ACIT, DELHI vs. CAPACIOUS TRADEX PVT LTD, DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE MS MADHUMITA ROY, JUDICIAL MEMBER AND SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER

ITA Nos. 9162/Del/2025 (A.Y 2019-20) Vs. ACIT Capacious Tradex Pvt. Office of the Assistant Ltd. Commissioner of income 32-B, Ground floor, Tax, Room NO. 332 A, 3rd Pusa Road, New Delhi Floor, ARA Centre, Jhandewalan Extension, New Delhi (Appellant) (Respondent) PAN: AABCW0514D C.O No.243/Del/2026 in ITA No. 9162/Del/2025) Capacious Tradex Pvt. Vs. ACIT Ltd. Office of the Assistant 32-B, Ground floor, Pusa Commissioner of Road, New Delhi income Tax, Room NO. 332 A, 3rd Floor, ARA Centre, Jhandewalan Extension, New Delhi (Appellant) (Respondent) PAN: AABCW0514D

Assessee by : Sh. Yudhister Mehtani, CA Revenue by: Shri Om Prakash, CIT (DR)

Date of Hearing 29/06/2026 Date of pronouncement 09/07/2026 O R D E R PER MADHUMITA ROY, J. M.: Both the appeals filed by the respective parties are arising

out of the order dated 15.10.2025 passed by the Learned

Commissioners of Income Tax (Appeals)-Delhi 23 (“Ld. CIT(A)”

for short) under Section 147 read with 144 of the Income Tax

Act, 1961 ('Act' for shot) for Assessment year 2019-20.

filed its original return of income for the year under

consideration on 24/10/2019 declaring total income at Rs.

7,86,780/- which was processed under Section 143(1) of the

Act. Subsequently on 20.07.2022 a search and seizure action

under Section 143(2) of the Act was carried out in the SMC

Group and related entities wherein the assessee was one of the

persons covered under the same search. The case of the

assessee wasreopened under Section 148 of the Act by issuing

notice on 11/03/2023. Subsequently, following the

procedures, addition to the tune of Rs.3,41,92,246/- was made

in the hands of the Assessee under Section 37 of the Act and

further addition of Rs. 1,70,175/- under Section 14A read with

Rule 8D of the Rule was made in the hands of the Assessee

which was deleted by the First Appellate Authority. Hence, the

instant appeal is before us.

order passed by the Ld. CIT(A) on the ground that no

incriminating material relating the impugned issue/addition

was found or seized during the course of search and further that the notice issued under Section 148 of the Act and the

consequential reassessment proceeding are invalid for non

compliance with the mandatory requirements under Clause (iv)

of Explanation 2 to Section 148 of the Act.

appears that while making addition of Rs. 3,41,92,246/-

following observation was made by the Ld. A.O:-

“4. Disallowances of Expenses

4.1 On perusal of the ITR filed by the assessee, it is observed that the assessee has claimed the following expenses:

Sr.No. Particular Amount (in Rs.) 1 Cost of Goods (Purchase of Stock- 2,64,93,352/- in- Trade)

2 Employees Benefit Expenses 48,74,840/-

3 Depreciation and Amortization 22,794/- expenses

4 Other expenses 28,01,260/- Total 3,41,92,246/-

4.2 With regard to the above, a notice u/s 142(1) of the Act dated 05.04.2023 was issued to the assessee asking the assessee to explain the above-mentioned purchases/expenses along with proper supporting documentary evidences. In this regard, no response has been furnished by the assessee for the reasons best known to it.

4.3 In accordance with the principle of natural justice another opportunity was provided vide show cause notice dated 03.03.2024 wherein the assessee was asked to explain the above-mentioned issues along with supporting documentary evidence like, bills, vouchers, sale ledgers, purchase ledgers, proof of payment, TDS deducted, etc. Further, the assessee was also show caused as to why the amount of Rs. 3,41,92,246/- should not be added back to the total income of the assessee for the year under consideration in the absence of a satisfactory explanation and supporting documentary evidence. In response, the assessee has not furnished any reply. The assessee has also not produced any bills, vouchers, sale ledgers, purchase ledgers, proof of payment, TDS deducted, etc. Hence, it is clear that the assessee has no explanation to furnish in this regard.

