Loading judgment…
Facts
The assessee filed its return for AY 2014-15. Based on information about alleged bogus purchases amounting to Rs. 3,02,93,611/-, the Assessing Officer (AO) initiated reassessment proceedings and added the entire sum to the assessee's income. The CIT(A) upheld the AO's order.
Held
The Tribunal held that alleged bogus purchases are a revenue item and not an asset. Since the reassessment was initiated beyond three years and the escaped income was not shown to be in the form of an asset, the conditions of Section 149(1)(b) were not met, making the reassessment proceedings invalid.
Key Issues
Validity of reassessment proceedings initiated beyond three years under Section 149(1)(b) when escaped income is in the form of revenue items (bogus purchases) and not an asset.
Sections Cited
147, 144, 148, 149, 143(2), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: HONBLE JUSTICE (RETD.) C V BHADANG & SHRI ARUN KHODPIA, AM
Assessee by : Shri Shashi Bekal, Advocate Revenue by : Shri Swapnil Choudhary, Sr. DR 04.02.2026 Date of Hearing : Date of Pronouncement : 06.03.2026 O R D E R
Per Arun Khodpia, AM:
This appeal is preferred by the assessee to challenge the order of Commissioner of Income Tax (Appeals), NFAC, Delhi [in short “Ld. CIT(A)”], dated 22.08.2025 for the Assessment Year (AY) 2014-15, which in turn arises from the assessment order passed u/s 147 r.w.s. 144 of the Income Tax Act, 1961 (in short “The Act”) dated 11.05.2023. The grounds of appeal raised by the assessee are as under:
1.1. That on the facts and circumstances of the case and in law the Ld. National Faceless Appeal Centre (NFAC) has erred in upholding the Reassessment proceedings for as the Notice under section 148 of the Act is issued in violation of section 151A of the Income-tax Act, 1961 (Act)
1.2. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings for as the Notice under section 148 of the Act is issued in violation of CBDT Circular 19 of 2019.
1.3. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings, though the income escaping assessment is not in the form of an asset.
1.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings, though the information and statements relied on by the Ld. Assessing Officer (AO) was not shared with the Appellant in spite of specific requests
2. Addition of Rs. 3,02,93,611/- as Bogus Purchases 2.1. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO without any basis.
2.2. That on the facts and circumstances of the case and in law the Ed. NFAC has erred in confirming the additions made by the Ld. AO, whereas the appellant has provided all documents and shifted the burden of proof onto the revenue.
2.3. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO without giving an opportunity for cross-examination.
2.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO without conducting any enquiry in the matter 2.5. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO as an addition, if any, could be made only gross profit element in the alleged bogus purchases.
2.6. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Shairul Impex Ld. AO as the report of the Task Group for Diamond Section (issued by the Government of India) itself shows that the Gross Profit rate for entities in the said industry was 2 percent. Hence, the additions, if any, ought to have been restricted to 2 per cent of the impugned purchases.”
At the outset, ld. Counsel of the assessee preferred to not press Ground No. 1.1 and 1.2 of the present appeal challenging the validity of notice under section 148 of the Act being alleged to be issued in violation of section 151A of the Act and the same notice gets invalidated in absence of Din Number, being issued in violation of CBDT’s Circular No. 19 of 2019. Similar contentions raised through additional grounds dated January 05, 2026 are also treated as dismissed, being not pressed.
