2025 (11) TMI 1483 - AT - Income Tax

Reassessment under Section 147 invalid for defective Section 148 notice; additions under Sections 69A and 69C fall

ITAT Delhi-AT dismissed the Revenue's appeal, upholding the order of CIT(A) that quashed the reassessment proceedings initiated u/s 147 on the ground of ... Validity of reopening of assessment - Unexplained expenditure u/s 69A/69C - HELD THAT:- As notice issued u/s 148 of the Act is invalid and thereby quashing the reassessment order which observations were not challenged by the Revenue before us in the present appeal. Thus, the findings of the Ld. CIT(A) on the issue of validity of notice u/s 148 of the Act attained finality. This being so, we do not find any reason to interfere in the findings of Ld. CIT(A) as once the reassessment proceedings are quashed, there is no occasion to consider and decide the additions made therein. In the case of ACIT vs. Green Gem Estate Pvt. Ltd. [2024 (2) TMI 1608 - ITAT DELHI] has dismissed the appeal of the Revenue challenging the additions on merits and not challenged the action of ld. CIT(A) in quashing the reassessment proceedings initiated u/s 147 of the Act. ISSUES PRESENTED AND CONSIDERED 1. Whether the notice issued under section 148 of the Income Tax Act is valid where, in light of amended provisions and Supreme Court precedents, the notice falls outside the surviving limitation period and therefore the reassessment proceedings are time-barred. 2. Whether additions under section 69A (unexplained expenditure) can be sustained in the reassessment year where the alleged payments were made and recorded in earlier assessment years and through banking channels. 3. Whether additions under section 69C (unexplained cash credits / loan transactions) can be sustained when the creditor's creditworthiness, repayment and documentary evidence (confirmations, bank statements, ITRs, audited balance sheets, capital and reserves) are placed on record and TDS compliance and repayments have occurred in subsequent years. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice under section 148 (limitation and effect on reassessment) Legal framework: Reassessment proceedings are initiated by notice under section 148; amended provisions introduced section 148A procedures (including 148A(b) and 148A(d)) which affect the temporal validity of subsequent section 148 notices. Limitation principles govern whether a section 148 notice can be sustained. Precedent treatment: The Tribunal relied on controlling Supreme Court precedents interpreting issuance dates and surviving limitation periods post-amendment (as applied by the Commissioner of Income-tax (Appeals)). A coordinate Bench decision of the Tribunal (and subsequent High Court confirmation) on similar facts was followed. Interpretation and reasoning: The appellate authority found that, having treated the pre-amendment notice as deemed to have been issued under section 148A(b) (per Supreme Court precedent), the later formal notice under section 148 fell outside the surviving limitation period (i.e., was issued after the permissible date). On that basis the section 148 notice was quashed as time-barred and the reassessment proceedings were held to be invalid. Ratio vs. Obiter: Ratio - where a section 148 notice, when re-characterised under section 148A principles, is issued beyond the surviving limitation period identified by binding Supreme Court authority, the notice is invalid and reassessment proceedings must be quashed. This is a dispositive ratio in the judgment. Any observations about merits of additions post-quash are obiter in respect of the viability of reassessment once notice is quashed. Conclusion: The Court held the section 148 notice to be invalid for being barred by limitation when viewed in light of the amended procedure and controlling precedent, thereby quashing the reassessment and rendering further consideration of additions unnecessary for purposes of sustaining the reassessment. Issue 2 - Addition under section 69A (unexplained expenditure) for property acquisition recorded in earlier years Legal framework: Section 69A treats unexplained expenditure as income of the assessee for the year in which it is discovered; however, principles of year of taxation, banking channel payments, and entries in earlier years' books are relevant to determine whether an addition can be made in a later year. Precedent treatment: The appellate authority considered various High Court and tribunal precedents (relied upon by the assessee before the CIT(A)) that require the AO to look at the year of payment/booking and accept banked payments recorded in earlier assessment years; such precedents were followed in deleting the addition. Interpretation and reasoning: The appellate authority accepted the assessee's submission and documentary proof that the alleged investment/payments forming the basis of the section 69A addition pertained to earlier assessment years (AY 2009-10 and AY 2010-11), had been made through banking channels and recorded in the books of those earlier years. On that factual and legal basis, the appellate authority concluded that the AO could not make the addition in the reassessment year. Ratio vs. Obiter: Ratio - where the alleged unexplained expenditure was paid and reflected in earlier assessment years through banking channels and supported by contemporaneous books/evidence, an addition under section 69A cannot be made in a later reassessment year. This formed a core basis for deleting the addition on merits (though ultimately rendered academic by the quash of reassessment). Conclusion: On merits the addition of the sum treated as unexplained expenditure under section 69A was deleted because the payments were proven to have been made and recorded in earlier years through banking channels; consequently the addition could not be sustained in the reassessment year. Issue 3 - Addition under section 69C (unexplained loans/credits) where creditor's creditworthiness and repayments are documented Legal framework: Section 69C treats unexplained credits/loans as income when the assessee fails to establish the nature and source; creditworthiness of the lender, documentary confirmations, bank transfers, TDS compliance, and subsequent repayments are relevant to determine genuineness. Precedent treatment: The appellate authority applied tribunal and High Court decisions which hold that creditworthiness cannot be negatived solely because a lender is loss-making; documentary proof of net worth, audited accounts, confirmations, bank evidence, TDS deductions and repayments weigh in favour of accepting loan transactions. Interpretation and reasoning: The CIT(A) examined the confirmations, bank statements, ITR acknowledgements, audited balance sheets, proof of repayment, and the lender's capital and reserves showing substantial net worth. The appellate authority accepted that the lender possessed adequate creditworthiness (net worth figures cited) and that TDS had been deducted with repayments made in subsequent years. On this composite documentary foundation, the CIT(A) held that the AO's denial of creditworthiness was not justified and the addition under section 69C could not be sustained. Ratio vs. Obiter: Ratio - where adequate contemporaneous documentary evidence (confirmations, bank transfers, audited accounts showing net worth, TDS compliance and subsequent repayments) is produced, additions under section 69C on grounds of lack of creditworthiness or non-genuineness of loans are not sustainable. This formed a central merits-based ratio (again rendered unnecessary by the quash of the reassessment but relied upon by the CIT(A)). Conclusion: On the merits the addition under section 69C was deleted because the assessee proved the genuineness of the loan transactions by establishing the creditor's creditworthiness, showing bank transfers, TDS compliance and subsequent repayments; however, the Tribunal ultimately dismissed the revenue's appeal principally because the reassessment was quashed as time-barred. Interrelationship and dispositive holding Cross-reference: The Court emphasised that the finding on invalidity of the section 148 notice attained finality because the Revenue did not challenge that finding on appeal; once reassessment proceedings are quashed for want of a valid section 148 notice, there is no jurisdiction to sustain additions made thereby. The merits rulings (Issues 2 and 3) were considered and favourable to the assessee by the CIT(A), but the Tribunal declined to interfere because the reassessment itself was void. Final conclusion: Revenue's appeal was dismissed; the section 148 notice was held invalid as barred by limitation under the applicable post-amendment regime and controlling precedents, and the related additions under sections 69A and 69C were, on merits, deleted by the appellate authority based on documentary proof, creditworthiness and year-of-transaction principles.