4.4 In view of the above, it is established that the assessee has claimed expenses to the tune of Rs. 3,41,92,246/ but the assessee has neither any satisfactory explanation in this regard not has any supporting documentary evidence to support its claim.

4.5 Accordingly, since the assessee has failed to offer any cogent explanation w.r.t. the expenses claimed amounting to Rs. 3,41,92,246/-, the amount of Rs. 3,41,92,246/- is being disallowed and added back in the hands of the assessee u/s 37 of the Act. Further, I am satisfied that the assessee has under-reported its income which is in consequence of misreporting thereof as the claim of the expenditure is not substantiated by any evidence and the assessee is liable for penalty u/s. 270A(1) r.w.s 270A(8) of the Act.

Hence, the penalty proceedings u/s. 270A(1) r.w.s 270A(8) of the Act for under-reporting of income which is in consequence of misreporting thereof are initiated separately in this case.

[Addition: Rs. 3,41,92,246/-]”

Ld. A.O. that the bills, vouchers, sales ledgers, purchase

ledgers,proof of payment TDS deducted etc since not been

furnished by the Assessee, the claim of expenses to the tune of

Rs. 3,41,92,246/- was found to be not acceptable and added back in the hands of the Assessee under Section 37 of the Act.

No incriminating document, whatsoever has been relied upon

by the Ld. A.O. while making addition in the hands of the

Assessee that too under Section 148 of the Act on a proceedings

consequentto a search under Section 132 of the Act. Similarly,

while making addition under Section 14A of the Act, no such

incriminating material unearthed during the course of search

conducted on 20.07.2022 was ever mentioned by the Ld. A.O.

The Assessee joins issues here to this effect that as no

incriminating material, documents or information were found or

seized during the course of search operation which could

indicate that income has escaped assessment and assessment

proceeding initiated under Section 148 of the Act is since not

based on any concrete material but solely on the deemed

provision introduced by and under the Explanation 2 of Section

148 of the Act, the entire proceedings is vitiated and, therefore,

liable to be quashed as also the argument advanced by the Ld.

ARMr. Yudhister Mehtani, It further appears that the notice

under Section 148 of the Act dated 11.03.2023was issued solely

on reliance upon the said Explanation with thepresumption that the assessing officer is deemed to have information

suggesting escapement of income by the Assessee whereas this

particular deeming provision, by itself cannot override the

fundamentalrequirement under Section 148 of the Act that

there must be some material or information indicating that

income chargeable to tax has actually escaped assessment.

Merely because search having been conducted reassessment

proceeding under Section 148 of the Act cannot be said to be

validly initiated in the absence of incriminating material having

been unearthed during the course of search. It appears that

before the First Appellate Authority, the Assessee on the same

issue filed the written submissions on 20.06.2025 with the

following contents which is reproduced in the order passed by

the Ld. CIT(A) itself:

“5.1 Reason for raising additional ground of appeal provided by the appellant is reproduced as under: "It is submitted that a search operation was conducted on the appellant, the SMC Group, and associated entities on July 20, 2022; however, no incriminating material, documents, or information were found or seized during the course of search operation. The copy of panchnama is attached as Annexure-2. 1. Further, the Ld. AO has not furnished any incriminating material or information allegedly found during the course of search operation that could indicate that income has escaped the assessment. Hence, based on the same it is correct to submit that the assessment proceeding-initiated u/s 148 of the Act is not based on any concrete material but solely on the deemed provision as introduced vide explanation 2 to section 148 of the Act. The notice u/s 148 of the Act dated 11.03.2023 was issued solely on reliance upon the said explanation, which presumes that the assessing officer is deemed to have information suggesting escapement of income in case where search is initiated. However, this deeming provision, by itself cannot override the fournisational requirement u/s 148 of the Act that there must be some material or information indicating that income chargeable to tax has actually escaped assessment. Accordingly, the core issue arising in the present case is: whether reassessment proceeding u/s 148 of the Act be validly initiated merely on the ground that a search has been conducted, even when no incriminating material has been found during such search. The said question necessitates a careful examination of the legal framework governing reassessment in case where search is conducted on or after 01.04.2021, particularly in light of the deeming provision under Explanation 2 to Section 148 of the Act, and the judicial principles laid down in this regard, which is undertaken in the subsequent paragraphs LEGAL FRAMEWORK POST FINANCE ACT' 2021. a. In the cases where a search was conducted prior to 01.04.2021, the applicable scheme under the Income Tax Act, as it then stood, provided for automatic initiation of assessment proceedings u/s 153A of the Act for six assessment years/block period preceding the year of search. Similarly, reopening of assessments u/s 153C was based on a satisfaction in respect of "other persons" based on seized material. The legal position has been settled by the Hon'ble Supreme Court in the landmark judgment of Principal CIT v. Abhisar Buildwell Pvt. Ltd., reported in 150 Taxmann.com 257, wherein it was categorically held that:- "In respect of completed or non-pending assessment years as on the date of search, no addition can be made u/s 153A in the absence of any incriminating material found during the course of search relatable to the assessee and the assessment year in question". b. The scheme of reassessment u/s 147/148 of the Act has been completely revamped by Finance Act 2021. As per the amended provision where a search is conducted on or after 01.04.2021, the reassessment consequent to such search is required to done u/s 147 and 148 of the Act Here, it is relevant to reproduce the excerpt of section 148 of the Act as applicable to the year under consideration. (As amended by Finance Act'2022) "Issue of notice where income has escaped assessment.

