MUKESH MANEKCHAND SHETH,RAJKOT vs. THE DCIT-ACIT, CENTRAL CIRCLE -2, RAJKOT, RAJKOT

1. [This is ground No.1 in assessee’s appeal in A.Y.2017-18, Ground No.1 in assessee’s appeal in A.Y.2018-19, Ground No.1 in assessee’s appeal A.Y. 2019-20, Ground No.1 in assessee’s appeal in A.Y. 2016-17] 2.Ground No.2.The Ld.CIT(A) erred in confirming the order of the Assessing Officer in treating Rs.9,80,00,000/-, as on-money in assessee’s hands alleged to be arising from material found from a third party and thus erred in upholding rejection of books of account u/s 145(3) of the Act, based on which the Assessing Officer treated 50% thereof being Rs.4,90,00,000/-, as estimated unaccounted profit of the assessee.

Now we shall take above, summarised and concise ground of appeals, of assessee and revenue, as follows.

The summarised and concise ground No.1, is reproduced below for ready reference. “1.Ground No.1. The Ld.CIT(A) erred in holding that proceedings u/s 148 culminating into order u/s 147 of the Act were valid and thus erred in dismissing assessee’s grounds of appeal challenging the action u/s 148 of the Act and subsequent proceedings in law.

The assessing officer noticed that Shri Girish Vanjani has categorically stated that he does the work of accounting as per the instructions of Shri Sarvanand Sonwani. Even Shri Sarvanand Sonwani has accepted (in his statements recorded u/s 131 of The Act at the residential premise of Girish Vanjani on 27.08.2021) that Shri Girish Vanjani does the work of accounting as per his instructions. A snapshot of the relevant portion of statement of Shri Sarvanand Sonwani is pasted by the assessing officer, in the assessment order, page no.3. During the course of search and seizure action at the residential premise of Shri Girish Vanjani, Pen Drives and Hard Discs were recovered. Forensic Mirror Imaging (Digital Data Backup) of these devices was taken and the same were seized. Thebackup contained key accounting files of the entire group in a systematic manner, like the accounts of (1) Sale of units (2) Cost of lands (3) Expenses incurred on various projects and other miscellaneous transactions made by R K Group members with various counter parties were maintained in accounting software known as MIRACLE. Details of sale of units maintained in various excel sheets were also found and seized from the premise of Shri GirishVanjani. From the seized miracle files, details of the flats purchased by Shri Sarvanand Sonwani and his family members in the project Silver Heights were found. As per these details, the Sonwani family members have paid in aggregate Rs. 22,81,00,000/- in cash to the Assessee, Shri Mukesh M Sheth (a proprietor of the firm namely “M/s. Silver Heights”). As details regarding unaccounted part of the aforementioned transactions pertaining to the assessee have been gathered from the seized material during the search operation, a notice under section 148 of the Act, has been issued on 23-02-2023, to the assessee. In response to the notice issued under section 148 of the Act, the assessee has filed an Income tax return on 27-02-2023, declaring total income of Rs. 28,39,970/-. Subsequently, a notice -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth u/s 143(2) of the Income-tax Act, has been issued on the e-filing portal of the Assessee. Subsequently, notices u/s 142(1) have been issued from time to time seeking primary as well as further details from the assessee for carrying out the assessment. In view of natural justice, the objections raised by the assessee against initiation of proceedings u/s 148 of the Act, have been disposed of and the images of original seized material pertaining to the assessee have been supplied and discussed in the notices issued u/s 142(1) of the Act from time to time.

The assessing officer observed from the seized miracle files, details of the flats purchased by Shri Sarvanand Sonwani and his family members in the project Silver Heights. The names of the ledgers are ‘SH MM’ and ‘Silver Hight Flats’. The extracted contents of both the ledgers are pastedby the assessing officer in the assessment order. The ledgers, ‘SH’ is ‘Silver Heights’. ‘MM’ and ‘MUKESH BHAI’ is Mukesh M Sheth, the assessee who is the developer of the project Silver Heights. During the course of assessment proceedings, the Assessing Officer issued a show-cause notice to the assessee to explain the transaction contained in the seized materials.

