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Issues: (i) Validity of reassessment jurisdiction based on satisfaction under Explanation 2(iv) to Section 148 of the Income-tax Act, 1961; (ii) Applicability of the extended limitation under Section 149(1)(b) where the embedded profit element was below Rs. 50 lakh; (iii) Validity of reopening for assessment years 2014-15 to 2016-17 beyond six years where alleged undisclosed purchases were not an asset; (iv) Whether third-party digital tally data constituted entries in the assessee's books of account under Section 149(1)(b)(iii) of the Income-tax Act, 1961; (v) Effect of non-issuance of notice under Section 143(2) of the Income-tax Act, 1961 after a delayed return in response to notice under Section 148; and (vi) Validity of additions founded on third-party material without granting requested cross-examination.
Issue (i): Validity of reassessment jurisdiction based on satisfaction under Explanation 2(iv) to Section 148 of the Income-tax Act, 1961.
Analysis: Under the amended reassessment regime, the requirement is information suggesting escapement of income and satisfaction, with prescribed approval, that seized information relates to the assessee. The seized tally information was linked to alleged unrecorded purchases, compared with the assessee's return, and supported by approval. Similarity of satisfaction notes across years and the fact that the tally data related to multiple entities did not invalidate the satisfaction; no separate independent enquiry was statutorily required at this stage.
Conclusion: The satisfaction under Explanation 2(iv) to Section 148 was valid; this issue is decided against the assessee.
Issue (ii): Applicability of the extended limitation under Section 149(1)(b) where the embedded profit element was below Rs. 50 lakh.
Analysis: Income chargeable to tax from alleged unrecorded purchases was confined to the embedded profit element rather than the gross purchase amount. On that basis, the escaped income for each assessment year from 2014-15 to 2018-19 was below Rs. 50 lakh. Escaped income of separate assessment years could not be aggregated to meet the statutory threshold.
Conclusion: The extended limitation under Section 149(1)(b) was unavailable, and the notices for assessment years 2014-15 to 2018-19 were time-barred; this issue is decided in favour of the assessee.
Issue (iii): Validity of reopening for assessment years 2014-15 to 2016-17 beyond six years where alleged undisclosed purchases were not an asset.
Analysis: For a non-searched person, the relevant block period was reckoned from initiation of action against that person. The relevant years fell beyond the six-year period. Further, alleged undisclosed purchases did not fall within the restricted statutory definition of an asset for extending the period under the fourth proviso to Section 153A.
Conclusion: The reopenings for assessment years 2014-15 to 2016-17 were invalid and void ab initio; this issue is decided in favour of the assessee.
Issue (iv): Whether third-party digital tally data constituted entries in the assessee's books of account under Section 149(1)(b)(iii) of the Income-tax Act, 1961.
Analysis: The seized digital tally was maintained by third parties, related to multiple entities, and was not reflected in books maintained by the assessee. The allegation itself was of purchases outside the assessee's books. Third-party tally records could not be treated as entries in the assessee's books of account for invoking Section 149(1)(b)(iii).
Conclusion: Invocation of Section 149(1)(b)(iii) was legally unsustainable, and the notices and consequent reassessments for assessment years 2016-17 to 2018-19 were invalid; this issue is decided in favour of the assessee.
Issue (v): Effect of non-issuance of notice under Section 143(2) of the Income-tax Act, 1961 after a delayed return in response to notice under Section 148.
Analysis: The return in response to the Section 148 notice was filed beyond the period allowed and no extension was sought. Under the third proviso to Section 148, such delayed return was not deemed to be a return under Section 139. Consequently, the requirement of notice under Section 143(2), applicable to a return under Section 139 or in response to Section 142(1), was not attracted.
Conclusion: Non-issuance of notice under Section 143(2) did not invalidate the assessment for assessment year 2014-15; this issue is decided against the assessee.
Issue (vi): Validity of additions founded on third-party material without granting requested cross-examination.
Analysis: The additions rested on seized third-party data and statements. The requested cross-examination was denied despite uncertainty over the identity recorded in the seized ledger and absence of corroborative material directly linking the entries to the assessee. Unverified third-party material and statements, not tested by cross-examination, lacked evidentiary value for sustaining the additions.
Conclusion: Denial of the requested cross-examination violated natural justice and vitiated the assessments for assessment years 2014-15 to 2021-22; this issue is decided in favour of the assessee.
Final Conclusion: The reassessments were unsustainable because the extended limitation conditions failed for the relevant years and, independently, the additions were based on third-party material without effective cross-examination. The merits of the additions were not adjudicated.
Ratio Decidendi: An assessment based on adverse third-party statements or material cannot be sustained where a specifically requested cross-examination is denied and no corroborative evidence reliably connects that material with the assessee.
Reassessment limitation fails when alleged unrecorded purchases yield only embedded profit below the statutory threshold.