c. The legal position that ernerges from the above referred provision is that, there are two conditions that are required to be satisfied before issuing a notice u/s 148 of the Act. The first condition is that no notice u/s 148 of the Act shall be issued unless the AO has information which suggest that income chargeable to tax has escaped the assessment for the relevant assessment year and, ii. The second condition is that the AO shall obtain prior approval of specified authority. d In case of search initiated on or after 01.04.2021, a deeming fiction has been created under Explanation 2(1) of section 148, to the effect that the AO of searched person shall be deemed to have information which suggests that income chargeable to tax has escaped the assessment. In respect of person other than the searched person, a similar deeming fiction has been created under Explanation 2(iii) and (iv) below section 148, where any money, bullion, jewellery or any other document belonging/pertaining to such other person is found during the course of search, but with a rider that in such cases, the AO of such other person should be satisfied with the prior approval of PCIT/CIT that such money, bullion, jewellery or document belongs/ pertains to or are related to such other person. Hence in the present case, the Ld. AO is required to initiate the reassessment proceeding u/s 148 of the Act for the year under consideration, where the Ld. AO is satisfied on the basis of material seized or information found during the course of search that income has escaped the assessment in case of the appellant. Reassessment proceedings without foundational material are void ab initio. a. It is submitted that according to the first provisa to section 148 of the Act, there is a bar on the AO to issue notice u/s 148 of the Act, unless there is information which suggests that income chargeable to tax has escaped the assessment for the relevant assessment year. On a strict reading of the said proviso, it may be discerned that the words therein are not deployed in a manner, where information which suggests that income has escaped assessment is without reference to any assessment year, rather such information should suggest that income is escaping assessment for the relevant assessment year for which notice u/s 148 of the Act is proposed to be issued. Explanation 2 creates a deeming fiction that the AO shall be deemed to have information suggesting that income has escaped assessment in the case of search. Thus, one of the possible views that may arise may be that the moment search is carried out, the AO automatically is deemed to have Information which suggests that income has escaped assessment in terms of this Explanation 2, and accordingly, the first condition of first proviso to section 148 gets satisfied, and thereafter, on taking prior approval of the specified authority u/s 151, the AO can issue notice u/s 148 of the Act even in absence of any material having bearing on determination of total income of the assessee. However, the above interpretation will not meet the adjoining condition of first proviso to section 148 Le. the information should be for the relevant assessment year. It is important to point out that the deeming fiction in case of search has been created by way of an 'Explanation', not by way of another 'proviso. While proviso is intended to deviate from the main clause and provide for any relaxation/further restriction, an Explanation is intended to support the main provision. b. It is respectfully submitted that, the other plausible interpretation can be that the notice u/s 148 cannot be issued automatically to the searched person, as was the case in respect of search carried out prior to 01.04.2021. The AO now needs to apply his mind, and while seeking approval u/s 151 from the specified authority, demonstrate that the information obtained/discovered during search suggest that income has escaped assessment under Explanation 2 is for the relevant assessment year for which notice u/s 148 is proposed to be issued. Such demonstration can be possible only when the AO has examined the seized assets/documents, and records in writing that such seized assets/documents are related to the relevant assessment year. Accordingly, despite the deeming fiction, even in the case of searched person, the AO is still required to demonstrate that income of the relevant assessment year has escaped assessment consequent to the information obtained/discovered during the search before issue of notice u/s 148 of the Act. C. In the context of the present facts, it would be relevant to place on record that the factual matrix in the appellant's case bears striking similarity to the circumstances considered by the Hon'ble Chandigarh Tribunal in a recent decision in the case of Rosha Alloys P Limited V. DCIT [Bearing ITA No.888/Chd/2024 dated 28/05/2025]. The copy of judgement pronounced by the Hon'ble Chandigarh Tribunal in the said case is enclosed as Annexure-3.To illustrate this parity, a comparative summary is provided below, highlighting key aspects of both cases: