DAYALJI GAMBHAVA,DHROL vs. ITO WARD 2(10) JAMNAGAR, JAMNAGAR

First, I shall take appeal filed by assessee, in quantum proceedings, in ITA No. 835/RJT/2025, wherein grounds of appeal raised by the assessee are as follows:

Succinctly, the factual panorama of the case is that assessee before me is an Individual and has filed return of income for assessment year (A.Y.) 2016-17 on 17.12.2016, declaring total income of Rs.2,55,770/- In this case, an information has been received from ITO-Ward-3(2), Jamnagar vide letter dated 05.08.2019 that during the course of assessment proceedings in the case of M/s Aaditya Ginning Mill (PAN-ABCFA7837N) for the A.Y 2016-17, it was found that the assesse has introduced fresh capital amounting to Rs.15,50,000/- during A.Y. 2016-17. The Return of Income filed by the assesse does not commensurate with the capital introduced by the assesse during the year under consideration. In this case original notice u/s 148 of the Income Tax Act, 1961 was issued on 23.04.2021 on the basis of information in possession of the assessing officer after following the provisions of Taxation and Other laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and as per the CBDT Notification No. 20 dated 31.03.2021 and subsequent Notification No. 38 dated 27.04.2021. However, the validity of notices u/s 148 issued from 01.04.2021 to 30.06.2021 became subject matter of writ petitions before various Hon'ble High Courts. The matter was finally decided by the Hon'ble Supreme Court vide order dated 04.05.2022 in the case of Union of India Vs. Ashish Agarwal & others (2022 SCC Online SC 543) as per which the notices issued u/s 148 of the Act during that period were deemed as notice under section 148A(b) of the Income Tax Act, 1961 under the new regime, as amended by Finance Act, 2021 w.e.f. 01.04.2021. Therefore, in consequence of the order dated 04.05. 2022 of Hon'ble Supreme Court in the case of Union of India Vs. Ashish Agarwal& others (2022 SCC Online SC 543) and CBDT's Instruction No. 1/2022 issued vide F.No. 279/Misc/M-51/2022-ITJ dated 11.05.2022, after providing information and allowing opportunity of being heard to the assessee, an order under clause (d) of section 148A of the Income Tax Act, 1961 was passed on 21.07.2022 after getting approval of the competent authority and accordingly, notice u/s 148 of the I.T.Act, 1961 was issued on 29.07.2022. The assessee has not filed return of income in response to the notice u/s 148 of the Act, dated 29.07.2022.No reply from the assessee has been received in response to the various notices issued under section 142(1) of the Act. Therefore, assessing officer made the assessment u/s 144 of the Income Tax Act, 1961, holding that since the source of capital of Rs.15,50,000/- introduced by the assessee in M/s Aaditya Ginning Mill (ABCFA7837N) remained unexplained, therefore, in the absence of any documentary evidence/ explanation the unexplained capital introduction amounting to Rs.15.50,000/- was added to the total income of the assessee in view of the provisions of section 69A of the Income Tax Act, 1961 r.w.s. 115BBE of the Income Tax Act, 1961.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before ld. CIT(A), who has confirmed the action of the Assessing Officer, therefore, assessee is in further appeal before this Tribunal.

Learned Counsel for the assessee, argued that in the assessee’s case under consideration, the assessment year involved is the assessment year 2016-17 and the case was reopened by the Assessing Officer under Section 148 of the Act, by issuing notice on dated 23.04.2021, the notice of reopening is reproduced below:

The Ld. Counsel for the assessee further submitted that final notice under section 148A (d) of the Act was issued on 21.07.2022, which is reproduced below: “Order Under Clause (d) of Section 148A Of the Income Tax Act, 1961 In this case, notice u/s. 148 of the Income Tax Act, 1961 dated 23/04/2021 was issued for the A.Y.2016-17. Subsequently, the Hon'ble Supreme Court in the order dated 04.05.2022 (2022 SCC Online SC 543) in the case of Union of India Vs. Ashish Agarwal & Others held that the impugned notices issued u/s 148 of the Act to the respective assessees during the period from 01-04-2021 to 30-06-2021, which were issued under unamended section 148 of the IT Act without following procedure as laid down under the provisions of section 148A, and were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show cause notices in terms of section 148A(b). 2. Accordingly, pursuant to the judgment of the Hon'ble Supreme Court dated 04.05.2022 (2022 SCC Online SC 543) (Union of India v. Ashish Agarwal) and subsequently CBDT's Instruction No.01/2022 vide F.No.279/Misc./M/-51/2022-IT.J dated 11.05.2022, the further proceedings with reference to section 148A(b) in consequence to Hon'ble SC Order dated 04.05.2022 has been initiated and vide this office DIN & Letter ITBA/COM/F/17/2022- 23/1043192918(1) dated 26-05-2022, the information/materials relied upon for issuance of above notice by the revenue in this case and an opportunity of being heard as per provisions of section 148A(b) of the Act has been provided to the assessee. The relevant part of the above letter is reproduced as under- ‘The assessee has filed the return of income for the AY 2016-17 on 17/12/2016 declaring total income of Rs 2,55,770/- In this case the information is shared by ITO-Ward-3(2), Jamnagar vide letter dated 05/08/2019. Vide the letter it was informed that during the course of assessment proceedings in the case of M/s Aaditya Ginning Mill (PAN ABCFA7837N) for the A.Y 2016-17, it was found that the assessee has introduced fresh capital amounting to Rs. 15,50,000/- during AY 2016-17. The income profile of the assessee does not commensurate with the capital introduced by him in the firm during the year under consideration. In view of above, you are hereby given an opportunity to furnish your reply/explanation in the matter with supporting documents on or before 10-06-2022. Your reply/explanation, if any, will be considered before passing order u/s 148A(d) of the Income Tax Act and before issuance of notice u/s 148 of the Income Tax Act, 1961. 3. The assessee was required to furnish his reply on or before 10/06/2022. However, no reply has been furnished by the assessee. Thus, it is logical to conclude that the assessee has no explanation with respect to the above mentioned transactions and accordingly, there is escapement of Income of Rs. 15,50,000/- chargeable to tax in his case for AY 2016-17. 4 In light of the above facts and on the basis of material available on record, it is decided that the case of the above assessee is a fit case for issuance of notice u/s 148 of the Act for AY 2016-17.

