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Facts
The assessment was reopened under Section 147 of the Income Tax Act, 1961, based on allegations of VAT evasion by consignee agents, which allegedly resulted in unaccounted cash for the appellant. The appellant objected to the assumption of jurisdiction.
Held
The Tribunal held that the reopening proceedings were vitiated due to invalid notices and lack of proper material to support the allegations. The Tribunal also noted that the tax liability would not increase even if the addition was sustained, due to the applicability of Section 115JB.
Key Issues
Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid and sustainable, considering the grounds of limitation and lack of proper material. Whether the addition made under Section 69A on account of alleged VAT evasion was justified.
Sections Cited
147, 148, 144C(13), 148A(b), 148A(d), 69A, 92CA, 80IC, 149(1), 151, 143(3), 115JB, 152, 37
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Income Tax Appellate Tribunal, DELHI BENCHES : A : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
This is an appeal preferred by the Assessee against the final assessment order dated 29.10.2024 passed u/s 147 r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ACIT, Central Circle-29, New Delhi (hereinafter referred to as the Ld. AO, for short) for AY 2015-16.
Heard and perused the record. The brief facts of the case are that for the year under reference assessment was reopened u/s 147 of the Act vide notice u/s 148 of the Act dated 30/06/2021. However, pursuant to the decision of Hon’ble Apex Court in the case of UOI v. Ashish Agarwal (SC), the assessing officer issued notice u/s 148A(b) of the Act dated 27/05/2022 and eventually order u/s 148A(d) of the Act was passed on 29/07/2022 leading to issuance of notice u/s 148 of the Act dated 30/07/2022 under the amended regime.
2.1 The jurisdiction u/s 147 of the Act has been assumed on the alleged ground of income escaping assessment to the tune of Rs. 25,21,29,980/- purportedly arising from alleged evasion of VAT by consignee agents of the appellant. It was alleged that the evasion of VAT by consignee agents resulted in generation of unaccounted cash of which the appellant is beneficiary. The allegation was based on FIR which is a preliminary information.
2.2 The appellant objected to assumption of jurisdiction u/s 147 of the Act and submitted that the VAT evasion, if any, by consignee agents cannot be presumed to have any implications in the hands of the appellant company which was duly recorded the sales and offered the embedded profit to tax. However, the assessing officer completed the assessment vide passing of draft order dated 26/12/2023 after making addition of Rs. 25,21,29,980/- u/s 69A and other TP adjustments.
2.3 The appellant filed objections before DRP u/s 144C of the Act against the draft assessment order in respect of following issues: S. No. Issue Amount (In Rs.) 1 Addition u/s 69A on the alleged ground of unaccounted Rs. 25,21,29,980/- cash being so called share of VAT evaded by the agents 2 Transfer pricing adjustment u/s 92CA being reduction in Rs. 151,40,78,090/- claim of deduction u/s 80IC in respect transaction of transfer of goods from non-eligible unit to eligible units 2.4 The DRP disposed-off the objections vide order dated 30/09/2024 wherein the DRP allowed the objection with respect of TP adjustment and rejected the objection regarding addition of Rs. 25,21,29,980/- u/s 69A in respect of VAT evasion issue and issue of reopening u/s 147 of the Act. Accordingly, the assessing officer passed the final assessment order u/s 147 r.w.s. 144C(13) dated 29/10/2024.