Reassessment jurisdiction under the amended regime requires information suggesting income escapement and approved satisfaction linking seized material to the assessee; an independent enquiry is not required at that stage. Extended limitation cannot be based on gross alleged unrecorded purchases when only the embedded profit is chargeable, the annual threshold is unmet, and separate years cannot be aggregated. Third-party digital tally data cannot constitute entries in the assessee's books, while undisclosed purchases are not an asset for extended reopening. A belated return filed under Section 148 without extension does not require a Section 143(2) notice. Additions resting on untested third-party statements or records fail where requested cross-examination is denied and corroborative evidence is absent.
Validity of reassessment - Escaped income threshold for extended reassessment - Reassessment beyond six years for undisclosed purchases - Third-party digital data as books of account - Cross-examination of adverse third-party material Satisfaction under Explanation 2(iv) to section 148 - Information relating to the assessee in seized third-party documents - Validity of the satisfaction recorded for reassessment on the basis of information in the seized 'Sanjeev Tally' data - HELD THAT: - Under the amended reassessment regime, the Assessing Officer need only possess information suggesting escapement and, where documents seized from another person are involved, be satisfied with prior approval that the information relates to the assessee. AO examined the investigation information, correlated it with the assessee's return, and concluded that the out-of-books purchase information related to the assessee. The similarity of satisfaction notes across years and reliance on investigation information did not invalidate the proceedings, since no independent enquiry beyond establishing such nexus was statutorily required at that stage. [Paras 18, 19, 21, 22, 24] The satisfaction recorded under Explanation 2(iv) to section 148 and the assumption of jurisdiction on that basis were upheld. Escaped-income threshold for extended reassessment - Embedded profit in undisclosed purchases - Applicability of extended reassessment limitation to alleged undisclosed purchases for A.Y. 2014-15 to A.Y. 2018-19 - HELD THAT: - For alleged bogus or undisclosed purchases, income chargeable to tax is the embedded profit element and not the entire purchase value. As the relevant escaped income for each assessment year was below the prescribed threshold, and income of different years could not be aggregated to meet that threshold, the condition for invoking extended limitation was not fulfilled. [Paras 26, 27] The notices issued for A.Y. 2014-15 to A.Y. 2018-19 were held barred by limitation. Reassessment beyond six years for undisclosed purchases - Undisclosed purchases as assets - Validity of reopening A.Y. 2014-15 to A.Y. 2016-17 beyond six years by treating alleged undisclosed purchases as an asset - HELD THAT: - For a non-searched person, the relevant block period is to be reckoned from the date of handover or initiation of action and not from the date of search. On that reckoning, the concerned assessment years fell beyond six years. Further, alleged undisclosed purchases did not fall within the restricted statutory meaning of an asset for invoking the extended period. [Paras 28, 29, 30] The reopening for A.Y. 2014-15 to A.Y. 2016-17 was held invalid and void ab initio. Notice u/s 143(2) after reassessment notice - Belated return under section 148 - Requirement of notice u/s 143(2) where the return in response to notice u/s 148 was filed after the allowed period for A.Y. 2014-15 - HELD THAT: - A return furnished beyond the period allowed under section 148 is, by virtue of the third proviso, not deemed to be a return u/s 139. Since notice under section 143(2) is required in respect of a return under section 139 or in response to notice under section 142(1), no such notice was legally necessary where the reassessment return was belated. [Paras 32, 33, 34] Non-issuance of notice under section 143(2) did not vitiate the reassessment for A.Y. 2014-15. Third-party digital data as books of account - Extended reassessment limitation based on entries in books - Validity of invoking the extended reassessment period by treating the seized third-party 'Sanjeev Tally' data as entries in the assessee's books of account for A.Y. 2016-17 to A.Y. 2018-19 - HELD THAT: - The statutory limbs concerning assets, expenditure and entries in books of account operate independently. Books of account mean books maintained by the assessee and cannot include digital tally data or memorandum records maintained by a third party. Data allegedly evidencing purchases outside the assessee's books could not be treated as entries in the assessee's books for invoking the extended period. [Paras 35] The notices and consequential reassessment orders for A.Y. 2016-17, A.Y. 2017-18 and A.Y. 2018-19 were quashed as invalid. Cross-examination of adverse third-party material - Natural justice in reassessment - Use of third-party seized material and statements to sustain additions without affording requested cross-examination for A.Y. 2014-15 to A.Y. 2021-22 - HELD THAT: - The additions rested on third-party material seized in the search of another person, yet the assessee's specific request to cross-examine persons whose statements were adversely relied upon was denied. No corroborative material established the linkage between the seized entries and the assessee. Adverse third-party statements or material not tested through effective cross-examination lose evidentiary value and cannot sustain an addition. [Paras 36, 37] The assessments for A.Y. 2014-15 to A.Y. 2021-22 were held vitiated for violation of natural justice and unsustainable in law. Final Conclusion: The appeals were allowed on legal grounds, the reassessments being held invalid or vitiated. The merits of the alleged undisclosed purchases were left unadjudicated.