The order is passed after obtaining prior approval of the Pr. Commissioner of Income- tax Jamnagar.

In the light of the above notice of the assessing officer under Clause (d) of Section 148A of the Income Tax Act, 1961, the Ld. Counsel contended that if the assessment is reopened beyond the period of three years then at least the amount escaped from assessment should be Rs.50,00,000/- or more. However, in the assessee’s case under consideration, the amount escaped from assessment is only to the tune of Rs.15,50,000/-, therefore reassessment proceedings should be quashed. 9. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.

I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that the assessee’s case pertains to assessment year 2016-17 and three years elapsed on 31.03.2020. However, the assessee’s assessment was reopened on 23.04.2021 ( being original notice under section 148 of the Act), after the period of three years.Notice under section 148A(b) was issued on 26.05.2022 and final notice under section 148A(d) of the Act was issued on 21.07.2022 which are after the period of three years and I note that in the reasons recorded by the Assessing Officer, the income escaped from assessment is only to the tune of Rs.15,50,000/-, which is below the threshold limit Rs.50,00,000/-. Hence, the reopening does not survive and liable to be quashed.

Therefore, I find that in order to reopen the assessment under section 147 of the Act, after a period of three years, the income escaped from assessment should be more than Rs.50,00,000/-, however, in the assessee’s case, the income escaped from assessment is only Rs.15,50,000/- therefore, jurisdiction exercised by the assessing officer to reopen the assessment of the assessee is not valid, as the income escaped from assessment is only Rs.15,50,000/-, which is below Rs. 50,00,000/- hence, reassessment proceedings initiated against the assessee under section 147 of the Act should be quashed. In this regard, it is appropriate to examine the provision of section 149 of the Act with respect to time limit for issuance of notice u/s 148 of the Act, which is reproduced below:

From the above, it is vivid that Section 149(1) of the Act mandates that no notice u/s 148 would be issued for the relevant assessment year if three (03) years have elapsed from the end of the said assessment year. The AO can take recourse to the extended limitation period if the conditions precedent prescribed in clause (b) of sub-section (1) of section 149 are fulfilled. Therefore, where three (03) years from the end of the relevant assessment year have elapsed, the AO can issue a notice u/s 148 provided the conditions prescribed in clause (b) of section 149(1) of the amended 1961 Act are fulfilled. As per clause (b) of section 149 one of the conditions for triggering the extended period of 10 years in cases where 3 years has lapsed is that income chargeable to tax which has escaped assessment amounts to, or is likely to amount to Rs. 50 lakhs or more for the assessment year in consideration, where in the assessee case under consideration, the amount has escaped from assessment is Rs.15,50,000/-only, therefore, reassessment proceedings, should be quashed, for this reliance is placed on decision in the case of Ganesh Dass Khanna v. ITO [2023] 156 taxmann.com 417 (Delhi), wherein it was held as follows: “Section 149, read with sections 148 and 148A, of the Income-tax Act, 1961 and section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and Article 142 of the Constitution of India, 1950- Income escaping assessment - Time limit for issuance of notice - Assessment years 2016-17 and 2017-18 - A notice dated 28-6- 2021 under unamended section 148 was issued upon assessee in respect of relevant assessment year 2017-18-Similarly, a notice dated 30-6-2021 under unamended section 148 was issued upon assessee in respect of relevant assessment year 2016-17-Pursuant to judgment of Supreme Court in case of Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1 (SC), revenue issued another notice under section 148A(b) dated 20-5-2022 for assessment year 2017-18-Assessee contended that reassessment proceedings triggered against it were time-barred as limitation period of three years qua relevant assessment years had expired - Whether reassessment notice issued on or after 1-4-2021 under unamended section 148 would be deemed to have been issued under substituted section 148A(b) and revenue could not have issued another notice under section 148A(b) for assessment year 2017-18 Held, yes Whether, further, since concededly, in instant case, alleged escaped income was less than Rs. 50 lakhs, impugned notices issued between 1-4-2021 and 30-6-2021, by which time limitation of three years under-section 149(1)(a) had already expired, these notices were barred by limitation Held, yes Whether, consequently, orders passed under section 148A(d) and consequent notices issued under section 148 concerning both assessment years could not be sustained Held, yes [Paras 54] [In favour of assessee]”

In view of the reasons set out above, as also bearing in mind entirety of the case, I am of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. Therefore, I quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.

Coming to the assessee’s appeal in ITA No. 833/RJT/2025, which is penalty appeal under section 271(1) (C ) of the Act, for assessment year 2016– 17. Since, I have quashed the assessment order for assessment year 2016–17, therefore, penalty imposed by the Assessing Officer under Section-271(1)( c) does not survive, as it does not have any leg to stand. Hence, I allowed the appeal of the assessee pertaining to penalty in ITA No.833/Rjt/2025 for assessment year 2016-17.

In the combined result, both appeals filed by the assessee are allowed.