In above background, the appellant has challenged impugned assessment order before us raising following grounds:- “That on the facts and circumstances of the case, the assessment order u/s 147/144C(13) of the Income tax Act, 1961 passed by the assessing officer is not sustainable on facts and is bad in law. Re : Validity of notice u/s 148 dated 30/07/2022 2.1 That on the facts and circumstances of the case, in absence of there being any case of income escaping assessment represented in the form of an ‘Asset', the notice u/s 148 after lapse of period of three-years is barred by limitation u/s 149(l)(b) of the Act. 2.2 That on. the facts and circumstances of the case, the order u/s 148A(d) being mechanical and based on apparent non application of mind, the consequential notice u/s 148 is illegal and merely on arbitrary basis. 2.3 The assumption of jurisdiction u/s 147 being based on information from DDIT (Inv.) containing reference to alleged VAT evasion by third party and in absence of any tangible or credible material or independent 3
inquiry, the allegation of income escaping assessment to the extent of Rs. 25,21,29,980/- is mechanical, untrue and based on conjectures and surmises. 2.4 That in. any case, the tax payable even after impugned addition which is the subject matter of reopening being less than payable on basis of book profit u/s 115JB, there is no case of any income escaping assessment u/s 147 r.w.s. 152 of the Act, thus rendering the notice u/s 148 invalid and void-ab-initio. 2.5 That in absence of valid approval of specified authority, the order u/s 148A(d) and notice u/s 148 are illegal and without jurisdiction.
Re: Addition u/s 69A of the Income Tax Act 3.1 That the assessing officer erred on facts and in law in making addition of Rs. 25,21,29,980/- u/s 69A on the alleged ground of hypothetical receipt without any corroboration and merely on the basis of conjectures and surmises. 3.2 That the AO and DRP has fallen into error in confirming the variation without appreciating the submissions and documentary evidences placed on record. 3.3 That in the absence of any adverse evidence or material, the allegation of undisclosed income in the hands of the appellant arising from alleged VAT evasion by third party is wholly untenable and devoid of merits. 3.4 That the adverse inference being merely on the basis of FIR which is a preliminary' report and in the absence of any independent enquiry, the impugned addition is grossly mechanical, arbitrary and unsustainable.
4. That in the alternative, presumption of any income based on VAT evasion is tax neutral as claim of VAT is permissible deduction u/s 37 of the Income Tax Act, 1961 and as such the impugned addition is misconceived and untenable.
5. That orders of lower authorities are not justified on facts and under the law.
That the appellant craves leave to add, alter, amend, substitute, forgo any or all the grounds of appeal before or at the time of hearing.”
In addition to above, the appellant has raised following additional 3.1 grounds regarding validity of notice u/s 148:
“1. That on the facts and circumstances of the case, the notice u/s 148 dated 30/07/2022 having been issued after expiry of six years from the end of the assessment years, the same is barred by limitation in terms of first proviso to section 149(1) of the Act. 2(i) That on the facts and circumstances of the case, the assessing officer having failed to supply the information alongwith notice u/s 148A(b) based on which the action u/s 147 was proposed, the notice u/s 148A(b) is illegal thus vitiating the reopening u/s 147 of the Act (ii) That the assessing officer having failed to comply with the explicit direction of Hon'ble Apex Court and in the absence of valid notice u/s 148A(b), the notice u/s 148 is unsustainable and bad in law.”
