MISRILALL JAIN & SONS,SINGHBHUM WEST vs ACIT, CENTRAL CIRCLE-1, RANCHI

Income Tax Appellate Tribunal, BENCH-RANCHI

Before: Shri Sonjoy Sarma & Shri Ratnesh Nandan Sahay

order

: January 21, 2026 ORDER

Per Sonjoy Sarma, Judicial Member:

1. This appeal filed by the assessee is directed against the order of the CIT(A)-3, Patna (hereinafter referred to as “CIT(A)”) dated 30.07.2025 passed under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Brief facts of the case are that the assessee filed its original return of income for the assessment year 2017–18 declaring total income of ₹1,32,63,010. The said return was treated as invalid by the Department on the ground that it could not be verified within the prescribed time. Thereafter, proceedings under section 148 were initiated and notice dated 30.06.2021 was issued alleging that income of ₹1,32,63,010 had escaped assessment. In response, the assessee filed its return of income declaring the same income of ₹1,32,63,010. Subsequently, pursuant to the decision of the Hon’ble Supreme Court in Union of India v. Ashish Misrilall Jain & Sons Agarwal and CBDT Instructions dated 11.05.2022, notice under section 148A(b) was issued to the assessee. In response, the assessee submitted that the alleged escaped income of ₹1,32,63,010 had already been disclosed in the return filed in response to notice under section 148 of the act and, therefore, there was no further escapement of income. The Assessing Officer rejected the assessee’s explanation and passed an order under section 148A(d) holding it to be a fit case for reopening. Consequently, another notice under section 148 dated 21.07.2022 was issued. In response, the assessee again filed its return declaring total income of ₹1,32,63,010, which was accepted as returned income. However, while completing the reassessment, the Assessing Officer proceeded to make further additions and assessed ₹4,75,23,253 as interest income from other sources, and ₹3,42,60,244 by disallowing business expenses, over and above the returned income.

Aggrieved by the order of the Ld. CIT(A) assessee went in appeal before the Ld. CIT(A) where Ld. CIT(A) upheld the addition of ₹4,75,23,253 treating interest income as income from other sources, and the disallowance of expenses of ₹3,42,60,244, granting only an ad hoc relief of ₹10,00,000.

Aggrieved, the assessee is in appeal before the Tribunal. At the time of the hearing the Ld. Counsel for the assessee submitted that the alleged escaped income of ₹1,32,63,010 was already disclosed by the assessee in the return filed in response to notice under section 148 of the Act and the same was accepted. Therefore, no further additions could be made beyond the income forming part of the reasons recorded, and the reassessment order making additions over and above the returned income is bad in law. Besides that the interest income of ₹4,75,23,253 arose from fixed deposits maintained as security with Misrilall Jain & Sons Government departments such as Forest Department, Pollution Control Board and mining authorities for obtaining and renewing mining licences and contracts. No fresh deposits were made during the year. In earlier assessment years, particularly AYs 2008–09, 2010–11 and 2012–13, identical interest income was consistently assessed as business income in orders passed under section 143(3) of the Act and applying the principle of consistency, the interest income cannot be treated as income from other sources. With regard to the disallowance of expenses of ₹3,42,60,244, it was submitted that due to disputes among partners and attachment of the firm’s bank accounts by the Income Tax Department for earlier year demands, the firm was not in a position to make payments. Consequently, the partners incurred expenses on behalf of the firm to protect its business and assets, which were reimbursed in subsequent years. Affidavits of the partners were filed to substantiate that the expenses were genuine business expenses incurred wholly and exclusively for the purpose of business. The ld. AR further submitted the following written submissions:

“That the assessee filed its original return on 28/03/2018 declaring a total income of Rs. 1,32,63,010/-, however the same was treated as invalid by CPC since it could not be verified within the due date.