The ld. AR reiterated the facts of the case through material available on record, stating that the assessee is a partnership firm, had filed its return of income for AY 2014-15 on 25.09.2014, declaring a total income of Rs. 12,69,240/-. Further as per information available during the search and seizure action on Rajendra Jain Group, it is revealed that the assessee has obtained accommodation entries in the nature of bogus purchase from M/s Narayan Gems and M/s Nazar Impex Pvt. Ltd. amounting to Rs. 3,02,93,611/- during the relevant year. Such information prompted the revenue to form a belief that the income chargeable to tax has escaped in the present matter. Accordingly notice under section 148 was issued on 19.04.2021 after recording reasons along with prior approval of the sanctioning authority. Subsequently, the procedure of reopening was initiated, as per amended regime following the decision of Union 3 Shairul Impex of India vs. Ashish Agarwal [2022] 138 taxmann.com 64 (SC). After following the entire proceedings, notice under section 148 dated 27.03.2022 was issued to the assessee. During the course of proceedings statutory notices under section 143(2) and 142(1) of the Act were issued along with questionnaire which were responded by the assessee. On deliberations, the ld. AO was not convinced with the submissions of assessee, therefore had added the entire amount of alleged bogus purchase to the income of the assessee. The issue then was carried before the ld. CIT(A), who had discussed the legal contentions raised by the assessee as well as the contentions on merits and have dismissed the appeal of assessee by confirming the addition made by ld. AO.
Being aggrieved with the aforesaid decision of ld. CIT(A), the assessee preferred the present appeal which is under consideration before us.
The first legal contention raised by ld. AR was that the assessee’s case was reopened following the provisions of section 149 of the Act. The ld. AR has submitted an comparison of section 149(1) and its application to the relevant AY and the amended provisions, the same is extracted as under:
Income-Tax Act, 1961 - As Amended by Income-Tax Act, 1961 - As Finance Act 2025 Amended by Finance Act 2021 Time limit for notices under sections 148 and [Time limit for notice. 148A. 149. (1) No notice under section 148 shall be 149. (1) No notice under section 148 issued for the relevant assessment year,- shall be issued for the relevant (a) if three years and three months have elapsed assessment year;- from the end of the relevant assessment year, unless the case falls under clause (b); (a) if three years have elapsed from (b) if three years and three months, but not the end of the relevant assessment more than five years and three months, have year, unless the case falls under 4 elapsed from the end of the relevant assessment clause (b); year unless the Assessing Officer has in his possession books of account or other (b) if three years, but not more than documents or evidence related to any asset or ten years, have elapsed from the end expenditure or transaction or entries which of the relevant assessment year unless show that the income chargeable to tax, which the Assessing Officer has in his has escaped assessment, amounts to or is likely possession books of accounts or other to amount to fifty lakh rupees or more. documents or evidence which reveal that the income chargeable to tax, (2) No notice to show cause under section represented in the form of asset, 148A shall be issued for the relevant which has escaped assessment assessment year,- amounts to or is likely to amount to fifty lakh rupees or more for that year: (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); Provided that no notice under section 148 shall be issued at any time in a (b) if three years, but not more than five years, case for the relevant -assessment year have elapsed from the end of the relevant beginning on or before 1st day of assessment year unless the income chargeable April, 2021, if such notice could not to tax which has escaped assessment, as per the have been issued at that time on information with the Assessing Officer, account of being beyond the time amounts to or is likely to amount to fifty lakh limit specified under the provisions of rupees or more.] clause -(b) of sub-section (1) of this section, as they stood immediately 91. Substituted by the Finance (No. 2) Act, to before the commencement of the its 2024, w.e.f. 1-9-2024. Prior substitution, Finance Act, 2021: section 149, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, Provided further that the provisions Direct Tax Laws (Second Amendment) Act, of this sub-section shall not apply in a 1989, w.e.f. 1-4-1989, Finance Act, 2001, case, where a notice under section w.e.f. 1-6-2001, Finance Act, 2012, w.e.f. 1-7- 153A. or section 153C read with 2012, Finance Act, 2021, w.e.f. 1-4-2021, section 1534, is required to be issued Finance Act, 2022, w.e.f. 1-4-2022/w.r.e.f. 1-4- in relation to a search initiated under 2021 and Finance Act, 2023, w.e.f. 1-4-2023, section 132 or books of other read as under: documents account, or assets any requisitioned under section 1324, on '149. Time limit for notice.