ANNAI BUILDERS REAL ESTATES PVT. LTD.,CHENNAI vs. ACIT, CENTRAL CIRCLE-3(2), CHENNAI

आयकरअपीलीयअधिकरण,‘बी’न्यायपीठ,चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI श्री एबीटीवर्की, न्याययर्कसदस्यएवंश्री एस. आर.रघुनाथा, लेखा सदस्यके समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./ITA No.2578/Chny/2025 निर्धारणवर्ा / Assessment Year: 2011-12 Annai Builders Real Estate The Assistant Commissioner of Private Limied, 16, Medavakkam vs. Income-tax, Cent.Cir.3(2) Main Road, Chennai - 600 091. Chennai. (प्रत्यर्थी/Respondent) [PAN:AADCA6643H ] (अपीलधर्थी/Appellant) अपीलधर्थीकीओरसे/Appellant by : Shri. N.Arjun Raj, Advocate प्रत्यर्थीकीओरसे/Respondent by : Shri. Shiva Srinivas, CIT सुिवधईकीतधरीख/Date of Hearing : 04.02.2026 घोर्णधकीतधरीख/Date of Pronouncement : 04.05.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM :

The appeal filed by the assessee is against the order of the learned Commissioner of Income Tax (Appeals) passed u/s.250 of the Income Tax Act, 1961 dated 24.07.2025 vide DIN & Order No.ITBA/APL/S/250/2025- 26/1078880902(1), for the Assessment Year 2011-12, sustaining the re- assessment order passed u/s.147 r.w.s.143(3) of the Act dated 31.12.2018. 2. The assessee has raised the following grounds of appeal before this Tribunal on the legal issue challenging the assumption of jurisdiction u/s.153A of the Act:

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2.1. The CIT (Appeals), Chennai – 20 erred in confirming the assumption of jurisdiction under Section 147 of the Act and consequently erred in confirming the passing of the re-assessment order under Section 147 of the Act without assigning proper reasons and justification.

2.2. The CIT (Appeals), Chennai – 20 failed to appreciate that the re- assessment order was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law.

2.3. The CIT (Appeals), Chennai – 20 failed to appreciate that the assumption of jurisdiction u/s 147 of the Act was without sanction of law and ought to have appreciated that the consequential re-assessment order accordingly should be reckoned as bad in law.

2.4. The CIT (Appeals), Chennai – 20 failed to appreciate that having not followed the prescription of law/procedure for framing the re-assessment, the consequential re-assessment order passed should be reckoned as nullity in law for want of jurisdiction.

:-3-: ITA. No:2578/Chny/2025 assessment was completed u/s.143(3) of the Act on 28.03.2014, determining the assessed income at Rs.29,61,24,020/-. 5. A search and seizure operation was carried out in the premises of the assessee group on 04.10.2017 in terms of Section 132 of the Act. Pursuant to the said search, the Assessing Officer (in short "AO") issued a notice u/s.148 of the Act dated 29.03.2018 for the A.Y. 2011-12, thereby initiating re-assessment proceedings u/s.147 of the Act. 6. Thereafter, the AO furnished the reasons recorded for re-opening of assessment on 02.08.2018 to the assessee, which reads as under: "A search and seizure operation u/s. 132 of the IT Act, 1961 was conducted in the case of M/s. Annai Builders Real Estates Pvt Ltd and its group cases on 04-Oct-2017. During the course of search proceedings, it is noticed that the assessee has debited a sum of Rs.1,63,77,037/- towards site expenses and other connected expenses in respect of project at Somayampalayam, Coimbatore. But the project is in Stock-in-trade of M/s.Annai Builders Real Estates Private Limited and the assessee admitted the same as undisclosed income in the hands of M/s.Annai Builders Real Estates Private Limited for the FY 2010-11 relevant to AY 2011-12. 7. The assessee filed detailed objections to the re-opening of assessment on 31.10.2018 inter alia challenging, amongst other grounds, that the escapement of income as quantified in the reasons recorded for the Assessment Year 2011-12 (i.e., FY 2010-11) was only to the tune of Rs.75,850/- (being the proportionate share of Somayampalayam project expenses attributable to A.Y. 2011-12) and that since such sum was less than Rs.1,00,000/-, the issuance of notice u/s.148 of the Act beyond four years from the end of the relevant assessment year was barred by limitation under the then applicable provisions of Section 149(1)(b) of the Act. 8. In response to the said objections, the AO issued show cause notice dated 02.11.2018 and the AO, thereafter, proceeded to complete the re-assessment proceedings and passed the re-assessment order u/s.147 r.w.s.143(3) of the Act for the A.Y.2011-12 making, inter alia, the following additions/disallowances:

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Sl.No. Nature of Disallowances Amount (Rs.)

TOTAL 65,30,136

:-5-: ITA. No:2578/Chny/2025 12. The Ld.AR brought to our attention the fact that the reasons recorded by the AO for re-opening the assessment for the A.Y. 2011-12 made reference only to the Somayampalayam project expenses and stated that the assessee had admitted an amount of Rs.75,850/- as undisclosed income pertaining to the Financial Year 2010-11 (relevant to A.Y. 2011-12). The Ld.AR pointed out that the reasons recorded, on a plain reading, did not include any second limb pertaining to disallowance u/s.40A(3) of the Act and that the attempt to include another issue subsequently would not validate assumption of jurisdiction u/s 147 of the Act. 13. The Ld. AR accordingly submitted that the original reasons furnished to the assessee on 02.08.2018 clearly recorded the escapement of income for the A.Y.2011-12 at Rs.75,850/- only, which fell below the threshold of Rs.1,00,000/- prescribed u/s.149(1)(b) of the Act as it stood prior to the amendments brought about by the Finance Act, 2021. It was accordingly submitted that since the notice u/s.148 of the Act was issued beyond four years from the end of the relevant assessment year (the assessment year being 2011-12, the limitation u/s.149(1)(b) expired on 31.03.2018), and since the escapement of income in the reasons recorded was less than Rs.1,00,000/-, the issuance of the notice u/s.148 of the Act for this assessment year was wholly without jurisdiction and barred by limitation. 14. The Ld. AR further submitted that the subsequent supplementation of the reasons / inclusion of the disallowance u/s.40A(3) of the Act for Rs.6,84,438/- cannot cure the fundamental defect in the original reasons recorded and cannot be reckoned as part and parcel of the reasons recorded for re-opening at the relevant time, citing the settled law that reasons cannot be improved upon or supplemented after they are furnished to the assessee. Reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar, reported in 268 ITR 332. 15. The Ld.AR accordingly prayed that the notice u/s.148 of the Act be quashed as being barred by limitation, and consequently, the re-assessment

:-6-: ITA. No:2578/Chny/2025 order passed u/s.147 r.w.s.143(3) of the Act for A.Y. 2011-12 be held to be void, invalid and without jurisdiction. 16. The ld.DR submitted that the AO had in fact recorded the reasons for reopening encompassing both limbs, i.e., (a) the site expenses/Somayampalayam project expenses; and (b) the cash payments in violation of Section 40A(3) of the Act and that the omission in the reasons furnished to the assessee on 02.08.2018 was purely inadvertent, as acknowledged in the speaking order. It was submitted that when both the limbs are taken together, the total quantum of escapement was Rs.7,60,288/- (Rs.75,850/- + Rs.6,84,438/-), which exceeded Rs.1,00,000/-, and therefore, the notice u/s.148 of the Act was well within the six-year time limit prescribed u/s.149(1)(b) of the Act. The Ld. DR also submitted that the Ld.CIT(A) correctly held that the AO had issued the notice within the time limit and that the same should be upheld. 17. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The issue before us is a short legal point, viz., whether the notice u/s.148 of the Act issued for the A.Y. 2011-12 on 29.03.2018 (i.e., beyond four years from the end of the relevant assessment year) is barred by limitation u/s.149(1)(b) of the Act, as it stood prior to the Finance Act, 2021. 18. Section 149(1) of the Act, as it stood at the relevant point in time, reads as follows: "149. Time limit for notice.