Particulars Present case Rosha Alloys Pvt. Ltd. (Appellant) Date of search 20.07.2022 Incriminating No incriminating 08.09.2021 material found material found during during the search. course of search Page | 10 Date of notice 11.03.2023 No incriminating u/s material found during 148/Approval search. u/s 151 of the Act Basis for Deemed information Deemed information reopening under explanation 2 to under explanation 2 to section 148 of the Act. Section 148 of the Act. The Tribunal, in dealing with the aforesaid facts, rendered the following findings which squarely apply to the appellant's case as well: "25. We have considered the arguments of the Ld. Counsel of the assessee along with the paper books and judgments set filed before us and also the brief synopsis, arguments of the Ld. CIT DR. assessment order and the order of the CIT(A). The facts are not disputed that there was a search & seizure operation on 08.09.2021 which has led to be issuance of notice u/s 148, for which, the reasons have been recorded by the AO and the approval has been granted by the Ld. PCIT u/s 151 as per the copies placed before us in the common paper book. The AO during the course of assessment proceedings was of the view that there had been excessive consumption of electricity and then by comparing the electricity units consumed in the assessment year 2021-22 which gave an average of 606 units consumed per metric tonnes of production, applied that basis during the year under consideration and then calculated the unaccounted production in metric tonnes. Then by applying an average rate of sale calculated the suppression of sales outside the books of accounts and made the addition of unaccounted sales The Ld. CIT(A) agreed with the method of calculating the unaccounted production based on the method adopted by the AO, but he calculated the consumption of units for the year under consideration based on the average consumption of units starting from AY 2016-17 to 2020-21 as per page 67 to the order of the CIT(A) and arrived at average power consumption at 737.50 units per metric tonnes based on five year average and calculated the production accordingly and sustained the part addition. Both the department and the assessee are in cross appeal for the same 32. Further, we find that the PCIT has accorded the approval only as per the proviso (a) to Section 148A, without their being any positive finding about the escapement of income. We also find that there is no incriminating material seized during the course of search with regard to any purchases & sale outside the books of accounts. Therefore, we hold that, despite the deeming fiction applicable to searched persons, the issuance of notice u/s 148 still requires the Assessing Officer to demonstrate that the information unearthed during search leads to escapement of income in the specific assessment year. The mere fact of search, in itself, is not sufficient reason to issue a notice. Failure to establish this connection would render the issuance of notice without proper approval u/s 151 as bad in law and unsustainable. 33. Further, we find that there is a variance in the reasons as recorded by the AO, copy of which have been placed in the common paper book pages 1 to 6 and approval as granted by the PCIT as reproduced above, in as much as, in the approval along with the Annexure as accorded by the PCIT, there is only approval granted is on account of the information suggesting that the assessee had entered into bogus purchase transaction as per Annexure to the approval as reproduced above and further, the approval granted.Lig the PCIT have been accorded on the ground that, if the search is initiated on or before 01.04.2021 as mentioned in clause (a) to Section 148A, then automatically, the case would be reopened u/s 148 is not a correct view taken by the PCIT. 35. We have deliberated upon the detailed arguments of both the sides and gone through the number of judgments cited by the Ld. Counsel of the assessee on the issue of notice u/s 148. without their being any finding specifically which is required to be recorded as per proviso to Section 148 about the escapement of income which is a first necessary step for initiating the proceedings u/s 148, the approval granted by the PCIT that the reopening is automatic as per proviso (a) to Section 148A is misplaced. There is also a variance in the approval granted by the PCIT and the reasons as recorded by the AO as described above, and, thus, we have no hesitation in holding that the issuance of notice u/s 148 without their being any finding about the escapement of income is bad in law in view of the judgment of the Hon'ble Karnataka High Court in the case of Vasanthi Ramdas and of the Delhi High Court in the case of Divya Capital One Pvt. Ltd. following the judgment of Hon'ble Supreme Court in the case of Teleperformance Global about the variance in the reasons as recorded by the AO and approval granted by the PCIT, the issuance of notice u/s 148 is quashed and, thus, the assessment as framed by the AO vide order dated 31.03.2023 deserves to be quashed as well."