- (1) No notice or before the 31st day of March, under section 148 shall be issued for the 2021: relevant assessment year,- Provided also that for the purposes of (a) if three years have elapsed from the end of computing the period of limitation as the relevant assessment year, unless the case per this section, the time or extended falls under clause (b); time allowed to the assessee, as per show-cause notice issued under (b) if three years, but not more than ten years, clause (b) of section 148A or the have elapsed from the end of the relevant period during which the proceeding assessment year unless the Assessing Officer under section 1484 is stayed by an has in his possession books of account or other order or injunction of any court, shall documents or evidence which reveal that the be excluded income chargeable to tax, represented in the form of- Provided also that where immediately after the exclusion of the period (i) an asset; referred to in the immediately preceding proviso, the period of 5
(ii) expenditure in respect of a transaction or in limitation available to the Assessing relation to an event or occasion; or Officer for passing an order under clause (d) of section 1484 is less than (iii) an entry or entries in the books of account, seven days, such remaining period shall be extended to seven days and which has escaped assessment amounts to or is the period of limitation under this likely to amount to fifty lakh rupees or more: sub-section shall be deemed to be extended accordingly. Provided that no notice under section 148 shall be issued at any time in a case for the relevant Explanation. For the purposes of assessment year beginning on or before 1st day clause (b) of this subsection, "asset" of April, 2021, if a notice under section 148 or shall include immovable property, section 153A or section 153C could not have being land or building or both, shares been issued at that time on account of being and securities, loans and advances, beyond the time limit specified under the deposits in bank account. provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as (2) The provisions of sub-section (1) the case may be, as they stood immediately as to the issue of notice shall be before the commencement of the Finance Act, subject to the provisions of section 2021: 151.1 Provided further that the provisions of this 28-36. Substituted by the Finance sub-section shall not apply in a case, where a Act, 2021, w.e.f. 1-4-2021. Prior to its notice under section 153A, or section 1530 read substitution, section 149, as amended with section 153A, is required to be issued in by the Direct Tax Laws (Amendment) relation to a search initiated under section 132 Act, 1987, w.e.f. 1-4-1989, Direct or books of account, other documents or any Tax Laws (Second Amendment) Act, assets requisitioned under section 132A, on or 1989, w.e.f. 1-4-1989, Finance Act, before the 31st day of March, 2021: 2001, w.e.f. 1-6-2001 and Finance Act, 2012, w.e.f. 1-7-2012, read as Provided also that for cases referred to in under: clauses (i), (iii) and (iv) of Explanation 2 to section 148, where, "*149.Time limit for notice. (1) No notice under section 148 shall be (a) a search is initiated under section 132; or issued* for the relevant assessment year,- (b) a search under section 132 for which the last of authorizations is executed, or (a) if four years have elapsed from the end of the relevant assessment year, (c) requisition is made under section 132A, unless the case falls under clause (b) or clause (c); after the 15th day of March of any financial year and the period for issue of notice under (b) if four years, but not more than six section 148 expires on the 31st day of March of years, have elapsed from the end of such financial year, a period of fifteen days the relevant assessment year unless shall be excluded for the purpose of computing the income chargeable to tax which the period of limitation as per this section and has escaped the noticeissued under section 148 in such case shall be deemed to have been issued on the 31st assessment amounts to or is likely to day of March of such financial year: amount to one lakh rupees or more for that year, Provided also that where the information as referred to in Explanation 1 to section 148 (c) if four years, but not more than emanates from a statement recorded documents sixteen years, have elapsed from the impounded under section 131 or section 133A, end of the relevant assessment year 6 as the case may be, on or before the 31st day of unless the income in relation to any March of a financial year, in consequence of,-- asset (including financial interest in or any entity) located outside India, chargeable to tax, has escaped (a) a search under section 132 which is assessment. initiated; or Explanation.