2. That thereafter proceedings U/s 148 was initiated vide notice dated 30/06/2021 alleging that since the ITR filed by the assessee has been treated as invalid, the income to the tune of Rs. 1,32,63,010/- (originally disclosed by the assessee) has escaped assessment. The assessee in response to the said 148 notice dated 30/06/2021, filed the return on 05/10/2021 declaring the same income of Rs. 1,32,63,010/- which was treated as valid. However subsequent to the decision of Hon’ble Apex court in case of UoI Vs Ashish Agarwal and the guidelines issued by CBDT dated 11th May’2022, a fresh show cause notice was issued to the assessee on 30th May’2022 alleging the same escapement. (Copy of the said notice is attached herewith at Page 06 – 07) 3. That in response to the said show cause notice dated 30th May’2022, the assessee filed its reply stating that the alleged escaped amount of Rs. 1,32,63,010/- has already been declared as income by the assessee in its return filed on 05/10/2021 in response to the notice U/s 148 and as such, there stands no further escapement of income. The assessing officer rejected this claim of the assessee stating that the notice U/s 148 issued on 30/06/2021 has lost its standing in view of the decision of Hon’ble Apex Court, thus the return filed in response to the same could also not be held as valid.

Misrilall Jain & Sons

4. That rejecting the claim of the assessee, the assessing officer passed an order U/s 148A(d) dated 20/07/2022 holding that the income to the tune of Rs. 1,32,63,010/- has escaped assessment and as such, it is a fit case for reopening the assessment U/s 148. The copy of the said order is attached herewith at Page 08 – 10. That subsequently a notice U/s 148 was also issued on 21/07/2022 copy of which is attached at Page 11. (The validity of the notice issued manually without a DIN and not in compliance with CBDT circular dated 14/08/2019 is also disputed to the extent that the reasons recorded and approval for such manual notice is not placed on record.) 5. That in response to the 148 notice dated 21/07/2022, the assessee again filed its return on 08/08/2022 declaring a total income of Rs. 1,32,63,010/- copy of which is attached herewith at Page 12. The said return was duly accepted by the department. 6. That the 1st legal issue which we intend to challenge is the validity of the assessment order which has been passed by the assessing officer going beyond its jurisdiction. As per the show cause notice and the order passed U/s 148A(d) dated 20/07/2022, income to the tune of Rs. 1,32,63,010/- had escaped assessment and that this amount was duly declared by the assessee in the return filed in response to the notice issued U/s 148. As seen from the assessment order, the assessing officer accepting the same has stated its assessment over and above the income declared by the assessee wondering on those issues which do not form part of the show cause notice and the order passed U/s 148A(d). 7. That the action of assessing officer in taxing the Fixed Deposit interest income as income from other sources instead of Business income and disallowing the various expenses claimed was beyond its jurisdiction and as such, no interference could have been made on the issue which do not form part of the order passed U/s 148A(d). Reliance is placed upon the following decisions to state that the order of assessment passed on the issues not covered in the show cause notice U/s 148A(b) and order U/s 148A(d) is bad in law:- a) Independent News Service (P.) Ltd. vs. Assessing Officer [2025] 176 taxmann.com 245 (Delhi)[02-07-2025] – The Hon’ble High Court has held as under:- (Copy of the order is attached herewith at Page 13 – 15) 6. It is noted that the notice dated 26.03.2024 issued under Section 148A(b) of the Act did not contain any allegation regarding income amounting to Rs.11,37,67,029/- escaping assessment. The only information which, according to the AO, suggested that the petitioner's income for AY 2017-18 has escaped assessment was information to the effect that the Assessee had made foreign remittances amounting to Rs.6,50,84,454/-. It is apparent that the impugned order has thus, travelled beyond the scope of the notice under Section 148A(b) of the Act. 7. In view of the above, we are of the view that the impugned order cannot be sustained. It is also clear that there is also a question as to the credibility of the information as set out in the notice issued under Section 148A(b) of the Act considering that the petitioner has obtained confirmation from the J&K Bank regarding the remittances made by it. However, in our view, the impugned order cannot be sustained on the ground that it travels beyond the scope of the notice issued under Section 148A(b) of the Act. It is thus not necessary to examine the other issues as raised in the present petition.

Misrilall Jain & Sons

In view of the above, we set aside the impugned order.

9. We clarify that in the event that the AO has any credible information which suggests that the petitioner's income has escaped assessment for the relevant assessment year, the AO is not precluded from issuing a fresh notice albeit in accordance with law.