In the light of above referred judgement in the case of Rosha Alloys Pvt. Ltd. (supra), the Hon'ble Chandigarh Tribunal quashed the notice issued u/s 148 as well as the consequential reassessment proceedings on the ground that no incriminating material was found during the course of search and the reopening was based solely on the deeming provision under Explanation 2 to Section 148. The facts in the appellant's case are identical, with no incriminating evidence found or referred to, and the reassessment proceedings initiated merely due to the occurrence of a search. In view of the parity in facts and the settled legal position, it is respectfully submitted that the notice issued u/s 148 and all consequential proceedings are liable to be quashed in the present case as well.

d. Further, in light of the above-referred judicial pronouncement, the settled and harmonious interpretation that emerges is that the deeming fiction under Explanation 2 and the proviso to Section 148 of the Act, in the context of a searched person, does not dispense with the requirement of materia evidence. A notice u/s 148 can be validly issued only when specific material pertaining to the relevant assessment year is found during the course of the search, which indicates that income chargeable to tax has escaped assessment Mere factum of search itself cannot be a reason for issuing notice for reassessment. In the absence of any material to indicate that income has escaped assessment for the relevant assessment year, it may not be possible for the AO to obtain the approval from specified authority for such relevant assessment year for which the notice u/s148 is intended to be issued. Since, in the present facts of the case, reassessment proceeding was initiated on the basis of deeming fiction created by explanation 2 to section 148 of the Act without there being any material of information which could have suggest that income has escaped the assessment, the notice u/s 148 0 the Act issued on 11.03.2023 required to be quashed. IV. Further, it is submitted that, there was not even a remote reference to any incriminating material or information found during the course of search which could suggest escapement of income. In fact, the additions/disallowances made in the reassessment order pertain to expenses that were fully disclosed in the return of income filed by the appellant. Therefore, the proceedings have been initiated not on the basis of any new or tangible information, but by reappraising facts already on record, which is impermissible in law and contrary to the settled principles. V. Income escaping assessment is jurisdictional condition for invoking power u/s 147 and 148 of the Act. The interpretation stated above also gets support from wordings of section 147 of the Act as amended by Finance Act 2021. Under the old section, the opening words were 'If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year'. As against that, in the amended section, the opening words are: 'If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year' So, what is conspicuously missing from the new section is the term 'reason to believe'. In other words, under the new provisions, section 147 can be invoked only if any income chargeable to tax has 'escaped assessment. Thus, the Assessing Officer has to be prima facie satisfied that there is 'escapement of income', unlike earlier law which permitted action based on mere reason to believe. Now mere reason to believe, cannot be a ground for carrying out assessment u/s 147 On a conjoint reading of section 147 and section 148 of the Act, it is clear that the escapement of income is a sine qua non for initiating proceedings u/s 147. Therefore, availability of the 'information which suggests that there is an escapement of income' is a pre-requisite for issuing notice u/s 148 of the Act. This position of law has been enunciated by various courts. Reliance is placed on the following judgements: In the case of Divya capital One Pvt. Ltd. v. ACIT (Bearing W.P.(C) 7406/2022, dated 12.05.2022] the Hon'ble Delhi High Court held that: Whether it is "Information to suggest" under amended law or "reason to believe" under erstwhile law the benchmark of "escapement of income chargeable to tax" still remains the primary condition to be satisfied before invoking powers u/s 147 of the Act. Merely because the Revenue- respondent classifies a fact already on record as "information" may vest it with the power to issue a notice of re-assessment u/s 148A(b) but would certainly not vest it with the power to issue a re-assessment notice u/s 148 post an order u/s 148A(d)." Similarly, In the case of Vasanthi Ramadas Pai v. ITO [ Bearing W.P.(C) 8797/2022 dated 12.02.2024] the Hon'ble Karnataka High Court held as under:- "On a conjoint reading of section 147 and section 148 of the Act, it is clear that the escapement of income is a sine qua non for initiating proceedings u/s 147. Therefore, availability of the 'information which suggests that there is an escapement of income' is a prerequisite for issuing notice u/s 148. The argument that omission of phrase 'reason to believe' has gotten away and has given way to "information with the assessing officer which suggests that the income chargeable to tax has escaped assessment" would mean that there should be no need for any reason seems incorrect. The phraseology of amended Section 148 makes in unmistakable terms clear that there should be a concrete information as defined in Explanation 1 to Section 148. Such information should be suggestive of income escaping assessment and such information should be objective in nature. In other words, the arguable subjectivity in the pre-amendment provision is given a go by For conducting assessment uls 147, there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself. Hence, a plausible view could be taken that post-amendment of the provision, the escapement has to be established with concrete information Section 148A would only assist the Assessing Officer in coming to a conclusion whether such information is good enough to allow a notice to be issued u/s 148. This is how, to my mind, the new provisions should be interpreted so as to make them workable in accord with the intent to achieve the purpose for which statutory change was brought about. An argument to the contrary would hijack the statutory object" Hence, in the light of above facts and judicial precedents it is correct to submit that Explanation 2 only provides deeming fiction to the effect that assessing officer has information that suggests that income chargeable to tax has escaped the assessment, but still before issue of notice u/s 148, it has to pass the test of escapement of income u/s 147 of the Act for the relevant assessment year. VI. It is respectfully submitted that, it is an admitted fact that no material, document or information was found during the course of search either in case of case or in case of SMC Group and related entities that could have suggested that income has escaped the assessment. The Ld. AO issued the notice u/s 148 on 11.03.2023 relying upon the explanation 2 to section 148 of the Act. which deems that the AO is in possession of information suggesting escapement of income in case of search. However, as it has already been demonstrated in the preceding paras that this deeming fiction only creates a presumption of information, it does not override the basic jurisdictional requirement u/s 148 of the Act which is the actual escapement of income. The jurisdiction u/s 148 of the Act hinges on the existence of income that has escaped the assessment. Merely because explanation 2 to section 148 of the Act deems that AO has information, the AO must still apply his mind to arrive at a belief that income has actually escaped the assessment. Hence, a presumption under explanation 2 cannot substitute the requirement of having some tangible material or evidence to show escapement of income. Therefore, in the view of above facts and in the light of judicial precedents referred above is respectfully submitted that in absence of any material or information indicating escapement of income, the assumption of "deemed information" under Explanation 2 to Section 148 cannot alone justify the reopening. The foundational jurisdictional condition of income escaping assessment remains unmet, and hence the notice issued u/s 148 is bad in law and deserves to be quashed."