- In determining income (b) a search under section 132 for which the chargeable to tax which has escaped last authorisations is executed; or of assessment for the purposes of this sub-section, the provisions of (c) a requisition made under section 132A, Explanation 2 of section 147 shall apply as they apply for the purposes after the 15th day of March of such financial of that section. year, a period of fifteen days shall be excluded for the purpose of computing the period of (2) The provisions of sub-section (1) limitation as per this section and the notice as to the issue of notice shall be issued under clause (b) of section 148A in such subject to the provisions of section case shall be deemed to have been issued on the 151. 31st day of March of such financial year: (3) If the person on whom a notice Provided also that for the purposes of under section 148 is to be served is a computing the period of limitation as per this person treated as the agent of a non- section, the time or extended time allowed to resident under section 163 and the the assessee, as per show-cause notice issued assessment, reassessment or under clause (b) of section 148A or the period recomputation to be made in during which the proceeding under section pursuance of the notice is to be made 148A is stayed by an order injunction of any on him as the agent of such non- court, shall be excluded: or resident, the notice shall not be issued after the expiry of a period of six Provided also that where immediately after the years from the end of the relevant exclusion of the period referred to in the assessment year. immediately preceding proviso, the period of limitation available to the Assessing Officer for Explanation. For the removal of passing an order under clause (d) of section doubts, it is hereby clarified that the 148A does not exceed seven days, such provisions of sub-sections (1) and (3), remaining period shall be extended to seven as amended by the Finance Act, 2012, days and the period of limitation under this sub- shall also be applicable for any section shall be deemed to be extended assessment year beginning on or accordingly. before the 1st day of April, 2012." Explanation.-For the purposes of clause (b) of *For relevant case laws, see this subsection, "asset" shall include Taxmann's Master Guide to Income- immovable property, being land or building or tax Act. both, shares and securities, loans and advances, deposits in bank account. **For the meaning of the term "issued", see Taxmann's Direct Taxes (1A) Notwithstanding anything contained in Manual, Vol. 3. sub-section (1), where the income chargeable to tax represented in the form of an asset or + For the meaning of the expressions expenditure in relation to an event or occasion "escaped assessment" and "likely to of the value referred to in clause (b) of sub- amount to one lakh rupees or more", section (1), has escaped the assessment and the see Taxmann's Direct Taxes Manual, investment in such asset or expenditure in Vol. 3 relation to such event or occasion has been made or incurred, in more than one previous to the assessment years within the 7 Shairul Impex years relevant period referred to in clause (b) of sub- section (1), a notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.'.
Referring to the aforesaid changes in section 149, it is submitted by the ld. AR that the case of assessee was reopened beyond three years and there is no income represented in the form of asset that has escaped assessment in accordance with the applicable provisions of section 149(1)(b) of the Act as per finance Act, 2021 which was later amended by Finance (No.2) Act, 2024 w.e.f. 01.09.2024. It was the submission that earlier the provisions of section 149(1)(b) were applicable only in cases wherein the ld. AO has in his possession books of accounts or other documents or evidence which reveals that the income chargeable to tax represented in the form of ‘asset’, which has escaped assessment or amounts to Rs. 50,00,000/- or more for that year. The section was amended w.e.f. 01.09.2024 adding there in the category of information in the form of “any asset or expenditure or transactions or entries”. It is submitted, that the extant provision before amendment by Finance (No.2) Act, 2024, shall apply in the present matter and accordingly it has to be proved that the information from books of accounts or other documents or evidence reveals some income escaped assessment represented in the form of ‘asset’, amounts to or is likely to amount to Rs. 50,00,000/- or more. 8
The ld. AR further submitted that the identical issue has been came up before the Hon’ble Madras High Court in the case of IDFC Ltd. vs. DCIT [2023] 155 taxmann.com 602/459 ITR 169 (Madras HC), wherein Hon’ble Court while dealing with a case pertaining to AY 2014-15, has held as under:
“54. Section 149, as it stood then, does not contemplate that the books of account/documents/evidences mus themselves represent an asset. In fact, that provision has been amended by Finance Act 2022 to include situations such as the present as well, By virtue of this amendment, Section 149 we.f. 1-4-2022 reads as follows:
"149. Time limit for notice No notice under section 148 shall be issued for the relevant assessment year.