(1) No notice under section 148 shall be issued for the relevant assessment year,— (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);

(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has

:-7-: ITA. No:2578/Chny/2025 escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;

(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment." 19. A reading of Section 149(1)(b) of the Act makes it explicitly clear that for issuing a notice u/s.148 of the Act beyond four years but within six years from the end of the relevant assessment year, there is a mandatory statutory precondition: the income chargeable to tax which has escaped assessment must amount to or is likely to amount to Rs.1,00,000/- or more for that year. This is not merely a procedural requirement but goes to the root of the jurisdiction of the AO to assume jurisdiction u/s.147 of the Act. 20. We note that in the present case, the search was conducted on 04.10.2017. The A.Y. 2011-12 falls beyond six years from the date of search (since the six years preceding A.Y. 2018-19 would cover A.Y. 2012-13 to A.Y. 2017-18) and hence, as correctly observed by the Ld. CIT(A) also, the AO could not have issued notice u/s.153A of the Act for A.Y. 2011-12. Therefore, the AO rightly resorted to Section 147 of the Act. However, the question that arises is whether the conditions precedent u/s.149(1)(b) were satisfied before issuing the notice for A.Y. 2011-12. 21. From the perusal of the reasons recorded, we find that the reasons furnished by the AO to the assessee on 02.08.2018 contained only single issue, viz., the reference to the site expenses/Somayampalayam project expenses, and recorded that the assessee had admitted Rs.75,850/- as undisclosed income attributable to FY 2010-11 (A.Y. 2011-12). 22. At this juncture, it is important to note the statutory scheme in this regard. It is a settled position of law that once the reasons recorded for re-opening of assessment are furnished to the assessee, the AO is bound by the reasons so recorded and the AO cannot travel beyond the said reasons. Furthermore, it is pertinent to keep in mind that the “reason to believe” postulates a foundation

:-8-: ITA. No:2578/Chny/2025 based on information, and belief based on reason. After a foundation based on information is there, still, there must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. In other words, before the AO issues notice u/s 148 of the Act, he must have recorded the reason to believe escapement of income. It is no doubt that this Tribunal cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the AO on the point as to whether action should be initiated for re-opening the assessment. At the same time, we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant or remote and far-fetched, which would warrant the formation of belief relating to escapement of income. It is also pertinent to note that reasons as recorded by AO for re-opening the assessment, are to be examined on a standalone basis. Neither anything can be added to the reasons so recorded, nor can anything be deleted from the reason so recorded. The Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. (2004) 268 ITR 332 (Bom) has inter alia observed that “……mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded by him. He has to speak through the reasons. …. The reasons recorded should be self explanatory and should not keep the assessee guessing for reason. Reason provide link between conclusion and the evidence…”

Hence, as held by the Hon’ble High Court that while examining the jurisdiction of AO to have re-opened the assessment, we have to only consider the reasons recorded by the AO on a stand-alone basis and adjudicate as to whether AO has satisfied in the reasons recorded, the condition precedent i.e, reason to believe escapement of income to validly re-open the assessment

:-9-: ITA. No:2578/Chny/2025 23. In the present case, we find that the reasons furnished by the AO on 02.08.2018 contained only the Somayampalayam project expense of Rs.75,850/-. The Ld.AR's submission that the original reasons furnished to the assessee recorded the escapement only at Rs.75,850/- for A.Y. 2011-12 is factually correct and cannot be disputed. The admission of the AO in the show cause notice issued subsequentlyon02.11.2018 that the second paragraph containing the disallowance u/s.40A(3) of the Act was “inadvertently omitted” would confirm the fact that the reasons as originally recorded and furnished to the assessee contained only Rs.75,850/- as the escapement of income for A.Y. 2011-12. 24. The question, therefore, is whether the AO subsequent introduction of an additional limb of escapement (i.e., the disallowance u/s.40A(3) of Rs.6,84,438/-) by way of the speaking order dated 02.11.2018 can cure the foundational defect, viz., that the reasons as originally recorded and furnished did not satisfy the minimum threshold of Rs.1,00,000/- required under Section 149(1)(b) of the Act. 25. In our considered view, we find that the action of the Assessing Officer in assuming jurisdiction under Section 147 of the Act was contrary to the scheme of the Act as well as the judicial precedents. It is well settled that the AO cannot supplement or improve upon the reasons recorded for re-opening of assessment after the same have been furnished to the assessee. The reasons recorded at the time of issuing the notice u/s.148 of the Act are the cornerstone of the jurisdiction assumed u/s.147 of the Act. If the reasons as recorded do not satisfy the mandatory statutory pre-condition of the escapement of income amounting to Rs.1,00,000/- or more, the notice cannot be saved by introducing additional reasons or additional amounts of escapement at a later stage, particularly during the disposal of objections filed by the assesse or at the time of passing the assessment order. 26. The judicial precedents unequivocally hold that the AO is bound by the reasons so recorded and that the same cannot be travelled beyond and that by