seeking reopening of assessment of the Assessee for the

assessment year 2019-20 reads as follows:- “Notice under section 148 of the Income-tax Act.1961

Sir/Madam/ M/s.

I have information that a search was initiated under section 132 of the Act in your case or in the case of the person in respect of which you are the assessable under the Act on the date 20/07/2022.

I am satisfied, with the approval of Principal Commissioner or Commissioner, that books of accounts or documents, seized or requisitioned under section 132 or section 132A of the Act in case of SMC GROUP pertains or pertain to, or any information contained therein, relate to you or the person in respect of which you are assessable under the Act.

I am satisfied, with the approval of Principal Commissioner or Commissioner, that books of accounts or documents, seized or requisitioned under section 132 or section 132A of the Act in case of SMC GROUP pertains or pertain to, or any information contained therein, relate to you or the person in respect of which you are assessable under the Act.

This notice is being issued after obtaining the prior approval of the PCIT (Central), Delhi-1 accorded on date vide Reference No. 100000037545692.

ROHIT SINGH Central Circle 4, Delhi

addition with the following observations:

“6.20 In view of the legal position and judicial precedents discussed above:

6.20.1 The deeming fiction under Explanation 2 to Section 148, while creating a presumption of information in the context of a search, does not override the foundational jurisdictional condition u/s 147 that the income chargeable to tax must have escaped assessment for the relevant year.

