2025 (12) TMI 292 - AT - Income Tax

Reassessment for AY 2015-16 quashed as invalid under ss.147, 148A, 151 amid vague additions under s.68

The ITAT Delhi set aside the reassessment initiated under s.147 for AY 2015-16, holding the assumption of jurisdiction to be invalid and the proceedings ... Reopening of assessment - addition u/s 68 - reasons to believe - scope of new regime of the amended provisions of the section 148A - assessee had taken accommodation entries in the form of bogus expenses from entities controlled and operated by Jain Brothers - HELD THAT:- There was absolutely no application of mind on the part of the learned AO while recording the reasons and consequential framing of re-assessment. First, even the nature of the transaction, i.e. whether assessee had taken bogus bills in order to claim bogus expenditure to reduce its taxable income or the assessee had received any sums from the entities controlled and operated by Jain brothers, which could be sought to be taxed as unexplained cash credit u/s 68 of the Act is also not coming out clearly either from the reasons or in any part of the re-assessment order. Hence, we have no hesitation to conclude that the reasons are recorded based on pure incorrect assumption of facts, which makes the entire assumption of jurisdiction u/s 147 of the Act bad in law. Consequentially, the entire reassessment proceedings deserve to be quashed as void ab initio. Notice under section 148 of the Act dated 31-3-2021 had been uploaded in the ITBA portal on 1-4-2021 wherein the new regime of the amended provisions of the section 148A of the Act would kick in. Whereas, the learned AO had made the re-assessment under the old law without following the decisions of Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] and the decision of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] This also makes the entire re-assessment bad in law and void ab initio. For these invalid assumption of jurisdiction and incorrect recording of reasons, the competent authority had accorded sanction under section 151 of the Act, which makes the approval granted by the competent authority under section 151 of the Act also as a mechanical approval without due application of mind, which in turn also makes the reassessment void ab initio. As categorically clear that the assumption of jurisdiction under section 147 of the Act is clearly flawed, grossly invalid, illegal and not sustainable in the eyes of law for more than one reason. Accordingly, the entire reassessment proceedings initiated for assessment year 2015-16 are hereby quashed. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the assumption of jurisdiction for reassessment under section 147 was valid where the reasons recorded were vague, internally inconsistent, and based on incorrect factual assumptions regarding the nature and existence of transactions with alleged accommodation entry providers. 1.2 Whether reassessment initiated by notice under section 148, uploaded on the portal on 01.04.2021, but completed under the unamended regime, was vitiated for non-compliance with the amended provisions, including section 148A, and the binding law laid down by the Supreme Court. 1.3 Whether the approval granted under section 151 for issuing notice under section 148, based on such defective reasons, was mechanical and invalid. 1.4 Consequentially, whether the reassessment orders and penalties imposed under section 271(1)(c), and related penalty proceedings, could survive. 1.5 Whether the same conclusions applied to the subsequent assessment year having identical facts, save for variation in figures. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of reassessment under section 147 on the basis of recorded reasons Interpretation and reasoning 2.1 The Tribunal examined the recorded reasons, which alleged that the assessee had taken accommodation entries in the form of bogus expenses from entities controlled by certain persons (Jain brothers) and that such bogus expenditure led to escapement of income. 2.2 In the reassessment order, however, the Assessing Officer concluded that the assessee had 'received Rs. 74,00,000/- from concerns of' the same persons and treated the amount as 'unexplained credit under section 68', showing a shift from 'bogus expenditure' to 'unexplained cash credits'. 2.3 The Tribunal held that this inconsistency demonstrated that the Assessing Officer was not even clear about the nature of the alleged transactions-whether they were bogus purchase/expense entries or cash credits. The very character of the alleged escapement was thus uncertain. 2.4 The assessee had categorically denied having entered into any transaction with any entities controlled or managed by the said persons. The Tribunal held that the assessee could not be expected to prove a negative (non-existence of transactions), invoking the maxim 'lex non cogit ad impossibilia', and that the burden could not be shifted onto the assessee in the absence of a clear, specific allegation. 