UNIVERSAL CONSTRUCTION,MADURAI vs. NATIONAL FACELESS APPEAL CENTRE, DELHI

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ITA 3360/CHNY/2025Status: DisposedITAT Chennai23 June 2026AY 2013-201413 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the reassessment was invalid as the AO lacked tangible material beyond the original assessment records. The reopening was based on a review of existing information rather than new material, failing to meet the requirements of Section 147.

What were the facts?

The assessee, a partnership firm, had its assessment reopened after four years based on cash credits in partners' accounts. The Assessing Officer (AO) initiated reassessment proceedings under Section 147, citing Section 68 and alleging failure to disclose material facts.

What were the issues?

Whether the reassessment proceedings initiated after four years were valid without tangible material and proper satisfaction of escapement of income due to assessee's failure to disclose.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 68,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY. S

Hearing: 08.04.2026Pronounced: 23.06.2026

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as the ‘Ld CIT(A)’), Delhi, dated 21.09.2021 for the Assessment Year (hereinafter referred to as the ‘AY’) 2013-14.

2.

The brief facts of the case are that the assessee is a partnership Firm engaged in civil construction, assessed to tax in the status of a Firm.

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 2 :: The original return of income (ROI) for AY 2013–14 was filed on 30.09.2013, declaring income of Rs. 8,20,650/-, which was taken up for scrutiny and, consequently, the assessment order was passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) determining the total income at Rs. 13,55,650/-. Thereafter, the AO issued notice under section 148 of the Act on 24.03.2020 (after the expiry of four years from the end of the assessment year), expressing his desire to re-open the assessment of AY 2013–14, pursuant to which the assessee filed a letter dated 21.07.2021, requesting the AO to treat the original return filed on 30.09.2013 as a return in response to notice under section 148 of the Act.

3.

The reasons recorded by the AO prior to re-opening of the assessment read as under: –

"On perusal of the assessment records, it was noticed that in the partners current accounts submitted by the assessee, cash credit was made to the partner Shri S. Subburayan for Rs.4,33,500/- and to the partner Shri L.R. Subburayan for Rs. 13,23,500/-apart from salary and interest in the capital account,. The assessee has also not offered any valid explanation for the cash credit made to the partners account. The assessee has also not shown any source for the above cash credit made. According to Sec.68 of the Act, "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year" It is evident from the assessment records available with this office that the assessee did not furnish any material facts in regards to the cash credit made to the partners account. The principle of non-disclosure postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment.

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 3 :: Therefore, I have reason to believe that the income chargeable to tax has escaped assessment for the A.Y. 2013-14 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the A.Y. 2013-14.” 4. The AO thereafter passed the reassessment order dated 21.09.2021 under section 147 read with section 144B of the Act, making addition of Rs. 17,57,000/- as unexplained credit.

5.

Aggrieved by the order passed by the AO, the assessee preferred an appeal before the Ld. CIT(A), wherein the assessee is noted to have raised legal issue as well as on merits of addition, which was dismissed by the Ld. CIT(A). Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is before us and has raised the following grounds of appeal: –

“1. The reassessment order passed by the National Faceless Assessment Centre, Delhi dated 21.09.2021 in DIN and order No. ITBA/AST/S/147/2021-22/1035749738(1) for the above assessment year is contrary to law, facts, and in the circumstances of the case. 2. The NaFAC erred in completing the re-assessment under faceless regime and ought to have appreciated that the order of re-assessment was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 3. The NaFAC failed to appreciate that having completed the original scrutiny assessment u/s 143(3) of the Act, the assumption of jurisdiction after expiry of four years from the end of the assessment year under consideration without pointing out any failure on the part of the appellant in disclosing fully and truly all material facts at the original stage should be reckoned as bad in law. 4. The NaFAC failed to appreciate that having not conducted the proceedings of re-assessment as per the prescription of the law laid down in the case reported in 259 ITR 19, the consequential re-assessment should be considered as nullity in law. 5. The NaFAC failed to appreciate that in the absence/tangible/valid material constituting information for assumption of jurisdiction u/s 147 of the Act, such assumption of jurisdiction u/s 147 of the Act should accordingly be reckoned as bad in law. 6. The NaFAC erred in adding back Rs.17,57,000/- being the aggregate credits in the two partners' current account maintained by the appellant as