6.20.2 As clarified by the Hon'ble Karnataka High Court in Vasanthi Ramadas Pai, "there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself... escapement has to be established with concrete information."

6.20.3 In the appellant's case, no such objective or concrete material has been shown to exist. Thus, the requirement of "escapement of income" for the relevant year remains unmet, making the reassessment notice dated 11.03.2023 void ab initio.

6.20.4 Following the ratio laid down in Rosha Alloys Pvt. Ltd. (SUPRA), where identical facts led to the quashing of reassessment proceedings, the notice issued u/s 148 in the appellant's case is also unsustainable in law and liable to be quashed.

Decision: - 6.21 In view of the above findings and conclusions, and after careful consideration of the facts of the case, the legal provisions u/ss 147 and 148 of the Act (as amended by Finance Act, 2021), and the judicial pronouncements discussed above, it is held that the notice issued u/s 148 of the Act dated 11.03.2023 is invalid in law, as it is based solely on the deeming fiction under Explanation 2 to Section 148 without any concrete material suggesting escapement of income for the relevant assessment year also nothing tangible or incriminating, found during the course of the search that would substantiate the belief that income had escaped assessment. Therefore, the reassessment proceedings initiated pursuant to the said notice, as well as the consequential reassessment order, are hereby quashed as being void ab initio.

6.21.1 Accordingly, the additional ground raised in the present appeal as ground no 10 stands allowed.

6.21.2 The grounds raised in the appeal while filing the form 35 from ground no 1 to ground no 10 are become infructuous. The Appeal of the Assessee for AY 2019-20 is allowed.

AY 2020-21,

6.22 In pursuance of the delay in filing the present appeal, it deems fit and proper to follow the findings made in the Appeal filed for AY 2020-21 and accordingly the delay in filing the appeal of 153 days stands condoned.

6.22.1 In lieu of the appeal filed by the Assessee for AY 2020- 21, the Assessee has raised the additional ground of appeal in similar line of action as raised in AY 2019-20. The panchnama of the search proceedings duly depicts that there is nothing on record which could substantiate the initiation of reassessment proceedings.

6.22.2 Since the issue relating to the initiation of reassessment proceedings is already discussed in the above, and it is concluded that the reassessment proceedings initiated in the case of Assessee is void-ab-initio. Therefore, the reassessment proceedings initiated pursuant to the said notice, as well as the consequential reassessment order, are hereby quashed as being void ab initio. 6.22.3 Accordingly, the additional ground raised in the present appeal as ground no 10 stands allowed.

6.22.4 The grounds raised in the appeal while filing the form 35 from ground no 1 to ground no 10 are become infructuous. The Appeal of the Assessee for AY 2020-21 is allowed.

AY 2021-22

6.23 In pursuance of the delay in filing the present appeal, it deems fit and proper to follow the findings made in the Appeal filed for AY 2021-22 and accordingly the delay in filing the appeal of 153 days stands condoned.

6.23.1 In lieu of the appeal filed by the Assessee for AY 2021- 22, the Assessee has raised the additional ground of appeal in similar line of action as raised in AY 2019-20. The panchnama of the search proceedings duly depicts that there is nothing on record which could substantiate the initiation of reassessment proceedings.

6.23.2 Since the issue relating to the initiation of reassessment proceedings is already discussed in the above, and it is concluded that the reassessment proceedings initiated in the case of Assessee is void-ab-initio. Therefore, the reassessment proceedings initiated pursuant to the said notice, as well as the consequential reassessment order, are hereby quashed as being void ab initio. 6.23.3 Accordingly, the additional ground raised in the present appeal as ground no 10 stands allowed. 6.23.4 The grounds raised in the appeal while filing the form 35 from ground no 1 to ground no 10 are become infructuous. The Appeal of the Assessee for AY 2021-22 is allowed. In the result, all the above 3 appeals are allowed and the reassessment orders are quashed as void ab initio.” 8. It is an established principal that prior to 01.04.2021,

assessment proceedings consequent to a search were

automatically initiated under Section 153A for six Assessment

years preceding the year of search provided there was

incriminating material found during the course of search

relating to the Assessee and the assessment year. In that

particular case, reopening, therefore, was strictly based on the

presence of incriminating material whereas after the

Amendment introduced by the Finance Act, 2021, the

reassessment scheme changed substantially and the

reassessment following a search has to be made under Section

147 and 148 of the Act. Though, the first and foremost

condition that has been introduced that no notice under

Section 148 of the Act shall be issued unless there is

information with the Assessing Officer suggesting the income chargeable to tax has escaped assessment in the case of the