We first take Ground No. 2 and additional grounds, by which the validity of notice u/s 148 of the Act is contested. As for convenient adjudication of the issues, we observe that in the present case, the assessing officer assumed jurisdiction u/s 148 of the Act based on information received from DDIT(Inv,) vide email dated 24/06/2021 and the reasons recorded are reproduced hereunder: “The DDIT(Inv.), Unit-2(1), Ahmedabad vide his e-mail dated 24.06.2021 had forwarded a copy of FIR registered against M/s Dharampal Satyapal Ltd. and its vendors with CID, Crime, Gandhinagar w.r.to evasion of VAT as calculated by Commercial Tax Officer (1), Unit - 14, Ahmedabad, Gujrat. The calculation of which for the A.Y. 2015-16 is as under:- SI. No. Name of TIN Financial Asstt. Total Sales Total Tax @ 15% the Dealer Year Yr. Aum 24072704142 2014-15 2015- 65,61,14,944/- 9,84,17,242/- Hanuman 16 1. Trading Company Jayashree 24075002819 2014-15 2015- 102,47,51,586/- 15,37,12,738/- 2. 5
Khodiyar 16 Sales Agency Total 168,08,66,530/- 25,21,29,980/- On perusal of the above FIR it is noticed that the Appellant company had managed a web of vendors during the financial year 2012-13 to 2015-16 to evade the VAT liability in state of Gujrat- Due to this whole arrangement of fabrication of facts and documents the appellant companyalongwith its vendors had managed to evade VAT amounting to Rs. 25,21,29,980/- during the financial year 2014-15 relevant to A.Y.2015-16, the appellant company was found the major beneficiary. The appellant company during the relevant A.Y. had done the suspected sale of Rs. 168,08,66,530/- which will be verified during the reassessment proceedings with the above mentioned dealers. After that remedial action had been taken by Commercial Tax Department, Gujrat. The aggregate amount of this evasion for all the concerned F.Y.s had been calculated at approx Rs. 125 Crores out of which approx. Rs. 100.00 crores liability had been borne by the Appellant company. As it had paid almost 80% of VAT liability so determined on it and its vendors. It is sufficient to prove that M/s DSL had taken a certain share of VAT evaded by this whole nexus and had generated unaccounted cash which has not been disclosed before the Department. As these transactions had been executed with help of certain vendors, details of which are tabulated above. The certain share of tax evasion amount had been received by the appellant company from the vendors in cash, which is to be worked out during assessment. Thus, such cash receipts of Rs. 25,21,29,980/- remained escaped and unexplained receipts for the financial year 2014-15 relevant to A.Y.2015-16. Therefore, on the facts of case as stated above, I have reason to believe that income of Rs. 25,21,29,980/- has escaped assessment for the AY. 2015-16. Therefore, I propose to reassess the aforesaid income chargeable to tax which has escaped assessment. 4.1 Further, the concluding paras of order u/s 148A(d) dated 29/07/2022 are also relevant thus reproduced hereunder: “19. On perusal of the information and material available on record, it is observed that the appellant company had managed a web of vendors during the financial year 2012-13 to 2015-16 to evade the VAT liability in state of Gujarat. Due to this whole arrangement of fabrication of documents and the sham transactions the appellant company along with its vendors had managed to evade VAT amounting to Rs. 6 25,21,29,980/- in the A.Y. 2015-16. It appears that huge unaccounted cash was generated through the aforesaid scheme of sham transactions and the appellant company was found to be the major beneficiary. The information and material available on record suggests that the appellant had received an amount of Rs. 25,21,29,980/- in cash during the financial year 2014-15 relevant to A.Y. 2015-16 through the web of this sham transaction. The case of the appellant is well covered within the purview of Section 149(1)(b) of the Income-tax Act, 1961. In light of information available on record and the submission made by the appellant , the undersigned is satisfied that it is a fit case for issuance of notice u/s 148 of the Income-tax Act, 1961.
In the pertinent case as the relevant assessment year falls within the time limit and escaped amount is more than fifty lakh Rupees, the notice u/s 148 is not beyond the statutory limitations u/s 149 of the Act. On the basis of the material available on record including reply of the appellant , the undersigned is satisfied that it is a fit case to issue notice under section 148 of the Act.Further as per the provisions of section 151 of the Act, this order u/s 148A(d) of the Act is being passed after taking necessary approval from the Chief Commissioner of Income Tax (Central)-2, Delhi.”