10. The petition is disposed of in the aforesaid terms. Pending application shall also stand disposed of.

b) Annam Rajasekher Bindu vs. Income-tax Officer [2024] 158 taxmann.com 406 (Madras)[04-01-2024] – The Hon’ble High Court has held as under:- 11. As regards the first finding, the show cause notice did not contain any reference to the difference between the guideline value and the sale consideration and call for an explanation. Instead, skeletal information regarding the purchase of the relevant immovable property was provided under the first two entries. On this basis, it cannot reasonably be expected of the noticee to provide an explanation with regard to the difference. While the impugned order refers to the lack of documentary evidence with regard to the gifts received from the petitioner's mother, although necessary information was provided by the petitioner, there is no discussion or evidence of consideration of the income tax returns of the petitioner's mother so as to test the veracity of the petitioner's explanation. Moreover, the explanation provided by the petitioner with regard to the receipt of a home loan of Rs. 93,75,000/- from Sundaram BNP Paribas, which formed the alleged principal source for the purchase, has not been dealt with in the impugned order. Unless an assessee's response to the show cause notice is duly considered before a decision is taken to issue notice under section 148, the statutory mandate of a prior show cause notice would be reduced to an empty formality. Therefore, I am of the view that the impugned order calls for interference and the said order is hereby quashed. Consequently, the matter is remanded on terms set out below.

12. Because the impugned order raised an issue not previously raised in the show cause notice, it becomes necessary for the respondents to issue a fresh show cause notice calling for an explanation with regard to all issues that warrant issuance of a notice under Section 148 of the Income Tax Act. After providing a reasonable opportunity to the petitioner to respond to such notice, the first respondent is directed to issue a fresh order under section 148A(b) of the Income- tax Act. The above process shall be concluded within a maximum period of three months from the date of receipt of a copy of this order. The petitioner is directed to extend full co-operation to ensure that the above exercise is completed within the time specified.

9. That from the above case laws, it can be concluded that the law is well settled to the extent that no adverse finding can be drawn on any issue until and unless a show cause notice is issued to the assessee in terms of section 148A(b). In this case of the assessee, the show cause notice and the order U/s 148A(d) only talked about escapement of income to the tune of Rs. 1,32,63,010/- which has already been disclosed by the assessee in the revised return and that the same has Misrilall Jain & Sons been accepted. The assessing officer starts its assessment over and above the income disclosed by the assessee and that being the case, since there was no other issue of escapement of income over and above this amount of Rs. 1,32,63,010/-, the additions made by the assessing officer and confirmed by Ld CIT(A) is arbitrary, bad in law and should be deleted.

10.

That with respect to the action of assessing officer in taxing the interest income of Rs. 4,75,23,253/- we would like to submit that the same in regular course is computed as business income of the assessee, however the Ld AO during the year has considered the same as income from other sources to be taxed at the normal slab rate without any deductions. (This issue is identical as that argued and discussed in AY 2014-15).

11.

That with respect to the disallowance of expenses of Rs. 3,42,60,244/- made by the Ld AO and confirmed by CIT(A) after allowing ad-hoc relief of Rs. 10,00,000/- we would like to submit that the additions have solely been made on the point that the payments were not made by the assessee firm. The quantum of the expense or its genuineness is not doubted by the lower authorities and as such, addition being made solely on the ground that there was no direct business income and the payment was not made by the firm is uncalled for.

12.

That before the lower authorities, we had submitted that the affidavits executed by the partners that expenses have been incurred by them on behalf of the firm and that the same has been reimbursed to them in the later years. The copy of the affidavit is also attached herewith at Page 16 – 21. It is a fact on record that there was a dispute between the partners and that the bank account of the firm was inoperative and attached by income tax department against previous years demands and as such, the firm was not in position to make the payments. Thus the partners in view to protect their capital invested and revival of the business incurred the expenses which were reimbursed to them in the subsequent years.

13.

That it is also a settled law that expenses incurred for existence/ revival and continuation of the business should be allowed and that we have submitted that the expenses incurred under the heads of staff salary, security, water sprinkler expenses, Forest cleaning & fencing, depreciation etc and others being incidental to the business should be allowed.

14.

That in an alternate plea, we would also like to submit that if income from fixed deposit is considered separately as income from other sources and expenses claimed is allowed, then the assessee will have business loss which would be adjusted with income from other sources and as such, ultimately there would be no loss to the revenue. Revised computation of income (Draft) to that extent is attached herewith at Page 22 – 23.

15.