Assessee for the relevant Assessment year and the Assessing

Officer has obtained prior approval of the specified authority to

issue such notice, under these facts and circumstances of the

matter, such pre-condition of A.O. having possession of the

information suggesting that income chargeable to tax has

escaped assessment for the relevant assessment year and must

obtain prior approval from the specified authority for issuing

such notice of reopening of assessment has not been

satisfied.In the instant case, the addition and/disallowance was

made based on the return of income filed by the assessee only

which is clearly evident from the assessment order itself which

establishing the fact that nothing incriminating was seized

during search operation of SMC Group or the Assessee

conducted on 20/07/2022.

Hyderabad Tribunal in the case of M/s Exel Rubber P Ltd. Vs.

Dy. CIT, ITA No. 1566 and 1571/Hyd/2025 dated 18.02.2026

as relied upon by the Ld. AR wherein the Hon’ble Bench in Para

22 at page 27-28 of the judgment observed as under:

“22. In this view of the matter and considering the facts and circumstances of this case and also by following the rations of case laws, discussed herein above, we are of the considered view that notice issued under section 148 of the Act, on the basis of reasons recorded for reopening in light of search action conducted under section 132 of the Act is bad in law, because the A.O has considered the material found in the residential premises of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager, of Exel Rubber Group for making additions in the hands of the assessee, even though there was a separate and simultaneous search in the case of the appellant and other group companies and in the case of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager. Further, when the A.O relied upon the material found in the search proceedings of other person on or after the 1st day of April, 2021 which belongs to the assessee or relates to the assessee, then the A.O is required to record reasons for reopening of the assessment in light of clause (iii) or (iv) of Exp (2) to section 148 of the Act, by following due procedure under the Act before issuing notice under section 148 of the Act. In the present case, the A.O has invoked clause (i) of Exp (2) to section 148 on the grounds that once there was a search, the A.O shall be deemed to have the information which suggests that income chargeable to tax has escaped the assessment in the case of the assessee, even though there was a search in the case of the appellant, but the A.O has made addition only on the basis of material found in the search proceedings of any other person and consequently, it is incumbent upon the A.O to record reasons after satisfying with prior approval of the Pr. CIT ITA Nos 1566 and 1571 Exel Rubber Private Ltd that books of account and other material found during the course of search in case of any other person belongs to or relates to the assessee. Since the A.O has recorded reasons on the premise that there was a search action in the case of the assessee under section 132 of the Act, even though the material available on record clearly shows that the addition made by the A.O is not on the basis of material found in the search proceedings of the assessee, but based on the material found during the search proceedings in the residential premises of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager, in our considered view, the reasons recorded for reopening of the assessment and consequent notice issued under section 148 of the Act is invalid and consequently, the assessment order passed by the A.O becomes void ab initio and liable to be quashed. Therefore, we quash the assessment order passed by the A.O under section 147 of the Act, dated 06/03/2025.” (emphasis supplied).

10.It appears that the judgment is squarely applicable in the

instant case in favour of the assessee. As it is an established

fact that the addition has been made by the Ld. A.O. only on

the basis of the ITR filed by the assessee and not on the basis

of incriminating materialunearthed during the course of search

20.07.2022, under the facts and circumstances of the matter,

reopening of assessment particularly the reasons recorded and

the notice issued under Section148 of the Act is found to be

not in terms of the statutory provision; the assessment itself, is

therefore, not sustainable, becomes void ab-initio and liable to

be quashed. We, thus, uphold the order passed by the Ld.

CIT(A).

on the basis of Cross Objection raised by the assessee, the

appeal preferred by the Revenue become academic and

therefore dismissed.

Order pronounced in the open court on 09/07/2026.

Sd/- Sd/- (KRINWANT SAHAY) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 09/07/2026 R. Naheed, Sr PS