The first contention of ld. Counsel is that Notice u/s 148 of the Act dated 30/07/2022 is barred by limitation in terms of first proviso to section 149(1) as six years from the end of AY 2015-16 expired on 31/03/2022. Ld. Counsel submitted that the notice u/s 148 of the Act dated 30/07/2022 issued under the amended regime is barred by limitation in terms of first proviso to section 149(1) as six years from the end of the assessment year i.e. AY 2015-16 had elapsed on 31/03/2022 and as such the notice u/s 148 dated 30/07/2022 has been issued after expiry of limitation period. It is submitted that the first proviso of section 149(1) of the Act specifically provides that no notice u/s 148 could be issued in relation to assessment years prior to 01/04/2021 wherein six years have elapsed. The relevant proviso is reproduced hereunder for ready reference:
Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be], as they stood immediately before the commencement of the Finance Act, 2021: 5.1 In view of the above, it is patent that the notice u/s 148 issued on 30/07/2022 is barred by limitation as the time limit of six years expired on 31/03/2022. It is pertinent to observe that the earlier notice u/s 148 dated 30/06/2021 issued under the old regime within time extended under TOLA was invalid as the extension of time limit under TOLA was inapplicable to AY 2015- 16 and as such the present proceedings cannot be treated as extension of the earlier notice dated 30/06/2021. The legal position to this effect is settled by the decision of Hon’ble Apex Court in the case of UOI v. Rajeev Bansal [2024] 469 ITR 46 (SC) wherein the revenue conceded the fact that TOLA was not applicable to AY 2015-16 and as such the proceedings u/s 148 under new regime cannot be initiated after 31/03/2022. The said decision of Hon’ble Apex Court has subsequently been followed and applied by while quashing notice u/s 148 issued for AY 2015-16 in various cases as under: i. ACIT v. Nehal Ashit Shah (Special Leave Petition (Civil) Diary No(S).57209/2024) (04/04/2025) (Supreme Court) ii. Makemytrip India (P.) Ltd. v. DCIT [2025] 173 taxmann.com 497 (Delhi)[24-03-2025] iii. Bhagwan Sahai Sharma vs. DCIT [2025] 174 taxmann.com 14 (Delhi)[24-03-2025] iv Pratishtha Garg v. ACIT [2025] 171 taxmann.com 264 (Delhi)[19-12-2024] v. DCIT v. Larsen & Toubro Ltd. [2025] 173 taxmann.com 582 (Mumbai - Trib.)[07-04-2025] 6. In regard to these grounds the next contention of ld. Counsel is that the assessing officer having failed to supply information/material along with notice u/s 148A(b), the proceedings u/s 147/148 are invalid and not sustainable. In this regard, it is submitted that the notice u/s 148A(b) dated 27/05/2022 is invalid and contrary to direction issued by Hon’ble Supreme Court in the case of UOI v. Ashish Agarwal (Supra) wherein the assessing officer has specifically directed to provide all the requisite material to the assesse alongwith notice u/s 148A(b). The relevant direction of Hon’ble Apex Court is as under: (i) The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which 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). The assessing officer shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the show-cause notices within two weeks thereafter; 6.1 However, in the present case, the assessing officer only provided the copy of reasons along with the notice u/s 148A(b) of the Act and the information supplied by the investigation was not provided. Moreover, other than a sheet of paper containing reasons, no material whatsoever was provided which formed the basis of such reasons and such there is clear cut violation of scheme and requirement of section 148A of the Act. In these circumstances, the failure on part of the assessing officer in supplying copy of information/material alongwith notice u/s 148A(b) of the Act vitiates the notice u/s 148A(b) of the Act and is fatal to the validity of reopening u/s 147 of the Act. The legal position to this effect is well settled and reference is rightly made by ld. Counsel to following judicial precedents: i. Anurag Gupta v. ITO [2023] 454 ITR 326 (Bombay) ii. Yuva Trading Co. (P.) Ltd. v. ITO [2023] 150 taxmann.com 187 (Gujarat) iii. Alkem Laboratories Ltd. v. PCIT [2023] 459 ITR 551 (Patna) iv. Vinod Lalwani v. UOI [2023] 455 ITR 738 (Chhattisgarh) v. ITO v. B C Enterprises (ITA No. 4972/Del/24) (ITAT, Delhi)
Ld. Counsel has contended that the Notice u/s 148 of the Act dated 30/07/2022 is barred by limitation as the assumption of jurisdiction is after expiry of three year thus in absence of any case of income escaping amounting to Rs. 50 lakhs or more represented in the form of an ‘asset’, there could have been no reopening. In this connection, it can be seen that the notice u/s 148 of the Act under amended regime requires narrating facts showing income escaping assessment is represented in the form of an asset asset, expenditure or entry in the books of account amounting to Rs. 50 lakhs or more. In the present case, the assessing officer assumed jurisdiction u/s 148 of the Act based on information received from DDIT(Inv,) vide email dated 24/06/2021 and the same coupled with reasons recorded show the entire case of the assessing officer is based on a belief that appellant is beneficiary of so-called VAT evasion done by consignee agents in the state of Gujarat. The assessing officer has drawn presumption about receipt of unaccounted cash but without there being an iota of evidence in support of such allegation. Thus as such factual aspect as to what asset, expenditure or entry in the books of account, escaped assessment is not specifically valued or quantified.