(a) If three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) If three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of- (i) an asset (ii) expenditure in respect of a transaction or in relation to an event or occasion: or (iii) an entry or entries in the books of account which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more."”
It is further submitted by the ld. AR that the subject matter of disallowance in the present case was bogus purchase, which a profit and loss item and cannot be considered as an asset. To support this contention the ld. AR 9 Shairul Impex placed his reliance on the decision of Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd. vs. ACIT [2024] 162 taxmann.com 225 (Bom.HC), wherein on the issue of deduction under section 80JJA it was held by the Hon’ble Court that the deduction under section 80JJA cannot represent escapement of income in the form of asset, therefore the notice issued by ld. AO has been held as invalid. The relevant findings of Hon’ble Court in Hexaware Technologies Ltd. (supra) are as under:
“40. As regards issue no. 5, it is petitioner's case that the issues raised in the impugned initial notice and the impugned order pertain to correct claim of deduction/allowances or the expenditure incurred. There is also no allegation regarding income escaping tax on account of any undisclosed asset. In the impugned order, the Assessing Officer has restricted the escapement of income only with regard to Rs. 6,54,04,038/-on the claim of deduction under section 80JJAA of the Act and disallowance of excess claim of Forex loss of Rs. 6,90,80,180/-, On the Forex loss, respondent has prima facie accepted the contentions of petitioner that there was a Forex loss. Therefore, the same cannot be justified as an escapement of income. Respondent no. 1 has also accepted that the transactions of Calibre Point Business Solutions Ltd. have been duly incorporated in the accounts of petitioner and that no deduction is claimed in respect of the deduction allowed under section 10AA of the Act. None of the issues raised in the impugned order show an alleged escapement of income represented in the form of asset as required in Section 149(1)(b) of the Act.
As regards the claim of deduction under section 80JJAA of the Act, an issue of correctness of claim of deduction under Chapter VI of the Act, in our view, cannot be covered by Section 149(1)(b) of the Act.
Section 149(1)(b) of the Act prescribes that escaped home must be represented in the fonts of (7) a (1) expenditure in respect of a transaction or in relation to an event; (iii) an entry in the books of Account.
The question of a correctness of the claim of deduction under section 801JAA of the Act cannot represent escapement of income in the form of an asset. The term 'asset' is defined in Explanation to Section 147 of the Alt to include immovable property being land or building or both, shares and securities, loans and advances, deposit in bank account. The present case does not fall in any of the 10 Shairul Impex types of the assets as mentioned above. Further, the alleged claim of disallowance of deduction also can never fall under the category of either clause (b) or clause (c) as it is neither a case of expenditure in relation to an event nor a case of an entry in the books of account as no entries are passed in the books of account for claiming a deduction under the provisions of the Act. On this ground also the impugned notice will be invalid.
As regards issue no. 6, respondent no. I has no power to review his own assessment when the same information was provided and considered by him during the original assessment proceedings. We agree with petitioner that there cannot be a reopening based on a change of opinion. The claim of deduction under section 801JAA of the Act was made by petitioner in the return of income and petitioner had filed Form 10DA being the report of the Chartered Accountant. In the said Form, a note has been filed alongwith Form 10DA and it has specifically been submitted by petitioner that software development activity constitutes 'manufacture/production of article or thing'. The claim of deduction under section 80JJAA of the Act was also disclosed in the Tax Audit Report filed by petitioner alongwith the return of income. Further, during the assessment proceedings, the Assessing Officer had issued a notice dated 5th October 2017 asking for details of deduction claimed under Chapter VI of the Act. Petitioner vide a letter dated 13th November 2017 gave the details of deduction claimed under Chapter VI of the Act alongwith supporting documents. The Assessing Officer has passed the assessment order dated 30th November, 2017 allowing the claim of deduction under section 80JJAA of the Act. The claim for deduction under section 80JJAA of the Act was allowed by the Assessing Officer in the previous years as well. Hence, the present case is clearly a case of change of opinion or review of the original assessment order which is not permissible even under the new provisions.”
