2026 (1) TMI 246 - AT - Income Tax

Search-triggered reassessment notice u/s148 and disputed investment sale as non-genuine; reopening upheld, addition deleted.

For a search conducted on or after 01.04.2021, the Tribunal held that issuance of notice under s.148 is not contingent on discovery of incriminating ... Validity of re-opening of reassessment u/s.147 on an invalid notice issued by the AO u/s. 148 - AR submitted that during the course of search operation, no incriminating materials/documents were found and seized, therefore the re-opening of assessment is bad in law - HELD THAT:- We have perused the provisions under old scheme vis a vis under new scheme and find that under the new scheme of search, the AO has to issue notice u/s 148 of the Act for the number of assessment years as provided in the Act. In other words there need not be any incriminating materials and whether there is any materials warranting additions that has to be examined by the AO during proceedings u/s 147 of the Act. Therefore we do not find any merit in the contentions of the assessee that the provisions of Section 148 of the Act for search conducted on or after 1.4.2021 cannot be considered in total oblivion of the fact that no incriminating material was found with the assessee during the course of search u/s. 132 of the Act and the impugned assessment was unabated and hence no addition can be made. We note that the plea of the assessee does not have force or merit as in this case the requirement of any incriminating material is not there for issuing notice u/s 148 and the assessment can be reopened because the provisions of Section 148 of the Act are analogous to Section 153A of the Act as applicable in the case of search pertaining to search prior to 1.4.2021. AO is under obligation to reopen such assessment years prior to the date of search even if there is no incriminating material and then frame the assessment accordingly. Existence of incriminating materials has to be examined during the assessment proceedings and not at the stage of issuance of notice. Decided against assessee. Addition of sale of investment - HELD THAT:- Action of the AO cannot be sustained for following reasons: i) The statement/materials relied by the AO was not confronted to the assessee ii) accepting the raising of funds and investments in private equities were itself examined and accepted by the AO in A.Y. 2010-11 in the scrutiny proceedings particularly when the scrutiny was selected for verification of funds raised and investments thereof and iii) partly accepting the sale of shares during the instant under consideration and partly treating as non-genuine. Therefore, the order of CIT(A) upholding the assessment order cannot be sustained. Considering all we set aside the appellate order and direct the AO to delete the addition. Appeal of the assessee is allowed. Issues: (i) Whether the reopening of the assessment by issuance of notice under section 148 (post-search) was invalid for lack of incriminating material/reasons and other pre-conditions; (ii) Whether the addition of Rs. 42,43,50,000/- under section 68 in respect of sale of investments in AY 2019-20 was sustainable.Issue (i): Whether the notice issued u/s 148 and consequent reassessment proceedings (u/s 147) were invalid for want of reasons/incriminating material or other preconditions.Analysis: The Tribunal examined the new statutory scheme applicable to searches conducted on or after 1.4.2021 and compared it with the earlier regime. It considered whether issuance of notice u/s 148 requires existence of incriminating material at the stage of issuance or whether the existence of such material is to be examined during assessment proceedings. The Tribunal reviewed submissions and coordinate decisions but concluded that under the new scheme the AO is obliged to issue notice for the assessment years specified and that the existence of incriminating material need not be a precondition to issuing the notice; scrutiny of incriminating material occurs during assessment proceedings.Conclusion: The notice u/s 148 and the reopening under section 147 are valid; the grounds challenging reopening are dismissed (against the assessee).Issue (ii): Whether the addition of Rs. 42,43,50,000/- as unexplained cash credit under section 68 in respect of sale of investments is sustainable.Analysis: The Tribunal analysed the assessment record, the evidence filed by the assessee and the purchaser companies, remand report, prior scrutiny acceptance of the original investments (A.Y. 2010-11), and the department's reliance on seized documents and third-party statements. It found that (a) many of the sale transactions were supported by records and purchaser confirmations; (b) the AO accepted part of the sales as genuine while treating the same purchasers' transactions as bogus in the assessee's case, producing arbitrary inconsistency; (c) statements and seized documents relied upon were not confronted to the assessee nor were key persons cross-examined; (d) prior scrutiny had accepted the raising and investment of funds reflected in books; and (e) retracted or uncorroborated statements cannot alone sustain additions. Applying these factual and legal considerations and following persuasive precedents and co-ordinate bench reasoning, the Tribunal held that the addition could not be sustained and directed deletion of the addition.Conclusion: The addition of Rs. 42,43,50,000/- made u/s 68 is deleted and the assessee's appeal on this substantive issue is allowed (in favour of the assessee).Final Conclusion: The appeal is partly allowed — the challenge to reopening under section 148 was rejected, but the addition under section 68 in respect of sale of investments for AY 2019-20 was set aside and deleted; overall relief granted to the assessee on the substantive tax addition.Ratio Decidendi: Under the post-1.4.2021 search regime an AO may issue notice u/s 148 for specified assessment years without pre-existing incriminating material, but additions under section 68 cannot be sustained where the sale of long-held investments was accepted in earlier scrutiny, purchaser confirmations and documentary evidence support the transactions, and the AO relies on uncorroborated or un-confronted statements or seized documents without allowing cross-examination; such additions require independent corroborative evidence to stand.