2026 (1) TMI 616 - AT - Income Tax

Validity of reopening of assessment challenged over insufficient reasons and procedural lapses, resulting in reassessment quashed.

Validity of reopening of assessment examined where reopening notice lacked particulars of alleged unsecured loans and identities of purported dummy ... Validity of reopening of assessment - reasons to believe - as alleged assessee has received unsecured loans from various dummy companies giving accommodative entries - HELD THAT:- As in reopening notice absolutely no details with regard to amount of unsecured loans and the details of alleged dummy companies is mentioned. The reopening merely mentions that a search was conducted on M/s KK Spun India Ltd. on 23.03.2021 and assessee was found to have received unsecured loans from various dummy companies and there is no allegation of any information available suggesting income chargeable to tax escaping assessment. Assessee has provided copy of reply wherein in response to show cause notice dated 12.03.2022 assessee had provided details of entity providing unsecured loans including from ledger account, confirmation, bank account and ITR. It comes up from this reply that assessee had mentioned that most of the loans taken by the assessee during Financial Year 2017-18 have been repaid by the assessee in the Financial Year 2019-20 and assessee had claimed that it is has no transaction with M/s KK Spun India Ltd. Assessee specifically mentioned that no new information is available in the notice u/s 148A of the Act. Then copy of order u/s 148A(d) has been provided which show that only draft order was enclosed and forwarded and there is no mention of approval u/s 151 being also sent. This order dated 30.03.2022 mentions of the response of the assessee being received in consequence to notice u/s 148A(b) of the Act but without pointing out any discrepancy or suspicion from the submissions of the assessee merely relying the investigation report, this order seems to be passed. Thus, appeal of the assessee is allowed and the impugned reassessment order is quashed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the reassessment initiation under section 148, preceded by proceedings under section 148A, was invalid for want of disclosure/supply of the material relied upon and for issuing only vague allegations in the section 148A(b) show-cause notice. (ii) Whether the order under section 148A(d) was vitiated because it did not meaningfully deal with, or point out any discrepancy in, the assessee's detailed reply and instead proceeded merely on an investigation report. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Validity of reassessment initiation for non-supply of relied-upon material and vagueness of the section 148A(b) notice Legal framework (as discussed by the Court): The Court examined the statutory pre-notice procedure under section 148A, including the requirement that the assessee be put to notice with the information/material relied upon so as to enable an effective response before issuance of notice under section 148. Interpretation and reasoning: The Court scrutinised the section 148A(b) show-cause notice and found that it contained only broad assertions linked to a search on a third party and an allegation that the assessee had taken unsecured loans from 'dummy companies'. The notice did not set out essential particulars such as the amounts, the identity/details of the alleged entities, or any concrete information indicating escapement of income. On these facts, the Court accepted the assessee's objection that the 'fresh material' or relied-upon information was not supplied at the reopening stage, impairing the assessee's ability to respond meaningfully. Conclusion: The Court held that the reassessment initiation suffered from a fundamental defect because the assessee was not supplied the material relied upon and the section 148A(b) notice was vague and non-specific. Consequently, the notice under section 148 was held to be bad in law, rendering the reassessment proceedings invalid. Issue (ii): Validity of the section 148A(d) order for non-consideration of the assessee's reply and mechanical reliance on an investigation report Legal framework (as discussed by the Court): The Court treated it as mandatory that the authority pass a reasoned/speaking order under section 148A(d) after considering the assessee's reply to the show-cause notice, rather than proceeding mechanically. Interpretation and reasoning: The Court noted that the assessee had filed a detailed reply with supporting documents (including confirmations, ledger, bank and return details) and had also asserted lack of transaction with the searched third party. However, the section 148A(d) order, while referring to receipt of the reply, did not point out discrepancies or deal with the substance of the assessee's submissions, and appeared to proceed merely by relying on an investigation report. The Court treated this as non-compliance with the required pre-notice process, and as reinforcing the legal infirmity in reopening. Conclusion: The Court held that non-consideration of the assessee's reply and the mechanical approach in the section 148A(d) order vitiated the reopening process. On this basis as well, the reassessment could not stand, and the reassessment order was quashed.