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 4 :: unexplained cash credit u/s 68 of the Act as part of the computation of taxable total income without assigning proper reasons and justification. 7. The NaFAC failed to appreciate that the source for the infusion of additional capital by the partners was erroneously checked with the appellant and ought to have appreciated that in any event the three ingredients mandated in section 68 of the Act were fully discharged by the appellant thereby negating the assessment of the credits as unexplained. 8. NAFC has neither considered nor rejected the submission by the Appellant that the Capital Introduced was from the previous Years savings for the which the Appellant has given the details of income returned for the previous three years. 9. The NaFAC failed to appreciate that the entire recomputation of taxable total income was wrong, incorrect, invalid, erroneous and not sustainable on facts. 10. The Appellant craves leave to file additional grounds/arguments at the time of hearing.” 6. Ground No. 1 is general in nature, so it does not require any adjudication. Ground Nos. 2, 3, 4 & 5 are legal issues which, inter alia, challenge the re-opening of the assessment, which will be dealt with first.

7.

Assailing the action of the Ld. CIT(A), the ld. AR submitted that the Ld. CIT(A) did not appreciate the contention raised objecting to re- opening of the regular/original assessment and, hence, the impugned action of the CIT(A) is erroneous. According to him, in the present case, the original assessment was passed on 22.01.2016 after scrutiny under section 143(3) of the Act, and the proceedings under section 147 of the Act was initiated by issuing notice u/s 148 on 24.03.2020 i.e. after the expiry of four years from the end of the relevant assessment year. Hence, according to him, for valid initiation of proceedings under section 147, as per first proviso to section 147 of the Act, it was necessary for the AO to show that, while recording the reasons for reopening under section

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 5 :: 147/148 of the Act, he was prima facie satisfied that escapement of income chargeable to tax for the relevant assessment year was as a result of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. He submitted that from the recorded reasons itself (supra), such satisfaction should have been discernible, which is not there, hence re-opening of assessment is bad in law.

8.

Drawing our attention to the reasons recorded (supra), the Ld. AR submitted that the AO himself has admitted of not having any tangible material on the basis he sought to re-open the assessment, because the AO himself admit the source of information as available from the assessment records. Such a fact is discernable from the opening words of the reasons recorded, which reads “on perusal of the assessment records, it was noticed that in the partners’ current account submitted by the assessee…….” Such an admission of AO itself implies that the information on the basis of which the AO has reopened the assessment is from the details furnished by the assessee during the original assessment proceedings and there is no external tangible material, basis the AO has reopened the assessment. Therefore, according to Ld AR, it is apparent that there is no failure on the part of the assessee to disclose truly and fully all material facts necessary for his assessment for AY 2013–14.

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 6 :: Therefore, the Ld. AR submitted that the twin conditions embedded in section 147 of the Act and the proviso thereto were not fulfilled.

9.

According to the Ld. AR, initiation of reassessment would be permissible only if the AO was having in his possession fresh and tangible material which came into his possession subsequent to passing of the assessment order under section 143(3) of the Act, which in this case was passed on 22.01.2016. From a perusal of the reasons recorded, it is clear that there was no fresh material which came into his possession which was the basis for forming the belief that there was escapement of income. Hence relying on the decision of the Hon’ble Supreme Court in the case of CIT Vs Kelvinator of India Ltd (2010) 320 ITR 561, wherein it was, inter- alia, held that there must be “tangible material” in the hands of AO to reopen the assessment completed u/s 143(3) of the Act. According to the Ld. AR, the AO has miserably failed to demonstrate the same in the foregoing recorded reasons, which vitiated the assumption of reopening jurisdiction by the AO.