2.5 The Tribunal noted that neither in the reasons nor in the reassessment order did the Assessing Officer identify the specific name of any entity controlled by the alleged accommodation entry providers with whom the assessee was supposed to have transacted, nor was any independent enquiry shown to have been made. 2.6 Although the reasons claimed that the Assessing Officer had analysed the assessee's audited balance sheet, profit and loss account, ITR and assessment records, no particulars were brought on record to show the presence of any transaction of Rs. 74 lakhs with the alleged concerns. The Tribunal inferred that there was 'absolutely no application of mind' while recording the reasons. 2.7 The Tribunal concluded that the reasons were vague, based on 'pure incorrect assumption of facts' and did not properly pertain to the assessee; this rendered the assumption of jurisdiction under section 147 itself invalid. Conclusions 2.8 The assumption of jurisdiction under section 147, founded on vague and factually incorrect reasons lacking application of mind and clarity as to the nature and parties of the alleged transactions, was held to be bad in law, and the consequential reassessment proceedings were quashed as void ab initio. Issue 2: Effect of reassessment notice issued/processed under the amended regime without following section 148A and binding Supreme Court decisions Legal framework (as discussed) 2.9 The Tribunal noted that the notice under section 148 was dated 31.03.2021 but was uploaded on the ITBA portal on 01.04.2021, when the amended reassessment regime, including section 148A, introduced by the Finance Act, 2021, had come into effect. 2.10 The Tribunal referred to the binding decisions of the Supreme Court in 'Ashish Agarwal' and 'Union of India vs. Rajeev Bansal', which governed the manner of dealing with such notices in the transitional period, and required compliance with the new procedural safeguards. Interpretation and reasoning 2.11 Despite the notice being operationalised on 01.04.2021, the Assessing Officer proceeded to complete reassessment under the old law, without following the mandatory procedure of the amended provisions and without adhering to the directions laid down by the Supreme Court in the above decisions. 2.12 The Tribunal held that such non-compliance with the amended regime and the binding Supreme Court law further vitiated the reassessment proceedings. Conclusions 2.13 The reassessment framed under the unamended provisions, despite the notice being uploaded after the amended regime came into force and without following the Supreme Court directives, was held to be bad in law and void ab initio. Issue 3: Validity of sanction under section 151 Interpretation and reasoning 2.14 The Tribunal observed that the reasons recorded for reopening were themselves invalid-vague, factually incorrect, and lacking application of mind. 2.15 Since sanction under section 151 was accorded on the basis of such defective reasons, the Tribunal held that the competent authority's approval was necessarily mechanical and granted without due application of mind. Conclusions 2.16 The approval under section 151 was held to be mechanical and invalid, and this was treated as an additional ground for holding the entire reassessment proceedings to be void ab initio. Issue 4: Consequences for reassessment orders and penalties under section 271(1)(c) Interpretation and reasoning 2.17 Having held that the initiation and conduct of reassessment were void ab initio, the Tribunal treated the quantum assessment itself as non est in law. 2.18 On that premise, the Tribunal held that the penalty imposed under section 271(1)(c), being dependent on the validity of the underlying assessment, 'would have no legs to stand'. Conclusions 2.19 The quantum reassessment orders for the year in question were quashed. 2.20 The penalty levied under section 271(1)(c) and the related penalty proceedings were also quashed as a necessary consequence. 2.21 In view of the reassessment being quashed as void ab initio, other grounds on the merits of additions were not adjudicated and were expressly left open. Issue 5: Application of findings to the subsequent assessment year with identical facts Interpretation and reasoning 2.22 The Tribunal noted that for the subsequent assessment year, the facts and issues were identical to those of the lead year, except for variation in figures. 2.23 It therefore applied the reasoning and conclusions recorded for the lead year mutatis mutandis to the subsequent year. Conclusions 2.24 The reassessment proceedings for the subsequent assessment year were similarly quashed as void ab initio. 2.25 The corresponding penalties for that year were also held unsustainable. 2.26 All appeals of the assessee for both assessment years were allowed, with issues on merits left undecided due to the foundational jurisdictional defect.