In response, to the show cause notice of the assessing officer, the assessee submitted a detailed reply before the assessing officer along with documentary evidences. In his reply, the assessee submitted before the assessing officer that reopening of the assessment is itself bad in law, and the provisions of Section 148, 148A, 149 of the Act, have not been complied, before initiation of impugned re-assessment proceedings.It was submitted that the allegation in the entire Annexure (Reason) is that of unaccounted receipts by assessee from booking / sale of units in the project "Silver Heights". However, while justifying the reopening of case under the prescribed time-limit u/s 149 of the Act, it was alleged that income chargeable to tax in assessee`s case is represented in the form -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth of assets / expenditure. Therefore, there is clear contradiction between the allegation raised on the basis of so-called documents/data seized from the premises of third party and averment made in justification of compliance with the provision of Section 149(1)(b) of the Act. It was submitted that provisions of section 149(1)(b) of the Act, empowers an authority to issue notice u/s 148 of the Act, if the alleged income is represented by any asset or expenditure. It is apparent on the face of the show-cause notice(SCN), however, assessing officer is not certain, as to whether in assessee`s case, the alleged escaped income is represented by asset or expenditure, both these phrases have been issued in the show- cause notice (SCN). The reason and the belief as also the information leading to allegation of escapement of income must be clear and explicit at the initial stage itself prior to recording of the reasons and then issue of notice pursuant to the reasons. The SCN having used both the phrases at a time, it suffers from vagueness and demonstrates absence of initial judgment itself, as to whether the information represents assessee`s asset or expenditure. As a result, the notice becomes bad in law and assessment order deserves to be quashed.The exercise of jurisdiction u/s the new sections 147 and 148 of the Act, is not meant to determine during reassessment, as to whether an item represents an asset or an expenditure or whether it exceeds the threshold of Rs. 50 lakhs. The said exercise is required to be carried out prior to or at the time of recording the satisfaction and the reasons and while obtaining the requisite approvals of higher authorities. Obviously, this has not been done and hence the notice suffers from an inherent jurisdictional lack of power.

The assessee also submitted before the assessing officer that in the instant case, no 'asset' or 'expenditure' is identified in the entire Annexure (Reason) and hence, reopening of the case beyond the prescribed time-limit is patently illegal. The clause no. (b) of section 149(1) requires that the income chargeable to tax should be represented in the form of (i) an asset, (i) expenditure in respect of a -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth transaction or in relation to an event or occasion; or (ii) an entry or entries in the books of account. The reasons provided for issue of notice u/s. 148 of the Act bears a solitary allegation of receipt of on money, but the money has not been quantified in the reasons recorded. However, its representation in the form of an asset or an expenditure or an entry in the books of account is nowhere recorded in the reason for reopening. Hence, the notices u/s 148 of the Act issued by the assessing officer, does not sustain in the eyes of law and hence, the consequential proceedings too, become bad in law.

The assessee also submitted before the assessing officer that inthe para No.2 of the show cause notice(SCN) has stated that although there is no search action carried out in the case of the assessee (that is, assessee`s, notice can be issued u/s. 148 of the Act under clause (iv) of Explanation 2 to Section 148 of the Act. In this connection, it was submitted that copies of documents / data said to have been seized from the premise of Shri Girish Vanjani provided to the assessee (two ledger accounts) do not pertain to assessee and also, the information contained therein does not relate to assessee. It was submitted that nowhere in the impugned documents/data, it is specifically stated that the alleged cash has been paid to the assessee or that the entries in such seized data are related to purchase of residential units from the assessee. Therefore, merely on the basis of name "MM", "Silver Heights", "Mukeshbhai" etc. resembling with the name of the assessee, it cannot be presumed that such transactions are carried out with the assessee, much less the allegation of on money paid.In the show cause notice dated 13.03.2023, it is mentioned that the reopening proceedings are made as per clause (iv) of Explanation 2 to Section 148 of the Act, this, is in stark contradiction to the reasons mentioned in the very notice issued u/s. 148 dated 23.02.2023. In the said notice issued u/s 148 of the Act on 23.02.2023, it is mentioned that assessment is reopened on account of search initiated u/s 132 of the Act, in assessee`s case or in the case of the person in respect of which -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth assessee is assessable under the Act. This means that while reopening the proceedings, assessee had formed an opinion and a belief that, either search has been carried out in assessee`s case or that assessee`s representative or any other search person (In this case of R K Group). Thus, the very initiation of the reassessment proceedings is on a completely incorrect factual premises or belief and it is strongly objected to. Therefore, on this ground also, initiation of proceeding u/s. 147 of the Act is incurably and defective. In para-3 of SCN, it is stated that the provision of Section 149(1)(b) has been followed by taking approval from the specified authority. However, as submitted above, there is no mention of asset or expenditure represented by the alleged-escaped income and hence, the notice issued u/s. 148 of the Act is barred by the limitation period of time prescribed u/s. 149 of the Act.In view of the above, it was submitted that proceedings initiated u/s147 of the Act are wholly and ipso facto invalid and hence, reassessment proceedings may be quashed.