8. This also leads us to sustain the averments that the allegation of income escaping assessment is unsubstantiated, uncorroborated and not based on any tangible material but mere assumption of assesse being privy to alleged violations of VAT provisions. In this connection, we may note that on bare perusal of reasons and order passed u/s 148A(d) of the Act, as reproduced above, show that same are based on an email containing FIR against the appellant company as forwarded by the investigation wing. The substance of allegations had to yet pass through judicial scrutiny of criminal courts. Appellant has disputed the allegations in the FIR and has demonstrated to the VAT authorities that it has no role in alleged VAT evasion by Consignee agents, if any. Thus the order passed u/s 148A(d) of the Act appears to be without independent application of mind or tangible material, in the hands of AO. It has been alleged that appellant company has deposited 100 crores of VAT liability which proves its involvement in alleged VAT evasion.
9. In regard to these grounds ld. Counsel has also pointed out that even after the addition, the appellant is assessed at Book profit u/s 115JB where tax is higher that tax determined under normal provisions by the AO and there being no case of any adverse revenue implication, the assumption of jurisdiction u/s 147 is invalid. It comes up that even after the addition of Rs. 25,21,29,980/-, the final tax payable is determined u/s 115JB based on book profit and as such there is no case of adverse tax implication vis-à-vis alleged income escaping assessment of Rs. 25,21,29,980/- under normal provisions of the Income tax Act, 1961. In these circumstances, the very basis of allegation of income escaping assessment fails at threshold in absence of any tax implication thus vitiating the action u/s 147 of the Act in terms of section 152 of the Act. Reliance is rightly placed by ld. Counsel on decision of Hon’ble Bombay High Court in the case of Pacific Energy P. Ltd. v. ITO [2023] 155 taxmann.com 375 (Bombay) [dated 06/10/2023] wherein the notice u/s 148 of the Act was quashed on this very ground. And the decision of Hon’ble Gujarat High Court in the case of Motto Tiles (P.) Ltd. v. ACIT[2016] 386 ITR 280 (Guj) wherein under identical circumstances, the reopening was quashed by holding as under:
12. In the light of the decision of this court in the case of India Gelatine and Chemicals Ltd. v. Assistant Commissioner of Income Tax (No.1) (supra), having regard to the fact that even if the entire amount which is proposed to be added by the Assessing Officer is sustained, there would be no addition to the tax liability of the petitioner and the petitioner would still be governed by the provisions of section 115JB of the Act and assessed on the same book profit, it cannot be said that there was sufficient material before the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. The impugned notice issued under section 148 of the Act, therefore, cannot be sustained.
9.1 Reference is also made to a decision of co-ordinate bench at Delhi in the case of Genus Power Infrastructure Ltd. v. ACIT [2024] 162 taxmann.com 730 (Delhi - Trib.)[10-05-2024] wherein it was held as under: 5.2 As a sequel to such plea, the assessee thus submits that in the absence of escapement qua book profits, the escapement alleged under normal provisions are of no consequence since despite the purported escapement qua normal provision may led to enhancement of taxable income under normal provision, the tax liability thereon would be lower than the book profits assessable in law. 5.3 On facts thus, the assessee argues that tax liability on book profits under s. 115JB amounting to Rs. 31,04,38,156/- [without provision for repair which adjustment is impermissible in reassessment proceedings] exceeds the tax liability on Rs. 13,67,21,152 [income assessed earlier under s. 143(3) plus the income allegedly escaped under normal provision]. On such facts, it is the plea of the assessee that its case is covered by the judgment rendered in the case of Motto Tiles P. Ltd. v. ACIT [2016] 73 taxmann.com 176/386 ITR 280 (Gujarat) 7. The claim of the assessee that the tax liability on book profit is higher than the income assessable under normal provisions including escapement alleged qua normal provisions, has not been disputed by the revenue.