:-10-: ITA. No:2578/Chny/2025 permitting the AO to add a fresh limb of escapement subsequently, after the assessee raises objections pointing out the jurisdictional defect, would effectively allow the AO to remedy a foundational defect in the assumption of jurisdiction by importing materials and grounds which were not part of the original reasons recorded. This would be contrary to the settled legal principle that the reasons for re-opening must be complete and self-contained at the time they are recorded. 27. In the present case, on a plain reading of the reasons as furnished by the AO on 02.08.2018, the escapement quantified for A.Y.2011-12 is only Rs.75,850/-. This falls well short of the minimum threshold of Rs.1,00,000/- prescribed u/s.149(1)(b) of the Act. Therefore, the mandatory pre-condition for issuing a notice u/s.148 of the Act beyond four years from the end of the relevant assessment year is not satisfied. 28. We also note that the only issue mentioned in the reasons as escapement attributable to A.Y.2011-12 is Rs.75,850/- and the contention of the Revenue that the escapement is “more than Rs.one lakh” is factually incorrect. It is well established that the AO must have a reason to believe that income has escaped assessment and the said belief must be based on material and the escapement must be quantified in the reasons recorded to assess whether the preconditions under the respective clause of Section 149(1) are met. The reasons cannot be read as a charter for the AO to assert a conclusion (escapement being more than Rs.1 lakh) which is factually belied by the quantum recorded in the same reasons. 29. In view of the foregoing, we hold that the notice issued u/s.148 of the Act dated 29.03.2018 for the A.Y.2011-12 is barred by limitation u/s.149(1)(b) of the Act, inasmuch as the escapement of income as recorded in the original reasons furnished to the assessee was only Rs.75,850/-, which is below the minimum threshold of Rs.1,00,000/- stipulated thereunder. Consequently, the AO lacked the jurisdiction to issue the said notice u/s.148 of the Act for A.Y. 2011-12 beyond four years. The said notice is accordingly quashed as invalid, and the

:-11-: ITA. No:2578/Chny/2025 consequential re-assessment order passed u/s.147 r.w.s.143(3) of the Act for A.Y. 2011-12 is held to be void, without jurisdiction and liable to be set aside. 30. Since we have quashed the notice u/s.148 of the Act and the re- assessment order consequent thereto for want of jurisdiction, we do not find it necessary to adjudicate the grounds of appeal raised challenging the additions/disallowances made on merits. All other grounds of appeal are accordingly left open and not adjudicated. 31. In the result the appeal of the assessee is allowed.

Order pronounced in the open court on 04th May, 2026 at Chennai.

Sd/- Sd/- (एबी टी वर्की) (एस.आर.रघुनाथा) (S. R. RAGHUNATHA) (ABY T VARKEY) लेखा सदस्य/Accountant Member न्यायिर्क सदस्य/Judicial Member

चेन्िई/Chennai, दििधंक/Dated, the 04th May, 2026. SP आिेशकीप्रनतललपपअग्रेपर्त/Copy to: 1. अपीलधर्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकरआयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभधगीयप्रनतनिधर्/DR 5. गधर्ाफधईल/GF DEVADAS Digitally signed by DEVADAS GOPALAN GOPALANACHARY Date: 2026.05.13 ACHARY 17:23:51 +05'30'