On merit, the assessee submitted before the assessing officer that sale of units made to the members of Sonwani Family is at the value, which is far higher (almost 1.50 to 2 times) than the valuation prescribed by State Government for levy of stamp duty, that is, Jantri Value / Circle Rate. In the seven units sold to the members of Sonwani family in FY 2018-19 and 2019-20, total sale consideration realized is Rs. 11,55,00,000/-, whereas, stamp duty valuation of such units is Rs. 7,34,65,350/-.Therefore, the sales declared by the assessee is higher than the stamp duty valuation by Rs. 4,20,34,650/- (Rs. 11,55,00,000- Rs. 7,34,65,350)that is, 57% higher. This also shows that there is no scope of alleged on-money receipts and hence, all the allegations in the impugned SCN are merely on the basis of assumptions and presumptions. It may be appreciated that even u/s 43CA of the Act, the stamp duty value is accepted as fair value for determination of business profits on transfer of stock-in-trade. In assessee`s case, the consideration received and disclosed is higher than the section 43CA- -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth prescribed value and there is therefore no warrant to hold that assessee charged more than the documented consideration amount. This aspect cannot be lost sight of.Furthermore, it was also submitted that even if for example, allegation of unaccounted receipts of Rs. 22,81,00,000/-, on sale of seven residential units would be considered then total receipts by the assessee on sale of seven units will work out at Rs. 34,36,00,000/- (11,55,00,000+ 22,81,00,000). Total carpet area of each residential unit is 334.77 Square Meters, which is equivalent to 3600 Square Feet and hence, carpet area of seven units works out at 25,200 Square Feet. On this basis, rate per square feet would be of Rs. 13,635/- per square feet, which is totally absurd, unreasonable and not at par with the prevailing rate. Therefore, there is no matching or correlation in the seized documents / data with the prevailing jantri /market rate and hence, cognizance taken on such data is misplaced.

On merit, the assessee also submitted that the regular assessment proceedings for assessment years, 2017-18 and 2018-19 have been completed u/s 143(3) of the Act and the jurisdictional assessing officers after thorough verification of the books of account and relevant supporting documents have accepted the book results. Also, statutory audit by the officers of service-tax department have also been undertaken for the period April 2013 to March 2017, wherein, books of account of the assessee have been accepted. Therefore, proposal to reject book results by invoking the provisions of section 145(3) of the Act and to estimate the profit on the alleged unaccounted receipts solely on the basis of third party data / documents would be completely unjustified.

On merit, the assessee also submitted before the assessing officer thatthere is neither any evidence found at all from premises of RK Group nor any statement from it showing and stating that assessee had received on-money for sale of impugned apartments, there is no such acknowledgement/signature/even an indication from assessee or document showing as much. What may have been written by a third party is its own version and reason and hence does not inferentially too, pertain to assessee. The seized material does not belong to the assessee, and for that purpose, assessee submitted following arguments:

However, assessing officer rejected the above contention of the assessee and observed that profit element embedded in the entire set of various kinds of unaccounted transactions that came to surface from the seized Miracle data, should be added in the hands of the assessee. The assessing officer noted that the seized digital data in the form of accounting entries on Miracle file is accurate, reliable and self-explanatory. Further, there is also no doubt thatthe accounts of the assessee where all the transactions are not reflected cannot be relied upon as they present incomplete and incorrect state of affairs of business of the assessee and requires to be disregarded invoking the provisions of section 145(3) of the Act. Accordingly, provisions of section 145(3) of the Act,were invoked by the assessing officer and the assessment of total income of the assessee was being estimated after taking into account all relevant material gathered during the search and the assessment proceedings.While estimating the profit, the assessing officer noticed that details of receipts and payments were recovered from the seized data, and it was noticed that the net surplus funds available with these projects were ranged from -237% to 51%. The reason for this vast gap between the upper and lower ends of this net surplus range was primarily attributable to the stage in which a particular project has reached since its inception. For example, if any project is just launched then its % of net surplus funds would be lower because most of the funds are spent / applied on inventories and the inflow of on-money has not started in full pace. Due to combined effect of these two aspects, the availability of surplus funds remains either on lower side or sometime in negative state. Thus, it is understood that taking reference from the net surplus / unaccounted profit of such ‘just launched’ project would not give true picture of the potential profitability of such projects. In order to estimate a reasonable rate of profit, it is taken that only those projects for which sufficient data is available from the seized material should be relied upon. At the same time, it is also ensured that the projects that almost reached its final stage (with -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth respect to construction activity and receipt of on-money both) should only be taken as reference for adoption of an appropriate rate of profit. After considering all the above aspects, the reasonable rates of profits have been arrived in a range of 35% to 45% for different category of projects i.e. Commercial and Residential respectively. The assessee relates to the same group of searched people / entities which were covered in a same search operation. Therefore, applying the rule of similarity the same rates of profits can be adopted across all the projects the data of which has been recovered from the same search operation.Moreover, in respect of the project under consideration, the material gathered during search operation indicated on-money receipts only. Under these circumstances, it would not be fair if the same benchmark rates adopted for other projects where receipts and payment both kinds of transactions are available are also applied to the project where only on-money receipts are available. At the same time, considering that the assessee is also in the same line of business with the same group of persons, the possibility of having incurred unaccounted expenses cannot be ruled out completely (No data is recovered during search does not necessarily mean no unaccounted expenses incurred).Further, various judgments discussed by the assessing officer, in the assessment order endorse the same preposition that only profit embedded in the gross unaccounted receipts should be taxed and not the entire unaccounted receipts. Apart from this, it is also necessary to keep in mind violation of various other provisions of the law which are in place to discourage the practice of indulging in such unaccounted transactions. Having said that and considering the facts of the present case and binding judicial presidents, if all the expenses / payments are disallowed than the ratio laid down by the various High Courts, regarding not taxing all the receipts would remain in papers only. Thus, with a view to strike a proper balance between the factual vis- à-vis the legal aspects it is decided to further enhance the average net profit rate to 50%.Accordingly, the net unaccounted profit for this particular project wasestimated at the rate of 50%. As far as the profit for the year under -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth consideration is concerned, the same was computed by assessing officer, as under:

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has reduced the estimated profit from 50% to 18% of on money receipts. The Ld.CIT(A) also rejected the assessee’s technical ground for challenging the re-opening of the assessment u/s.147/148 of the Act. During the appellate proceedings, the assessee submitted that notice issued u/s 148 of the Act is not clear about the initiation of reassessment proceedings as a result of search initiated in the case of the assessee or the search initiated in the case of the third party and the procedure laid down in section 148A of the Act has not been followed. However, learned CIT(A) observed thatin the new regime/scheme of search assessment, the proceedings for search assessment of search party as well as third party are made u/s.147 of the Act, unlike in the earlier/old scheme of search assessment wherein the search assessment of searched party was made u/s.153A of the Act, whereas the assessment of third party was made u/s.153C of the Act. Since in the present reassessment proceedings both of the searched party, as well as third party -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth assessments are covered, and it was observed that the initiation of reassessment proceedings in the present case is valid in law. While passing the assessment order, the assessing officer has also observed that search was carried at the assessee's premises on 24-08-2021 and pursuant to the search, notice under Section 148 of the Act was issued in case of assessee. As search was carried out in the case of assessee after 01-04-2021 wherein provisions of Section 148 were amended and provides deemed satisfaction for three assessment years prior to the date of search and even on this ground, the assessing officer has validly issued notice under Section 148 of the Act. Therefore, this argument raised by the assessee was rejected by the learned, CIT(A).