Governed by the view expressed in the decisions noted above, we find merit in the plea raised by the assessee towards lack of jurisdiction on first principles.
The re-assessment notice is accordingly quashed. The reassessment order is declared null and void. As the assessee succeeds on absence of jurisdiction usurped under s. 147 of the Act, which strikes to the root of the matter, the merits of additions and disallowances carried out merges in void at the threshold. Hence, we
do not seek to delineate on the merit of additions and disallowances as challenged on behalf of the assessee and Revenue in their respective appeals. 10. As a consequence to aforesaid discussion these grounds deserved to be sustained.
Though we have held the reopening itself to be vitiated still as we had heard on merits as well for which we find that the Ground No. 3 & 4 are against addition of Rs. 25,21,29,980/- u/s 69A on the alleged ground of unexplained cash generated from purported VAT evasion done by consignee agents in the state of Gujarat. The relevant facts are that appellant company effected the sale of goods in the state of Gujarat through consignment agents. The appellant company in its profit and loss account recorded the sales and offered the embedded profit to tax. Further, the consideration against sale of goods is received through banking channels thus squaring up the account of the agents in the books of the appellant company. Now, the primary allegation of the VAT authority in state of Gujarat is that consignee agents were allegedly engaged in evasion of VAT and as such in lieu of section 50 of Gujarat VAT Act, 2003 the appellant company being principal of consignee agents was held to be liable for such evasion. Admittedly there is no direct or indirect evidence against the appellant company for involvement in VAT evasion and the entire case of VAT authority hinges upon the role of a middlemen Mr. Rajendra Jethabhai Keshwani alias Mr. Sonu. The appellant company has already denied its involvement in alleged VAT evasion by agents. The issue of VAT evasion by agents is sub- judice in criminal courts and has not attained finality and as such the same could not be made basis to draw inference of any income of assesse without independent findings and corroborative evidences. The appellant company has been implicated by VAT authority merely for the purpose of recovery of VAT embedded in the sale consideration so realized from the agents. In fact, it is not even the case of the department that the VAT authority had given any findings that any unaccounted cash is generated from so called evasion and landed with assesse. Payment of Rs.100 crores to Gujarat VAT authority is on provisional basis and pending final adjudication and explained by business and commercial expediency to keep alive business activity.
It is relevant to take not of the fact that appellant had filed RTI application requesting to the assessing officer to supply necessary documents in support of allegation of unexplained cash, however, in respect to RTI, the assessing officer has clearly mentioned that no such material or information is available in his officer. The copy of RTI application and reply so received are placed at PB Pg 292 to 299. Thus, it is apparent that the entire action of reopening and consequential addition has been made on premature information in the form of FIR and there is nothing on record to establish the allegation of unexplained cash in the hands of the appellant. Reliance of some statements without even bringing on record the exact contents of same and without opportunity of cross examination, could be basis to draw an inference of alleged incomes from VAT avoidances. The assessing officer has not established any cash trail to attribute such huge unaccounted cash and the entire theory is without any substance or backing. It is trite law that income tax proceedings are to be carried out on the basis of facts and material and it is not open to assessing officer to make addition on the basis of guesswork or presumption. The principle laid down Supreme Court in the case of CIT V. Dhakeshwari Cotton Mills Ltd V. CIT: 26 ITR 775, 783 is fully applicable herein. Thus the impugned addition is not sustainable and DRP failed to apply basic principle that it is real income that should be taxed not one which is based on hearsay.