The ld. AR further placed his reliance on the aforesaid issue that whether suppression of income / wrong claim of disallowance will constitute an asset, Hon’ble Madras High Court in the case of IDFC Ltd. vs. DCIT (supra) has discussed his issue and held as under:
52. Additionally, the validity of the impugned proceedings have also to be tested on the anvil of the statutory condition in section 149 that the officer has in his possession, books of accounts or other documents of evidence which reveal that income chargeable to tax, represented in the form of an asset’ has escaped assessment. This additional requirement flows from the reason that the notices have been issued beyond three years from the end of the relevant assessment years. In the present case, the petitioner argues that there is no such asset
Based on aforesaid decisions, it was the submission by ld. AR that in the case of assessee in the present matter which is before the Finance Act, 2022 the alleged bogus purchase cannot constitute an asset to be treated as income that has escaped assessment, therefore the notice issued under section 148 in violation of provisions of section 149(1)(b) of the Act is liable to be quashed.
11. Per contra, the ld. Sr. DR representing the revenue submitted that the ld. AO as well as the ld. CIT(A) has rightly adjudicated the issues and have arrived at a logical conclusion based on credible information with the ld. AO, whereas the assessee was squarely failed to prove the genuineness of purchases recorded in the books, therefore the impugned decision was on a proper appreciation of the facts and cannot be held to be on surmises. It is submitted that the order of ld. CIT(A) deserves to be upheld.
We have considered the rival submissions and perused the material available on record and case laws relied upon by the parties. Admittedly, the case of assessee for AY 2014-15, falls under the pre-amended section 149(1)(b) effective from 01.04.2021, as per Finance Act, 2021. As per the provisions of sub-clause (b) of clause (1) to section 149 the reopening after three years pre- requisites escapement of income chargeable to tax represented in the form of asset which has escaped assessment and the quantum of such income escaped assessment amounts to or likely to amount to Rs. 50,00,000/- or more for that Shairul Impex year. Adverting to the facts of present case the allegation herein is regarding transaction of bogus purchases which is a revenue item in the scheme of accounting policies and practices and that cannot be treated as an asset unless such purchases create certain asset and the same is reflected in the balance-sheet of the assessee as an asset. No such allegation or inference have been drawn by the revenue in the present case. We, thus following the ratio of law laid down by Hon’ble Madras High Court in the case of IDFC Ltd. (supra) and Hon’ble Mumbai High Court in the case of Hexaware Technologies Ltd. (supra) are of the considered view that the provisions of section 149(1)(b) are not taken into cognizance while invoking the provisions of section 148 by the ld. AO. So, the contention raised by the ld. AR stands on merits, that provisions of section 149(1)(b) are not adhered to by the ld. AO, leading to violation of provisions of the act, wherein the re-assessment proceedings are initiated beyond three years and nothing can be brought on record to show that the income escaped assessment was represented in the form of an asset.
We, thus, in backdrop of aforesaid facts and circumstances are of the considered view that the pre-requisite conditions of section 149(1)(b) could not be complied by the ld. AO, while issuing the notice under section 148, such notice issued, thus, cannot be treated to be a valid notice and therefore the proceedings consequent to such notice would be also be treated as bad-in-law,
Since, we have held that the impugned notice under section 148 in the present case was an invalid notice in the eyes of law and consequential assessment is liable to be quashed, the quantum addition made in present case, therefore stands deleted. The other legal contention or controversies raised on merits are, thus, rendered as academic only, so are not adjudicated.
In result the appeal of assessee is allowed, in terms of our aforesaid observations. order pronounced in the open court on 06-03-2026.