10.

Per contra, the Ld.DR opposing the submissions of the Ld.AR on the legal issue submitted that there was failure on the part of the assessee to disclose the nature and source of the capital introduced by the partners in the assessee-Firm which omission on the part of the assessee-Firm prompted the AO to reopen the assessment which is allowable u/s.147 of

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 7 :: the Act, hence, the action of the AO cannot be interfered with. Hence, he does not want us to interfere with the action of the AO reopening the assessment after recording the reasons which is self-explanatory and hence, the legal issue needs to be dismissed.

11.

Having heard both the parties and after perusal of the record on the legal issue raised by the assessee challenging the jurisdiction of the AO to reopen the assessment for the relevant assessment order and the original return of income filed by the assessee having undergone scruitiny assessment which resulted in the original assessment being passed u/s.143(3) on 22.01.2016. The reopening of the assessment has to pass the condition precedents spelled out in Section 147 of the Act. It is settled position of law that before reopening an assessment, the AO has to record his reasons to believe escapement of income. Thereafter, only the AO can reopen the assessment which is first requirement of law before reopening an assessment u/s.147 of the Act. Therefore, first we have to examine from the reasons recorded whether the reasons recorded by the AO to reopen satisfy the first condition precedent that is reason to believe escapement of income. For such an exercise, we have to first take note of the reasons recorded by the AO for reopening. Hence, he prayed for allowing the legal issue raised by the assessee. Having taken note of the reasons recorded by the AO for reopening the assessment (supra), we note that the AO has reopened the assessment on sole issue i.e. Capital

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 8 :: introduced of total Rs.17.57 lakhs [cash-credit in two partner’s accounts]. According to the AO, assessee didn’t offer any valid explanation for the cash-credit made to the Partner’s current- account. In other words, source of the capital introduced by way of cash-credit has not been disclosed by assessee. Hence, when he discovered this issue from perusal of the assessment records, he recorded ‘reason for reopening’ and issued notice u/s 148 of the Act. In this regard, we note that details regarding capital account of the partners were available before the AO during the original assessment including the issue of cash-credit made in the partner’s current account totaling Rs.17.57 lakhs, [which details AO found in the assessment folder of the assessee when he was recording reason to reopen]. Therefore, we find that there was neither any tangible material in the possession of the AO other than the material already filed by the assessee during the original assessment in 2016 nor any failure on the part of assessee to disclose fully and truly any material facts necessary for assessment. Since, we find that the reasons for reopening as stated by the AO indicates that the AO didn’t had any other material which was extraneous to that already on record or new material has been discovered or came to his possession which would indicate escapement of income and since four (4) years have passed and original assessment has been framed u/s.143(3) of the Act, the first proviso to Section 147 bars the AO from reopening the assessment without making out a case that the

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 9 :: assessee failed to make fully and truly disclosure at the time of assessment. The reasons recorded by the AO as reproduced supra don’t spell out the material fact which assessee didn’t disclose during the original assessment for justifying the reopening. Mere bald statement that assessee failed to disclose material facts would not satisfy the requirement of law. It is not the case of the AO that assessee misled them or gave wrong information regarding the issue of cash-credit made in the partner’s current account totaling Rs.17.57 lakhs. In such a , we are of the view that the AO didn’t had the jurisdiction to reopen the assessment which has already been completed u/s.143(3) of the Act on 22.01.2016 because it does not satisfy the requirement of Law as laid down by the Hon’ble Supreme Court in the case of Kelvinator India Limited reported in 320 ITR 561 wherein the Hon’ble Supreme Court has held that if reasons for reopening merely reiterated materials that was already available on record, then in such an event, the action of AO cannot be termed as reassessment but one of review which is impermissible under the Act. The relevant portions of the judgment read as under:

"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 10 :: reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which.. we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of. "mere change of opinion", which cannot be per se reason to. reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment.. review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have. a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words ?reason to believe? but also inserted the word 'opinion' in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words 'reason to believe', Parliament re- introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147. - - A number of representations were received against the omission of the words 'reason to believe-from Section 147 and their substitution by the `opinion- of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe- in place of the words 'for reasons to be recorded by him in writing, is of the opinion-. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs. (emphasis supplied) 12. It will also be gainful to refer to the decision of the Hon’ble High Court of Madras in the case of Indian Syntans Investments Pvt. Ltd [Writ Appeal No. 220 of 2024 vide order dated 19.06.2025] and in the case of Deveraj Ramasamy Mani vs ACIT [in Writ Appeal No.1321 of 2024 vide order dated 17.06.2025], wherein their Lordships have clearly held that

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 11 :: reassessment made within four (4) years or beyond four (4) years has to be based on tangible material de hors that is available on record that has come to the notice of the AO. Recourse to proceedings for reassessment is available only if the department comes to possession of materials, apart from that already available as part of its records or if primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all materials necessary for the appreciation of issues arising for assessment including financials and annexures along with its return of income at the first instance [refer Para No.12 of the Hon’ble High Court’s order]. It would be gainful to refer to the decision of the Hon’ble Madras High Court in the case of Deveraj Ramasamy Many (supra) wherein the Hon’ble Madras High Court has observed at Para No.12 as under : 12. Therefore, it is clear, a reassessment made within four years or beyond four years has to be based on tangible material de hors that is available on record that has come to the notice of the Assessing Officer. Recourse to proceedings for reassessment is available only if the Department comes into possession of materials, apart from that already available as part of its records or if primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all materials necessary for the appreciation of issues

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 12 :: arising for assessment including financials and annexures along with its return of income at the first instance. We also refer to the decision of the Hon’ble Delhi High Court in the case of CIT v. Orient Craft Limited reported in [2013] 29 taxmann.com 392 [Delhi] wherein it was held that in absence of tangible material available with the AO to form the requisite belief regarding escapement of income, it will tantamount to review of the assessment in the guise of reopening.

13.

In the light of the aforesaid discussions, we find that in the present case, the reasons disclose that the AO reached the belief that there was escapement of income, ongoing through the return of income filed by the assessee as well as the financials [P&L account as well as the balance sheet filed by the assessee as well as the documents to prove the expenditure claimed by the assessee which were already in the assessment folder of the assessee for AY 2013-14] which culminated in the AO scrutinizing the same and passing the original assessment order u/s.143(3) of the Act dated 22.01.2016. Therefore, the impugned action of the AO issuing notice on the strength of the reasons recorded for reopening of the assessment shows that there was no tangible material which came to the possession of the AO subsequent to the original assessment order having been passed on 22.01.2016. Therefore, the action of the AO to have reopened the assessment without any tangible material and without spelling out which material fact assessee failed to

ITA No.3360 /Chny/2025 (AY 2013-14) Universal Construction :: 13 :: disclose, doesn’t satisfy the requirement of law to validly reopen the assessment. Mere bald statement that assessee failed to disclose fully and truly all relevant material necessary for assessment doesn’t satisfy the requirement/safe guard provided by the statute i.e. as provided for under the first proviso to section 147 of the Act Hence, the impugned action of the AO to reopen the assessment is held to be wholly without jurisdiction and therefore quashed.

14.

In the result, appeal filed by the assessee is allowed

Order pronounced on the 23rd day of June 2026, in Chennai.

Sd/- Sd/- (प�ावती .एस) (एबी टी. वक�) (PADMAVATHY. S) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai, �दनांक/Dated: 23rd June, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

YASHVI Digitally signed by YASHVIR R SINGH Date: 2026.07.07 SINGH 12:23:31 +05'30'

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