction under Section 151 of the Act of 1961, when the fundamental juri ictional conditions justifying the reopening of the assessments beyond the normal four- year period did not even find mention in the reasons recorded by the AO. On the above analysis, this Court finds that reopening of the petitioners’ assessments for the assessment year 2010-11 by way of the notices dated 31.03.2017 issued under Section 148 of the Act of 1961 and the rejection of their objections thereto by the letters dated 17.11.2017 cannot be sustained on grounds more than one. The attempt on the part of the Revenue to do so is an abuse of power as the facts demonstrate that the very basis for such reopening was the subject matter of the appeals before the Appellate Tribunal and, thereafter, before this Court. That apart, the juri ictional conditions precedent that there must be failure on the part of the petitioners to disclose fully and truly all material facts necessary for their assessment for the assessment year 2010-11 and that the income which escaped assessment would amount to one lakh of rupees or more, did not even find mention in the notices or the reasons for reopening the assessments. In the absence thereof, reopening of such assessments beyond the period of four years cannot be countenanced. The writ petitions are accordingly allowed. The notices dated 31.03.2017 issued under Section 148 of the Act of 1961 and the rejection of the petitioners’ objections thereto vide letters dated 17.11.2017 are declared illegal. The original Assessment Orders of the petitioners in relation to the assessment year 2010- 2011, which have been upheld in appeal by the Appellate Tribunal and, thereafter, by this Court, shall be binding upon the Revenue.” (emphasis supplied by us)

Also, we find that a similar view had been taken by the Hon’ble High Vensar Constructions Company Limited vs. ACIT we deem it apposite to cull out the observations of the Hon’ble High Court, as under:

“2. The reopening of the assessment has admittedly taken place beyond a period of four years from the end of the relevant Assessment Year. There is no allegation in the reasons which have been disclosed to the assessee that there was any failure on his part to fully and truly disclose material facts necessary for assessment for that assessment year. Hence, we find merit in the contention that the juri ictional condition for reopening the assessment beyond a period of four years has not been fulfilled. Even during the course of hearing, it has not been the submission of the Revenue that there was any suppression of material facts on the part of the Petitioner. (emphasis supplied by us)

Further, we find that a similar view was taken by the High Court of Bombay in Bhavesh Developers vs. AO & Ors. (2010) 229 CTR 160 (Bom), wherein it was observed as under:

"Significantly, the reasons that have been disclosed to the assessee do not contain a finding to the effect that there was a failure to fully and truly disclose all necessary facts, necessary for the purpose of assessment. In these circumstances, the condition precedent to a valid exercise of the power to reopen the assessment, after a lapse of four years from the relevant assessment year, is absent in the present case. There is merit in the submission which has been urged on behalf of the assessee that an exceptional power has been conferred upon the Revenue to reopen an assessment after a lapse of four years. The conditions which are prescribed by the statute for the exercise of such a power must be strictly fulfilled and in their absence, the exercise of power would not be sustainable in law." (emphasis supplied by us)

We thus, in the backdrop of our aforesaid deliberations and the settled position of law, are of a firm conviction that as the AO had reopened the concluded assessment of the assessee company beyond a period of 12 Vensar Constructions Company Limited vs. ACIT four years from the end of the relevant assessment year, and there is no mention in the “reasons to believe” that the case was being reopened for the failure of the assessee company to fully and truly disclose all material facts necessary for its assessment, therefore, the AO had wrongly assumed juri iction and proceeded with and framed the impugned assessment vide his order passed under Section 143(3) r.w.s 147 of the Act, dated 24.12.2019. We, thus, in terms of our aforesaid observations, quash the assessment order passed by the AO under Section 143(3) r.w.s 147 of the Act, dated 24.12.2019, for want of a valid assumption of juri iction on his part.

Order pronounced in the open court on 30th March, 2026. S - (मधुसूदन साव"डया) (रवीश सूद) (MADHUSUDAN SAWDIA) (RAVISH SOOD) लेखासद"य/ACCOUNTANT MEMBER "या"यकसद"य/JUDICIAL MEMBER d/- 13 Hyderabad, dated 30/03/2026. *OKK/sps आदेशक"""त"ल"पअ"े"षत/ Copy of the order forwarded to:-

आदेशानुसार / BY ORDER KAMALA KUMAR Digitally signed by KAMALA KUMAR ORUGANTI ORUGANTI Date: 2026.03.30 14:53:48 +05'30' Sr. Private Secretary ITAT, Hyderabad.