That as such, to conclude, we submit as under:- a) That the alleged escaped income has already been disclosed by the assessee in its return filed in response to notice U/s 148 which stands accepted and over & above which this assessment has been made. b) That no addition is called for on the issues which do not form part of the initial show cause notice U/s 148A(b) and the order U/s 148A(d). c) That the income from fixed deposit should be considered as business income and not income from other sources.

Misrilall Jain & Sons d) That the expenses incurred is allowable and merely because the same was not paid by the firm directly, should not be disallowed. Affidavit of the partners should have been considered.”

On the other hand, the learned Departmental Representative supported the order of the Assessing Officer.

We, after hearing the rival submissions and perusing the material available on record. First, we take up the legal issue which goes to the root of the matter and therefore, the same is required to be adjudicated at the threshold wherein the assessee challenged the validity of the reassessment proceedings on the ground that the notice issued under section 148A(b) of the Act was confined only to the alleged escapement of income amounting to ₹1,32,63,010. It is an undisputed fact that the said amount was duly disclosed by the assessee in the return of income filed in response to the notice under section 148 of the Act. However, while framing the reassessment order, the Assessing Officer proceeded to treat the interest income earned on fixed deposits as “Income from Other Sources” instead of “Business Income”, as returned by the assessee, and further disallowed related business expenses. Such issues were never part of the show cause notice issued under section 148A(b) of the Act. It was contended that the Assessing Officer had clearly travelled beyond the scope of jurisdiction conferred by the notice under section 148A(b), and therefore, no addition or reclassification could have been made on issues which were not the subject matter of the order passed under section 148A(d). We find that the Ld. AR placed reliance on the judgment of the Hon’ble Delhi High Court in Independent News Service Pvt. Ltd. v. Assessing Officer (2025) 176 Taxmann 245 (Del). We note that the facts of the present case are squarely covered in favour of the assessee by the said decision of the Hon’ble Delhi High Court in Independent News Misrilall Jain & Sons Service Pvt. Ltd. (supra), wherein, it has been clearly laid down that reassessment under section 148 of the Act can be framed only on the issues stated in the show-cause notice issued under section 148A(b) of the Act and no addition beyond such issues is permissible in law. Respectfully following the said binding precedent, we hold that the reassessment framed on issues beyond the scope of the notice issued under section 148A(b) and the order passed under section 148A(d) of the Act is without jurisdiction and bad in law. Accordingly, the legal ground raised by the assessee is allowed and the impugned reassessment order is hereby set aside.

7. Even on merits, we find that the interest income was earned on fixed deposits kept as security with Government authorities for obtaining and renewing mining-related permissions. No fresh deposits were created during the year. On identical facts, the Revenue has consistently accepted such interest income as business income in earlier assessment years, particularly AYs 2008–09, 2010–11 and 2012–13, in assessments completed under section 143(3). Though the principle of res judicata does not apply to income-tax proceedings, the principle of consistency, as laid down by the Hon’ble Supreme Court in Radhasoami Satsang v. CIT (193 ITR 321), requires that a consistent view be followed where facts remain unchanged. Accordingly, we hold that the interest income of ₹4,75,23,253 is assessable as business income and not as income from other sources. The addition made on this account is therefore deleted.

8. With respect to the disallowance of expenses, the assessee has demonstrated that due to attachment and non-operation of the firm’s bank accounts, the partners incurred business expenses on behalf of the firm to safeguard its operations and capital. The expenses were subsequently reimbursed to the partners in later years. Affidavits of the Misrilall Jain & Sons partners have been filed to substantiate these facts. Merely because the payments were initially made by the partners does not disentitle the assessee from claiming the expenses, when it is established that the expenses were incurred wholly and exclusively for business purposes and were reimbursed by the firm. In view of the above facts, we find that the disallowance of ₹3,42,60,244, sustained by the Ld. CIT(A) except for ad hoc relief of ₹10,00,000, is unsustainable in law. Accordingly, the entire disallowance is directed to be deleted. In view of the above, the addition of ₹4,75,23,253 on account of interest income is deleted and directed to be assessed as business income and the disallowance of expenses of ₹3,42,60,244 is deleted in full.

In the result the appeal filed by the assessee is allowed. Kolkata, the 21st January, 2026.

MISRILALL JAIN & SONS,SINGHBHUM WEST vs. ACIT, CENTRAL CIRCLE-1, RANCHI