The ld CIT(A), on merit, noted that when data are found from the premises of accountant, such data cannot be ignored simply stating that it was found from third party or such accountant had filed affidavit stating that he does not know anything about the correctness and authenticity of the data. Thus, the argument of the assessee was rejected. About the opportunity of cross examination, the ld CIT(A) noticed that assessee has claimed that the assessing officer has failed to provide opportunity to cross examine Shri Girish Vanjani to derive the truth about correctness of the data, however, the ld CIT(A) observed that the addition made by the assessing officer is not only based upon any statement of Shri Girish Vanjani but data found during the course of search revealed unaccounted activities carried out by RK group and its associates. The assessee has failed to rebut the contention of the assessing officer regarding corroboration of seized data with actual data. It is not the case that the assessing officer is relying upon altogether third-party statement which is unconnected with assessee group. Therefore, ld. CIT( A) stated that it was not necessary to provide the opportunity of cross- examination and therefore this contention of the assessee was also rejected by the ld. CIT(A).

Aggrieved by the order of the Ld.CIT(A), the Assessee, as well as,Revenue both are in appeal before us. The assessee is in appeal before us stating that the addition sustained by the Ld.CIT(A) @ 18%, on account of ‘on money’ may be deleted. However, the Revenue is in cross appeal before us stating that the addition made by the assessing officer, on estimated basis, at the rate of @50% of the ‘on money’ should be upheld.

Shri D.M Rindani, Learned Counsel for the assessee, submitted that the notice issued u/s.148 of the Act, is not valid and the satisfaction note prepared by the assessing officeralso does not bare the “Assessment Year ”. Therefore, it is a complete non-application of mind, on the part of the revenue authorities to initiate the re-assessment proceedings. The Ld. Counsel for the assessee, took us through the assessee`s paper book, page no.12 and stated that approval of satisfaction note in the case of the assessee, which is at paper book page no.12 does not contain the term “Assessment year” that is, it is not clear that for which assessment year, the satisfaction note was being prepared by the assessing officer. The Ld.Counsel also took us through the paper book at page -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth no.13,wherein the approval was given by ld. PCIT and on that approval,the “Assessment Year” is missing. Therefore, the Ld.Counsel contended that when the assessment year is not mentioned in the primary documents then that documentsare defective in the sense that for which ‘assessment year’the approval is being granted and therefore approval is in mechanical manner. Hence, reassessment proceedings may be quash on this score only.

The Ld.Counsel for the assessee referring to the above notice u/s.148 of the Act, stated that in the notice u/s.148 of the Act, it is mentioned that “search was initiated u/s.132 of the Act in your Case” , however, real fact is that search was not initiated in assessee’s case. In fact, a search and seizure action was carried out by the office of DDIT (Investigation), Rajkot, in the case of leading real estate builders of Rajkot and their associates on 24.08. 2021. Therefore, the actual date of search was 24.08.2021, whereas the date is mentioned in the notice under section 148 of the Act, is as on 22.10.2021, which is wrong, therefore, the notice issued u/s.148 is defective.

The Ld. Counsel further contended that the procedure mentioned in section 147, 148(A) and 149 of the Act, were not followed by the assessing officer as these sections were amended with effect from 01.04.2021,and the procedure laid down in these sectionswere not followed by the assessing officer, hence -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth reassessment proceedings are not valid. The Ld.Counsel also stated that the time limit, which is mentioned in section 149(1)(b) of the Act, to re-open the assessment, andthe quantum of addition in the assessee’s case is less than Rs.50/- lakhs, therefore, assessing officer cannot reopen the assessment. The Ld.Counsel also stated that the transaction stated in the seized documents are not reflecting in the books of accounts of the assessee. Moreover, there is no quantum mentioned in the seized documents and therefore, in the seized documents, the quantum addition is less than Rs.50/- lakh, which does not give jurisdiction to the assessing officer to reopen the assessment.Therefore, the show-cause notice u/s.148 of the Income-tax Act 1961 is itself defective therefore on this technical ground, the assessee’s appeal may be allowed and revenue`s appeal may be dismissed.

On merit, the Ld.Counsel for the assessee submitted that assessee has sold seven residential flats vide paper book at page no.57 and these are personal and individual capacity. The Ld.Counsel for the assessee, took us through the paper book at page no.63 and 64, which are the seized documents, and stated that in the seized documents theabbreviation “SH” and “MM” are written and this abbreviation does not relate to the assessee. Even in these seized documents there is no signature of the assessee, no name of payer is mentioned in the heading of the documents. Neither the Assessee’s name nor the co-relation of amount given in the books of accounts were found and seized and these documents are not in the handwriting of the assessee. The Ld.Counsel also submitted that abbreviation “SH” and “MM” was not confirmed by the buyer and no PAN was given in the seized documents. However, statement of person were relied on by the assessing officer but after 3 days an affidavit was filed which is placed on paper book 118. In the said affidavit, the assessee has stated as follows:

That name and nomenclature of the different ledger accounts, group etc. in the digital data cannot be matched or reconciled with the actual name and the figures under various transactions are also not comparable, correlated with actual transaction that has taken place. Therefore, there are all possibility that merely on the basis of face-value of the transactions some presumption or guess work may be made, however, such presumption or estimate would lead to unnecessary hardship to the assessee and third parties as the intrinsic nature of the transaction remained unidentified. The digital data found in miracle software is not genuine and not correct, therefore by this affidavit I clarify that no reliance should be made on the digital data which has no authenticity.”

The Ld. Counsel for the assessee, alternatively submitted that the 18% profit margin re-estimated by the Ld.CIT(A), is too high, because assessee has shown sale value higher than the stamp duty valuation authority, therefore, higher amount has been shown suo-moto, therefore, the percentage of profit is very higher side, which should be reduced to a reasonable extent.

On the other hand, the Ld.DR for the Revenue submitted that the letter of approval for issue of notice u/s.148 of the Act, which is written by DGIT (Investigation) to the PCIT -(Central Circle), contains the term “Assessment Year” which is placed at paper book page no.15. The letter address by the ITO on behalf of the PCIT, dated 07.02.2023 also contains the term “Assessment Year” however, the primary document do not contain the term “Assessment Year”, therefore, it does not invalidate the re-assessment proceedings. The Ld.DR also submitted that the procedure followed in issuing notice u/s.148 of the Act and the satisfaction recorded by the assessing officer are valid in the eye of law. The Ld.DR also submitted that as per the provisions of section 149(1)(b) of the Act, the total asset can be computed based on the cash on hand and based on “on money” mentioned in the seized documents, however, assessing officer -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth forgot to state in the notice, and for this small mistake committed by the assessing officer, the reassessment proceedings should not be treated invalid.

In re-joinder, the Ld.Counsel for the assessee submitted that ICDS are not applicable to the real- estate developers and the entry made in the computer by third party could not be relied onand the total asset found during the search and seizure proceedings do not exceeds to Rs.50lakhs. Moreover, the notice u/s.148 was itself wrong, that is, in issuing notice u/s.148, as well as in satisfaction note/ approval note, there is a complete non- application of mind by the assessing officer, as no any figure, in amount, is stated in the notice under section 148 of the Act and no any figure stated in the approval given by the higher authorities. That is, how much amount has escaped assessment should be necessarily stated in the reasons recorded by the assessing officer and notice under section 148 of the Act and also in the approval note of the higher authorities, therefore, it is a complete non-application of mind by the lower authorities as well as higher authorities of the Income Tax Department.

We have also gone through the annexure of the letter, “Approval of the Specified Authority”, that is, approval given by Principal Commissioner of Income Tax ( Ld.PCIT), vide paper book at page no.13, of the assessee, wherein the approval was given by ld. PCIT and on that approval, the “Assessment Year” is missing. Therefore, when the “assessment year” is not mentioned, then, the primary documentsof the Revenue, are defective in the sense that the approval is being granted in mechanical manner. That is, for which assessment year, the proceedings are initiated against the assessee, should be a mandatory requirement, to mention in the notice, which the revenue authorities have failed to do so.Hence, reassessment proceedings needs to be quashed.

Now coming to the notice under section 148 of the Income Tax Act 1961, we find that it contains the serious mistake, on the part of the revenue authorities, which is placed at paper book page no. 17 of the assessee`s paper book, and the same is reproduced below:

Now coming to the procedure to be followed by the assessing officer under section 148A of the Act. We note that before us, assessee has submitted following documents and evidences relating to reassessment proceedings, which are reproduced below:

In the context of the above provisions of section 149(1)(b) of the Act vis-a- visnotice u/s 148 of the Act, it was submitted by ld Counsel that provisions of section 149(1)(b) of the Act, empowers an authority to issue notice u/s 148 of the Act, if the alleged income is represented by any asset or expenditure. It is apparent on the face of the show-cause notice( in brief “SCN”), that assessing officer is not certain, as to whether in assessee`s case, the alleged escaped income is represented by asset or expenditure, both these phrases have been issued in the -547, 581, 723-724/Rjt/2024 A.Ys16-17 to 19-20 Mukesh M.Sheth SCN. The reason and the belief as also the information leading to allegation of escapement of income must be clear and explicit at the initial stage itself prior to recording of the reasons and then issue of notice pursuant to the reasons. The show cause notice(SCN) having used both the phrases at a time, it suffers from vagueness and demonstrates absence of initial judgment itself, as to whether the information represents assessee`s asset or expenditure. As a result, the notice becomes bad in law and assessment order deserves to be quashed.The exercise of jurisdiction u/s the new sections 147 and 148 of the Act, is not meant to determine during reassessment, as to whether an item represents an asset or an expenditure or whether it exceeds the threshold of Rs. 50 lakhs. The said exercise is required to be carried out prior to or at the time of recording the satisfaction and the reasons and while obtaining the requisite approvals of higher authorities. Obviously, this has not been done and hence the notice suffers from an inherent jurisdictional lack of power. The assessee submitted before the assessing officer that in the assessee`s case, no 'asset' or 'expenditure' is identified in the entire Annexure (Reason) and hence, reopening of the case beyond the prescribed time-limit is patently illegal. The clause no. (b) of section 149(1) requires that the income chargeable to tax should be 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. The reasons provided for issue of notice u/s 148 of the Act, bears a solitary allegation of receipt of ‘on money’, but the money has not been quantified in the reasons recorded. However, its representation in the form of an asset or anexpenditure or an entry in the books of account is nowhere recorded in the reason for reopening. Hence, the notices u/s 148 (especially for assessment year 2016-17, 2017-18 and 2018-19) of the Act, which are issued without fulfilling the conditions of section 149(1)(b) of the Act, do not sustain in the eyes of law and hence, the consequential proceedings too, become bad in law.

In the above show cause notice dated 13.03.2023, it is mentioned that the reopening proceedings are made as per clause (iv) of Explanation 2 to Section 148 of the Act, this, is in stark contradiction to the reasons mentioned in the very notice issued u/s. 148 of the Act, dated 23.02.2023. In the said notice issued u/s 148 of the Act, on 23.02.2023, it is mentioned that assessment is reopened “on account of search initiated u/s 132 of the Act, in your case or in the case of the person in respect of which youare assessable under the Act”( vide para 37 of this order). This means that while reopening the proceedings, assessing officer had formed an opinion and a belief that, either search has been carried out in assessee`s case or that assessee`s representative of any other search person (In this case of R K Group). Thus, the very initiation of the reassessment proceedings is on a completely incorrect factual premises or belief and it was strongly objected by the assessee during the assessment proceedings. Therefore, on this ground also, initiation of proceeding u/s. 147 of the Act is incurably and defective.

We find that in para-3 of SCN( reproduced above), it is stated that the provision of Section 149(1)(b) has been followed by taking approval from the specified authority. However, as stated above, there is no mention of asset or expenditure represented by the alleged-escaped income and hence, the notice issued u/s. 148 of the Act is barred by the limitation period of time prescribed u/s. 149 of the Act.In view of the above, the proceedings initiated u/s147 of the Act are wholly and ipso facto invalid and hence, reassessment proceedings are hereby quashed.

In the result, the following grounds in various appeals are allowed:

In view of the reasons set out above, as also bearing in mind entirety of the case, we are of the considered view that the reasons recorded by the Assessing Officer, approval of satisfaction note, notice under section 148 of the Act, and procedures under section148A and 149(1) (b) of the Act, were defective and not followed by the assessing officer, as per the provisions of the Act, and non- application of mind by the assessing officer in not quoting the ‘assessment year’ etc, as set out earlier, and the reasons recorded were not sufficient reasons for reopening the assessment proceedings. We, therefore, 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, therefore, we do not adjudicate the other grounds raised by the assessee and raised by the revenue in its cross appeals and arguments, advanced by ld. Counsel for the assessee on merit, and arguments of ld. DR for the revenue on merit. Since the reassessment proceeding, itself is quashed,therefore, both appeals filed by the Revenue,( in and 724), are also dismissed.

In the combined result, all assessee`s appeals ( In No.545/Rjt/24, ITA No.581/Rjt/2024), are allowed, whereas revenue`s appeals ( In and 724/RJT/2024), are dismissed.