2026 (2) TMI 1236 - AT - Income Tax

Reopening of assessment requires objective basis and independent sanction; mechanical approvals and bypassing show-cause procedure invalidate notices.

Reopening assessments beyond the three-year period is impermissible where the AO and sanctioning authorities failed to record, on objective material, that ... Validity of initiation of re-assessment proceedings by issuing notice u/s 148 for want of fulfilment of the prescribed conditions laid down u/s 148 - Validity of sanction/approval u/s 151/148B - approval from the DGIT for complying the conditions laid down in section 149(1)(b) r.w.s.151 of the I.T. Act because the notice u/s 148 of the Act was issued beyond 3 years. HELD THAT:- The Co-ordinate Bench of this Tribunal [2025 (10) TMI 936 - ITAT HYDERABAD] under identical set of facts and on identical arguments of both sides has held that the reopening of the assessment on the basis of notice u/s 148 of the Act, without satisfying requirements of section 148 and explanation provided thereon is invalid and quashed the notice u/s 148 of the Act and consequent assessment order passed by the AO, because the notice u/s 148 of the act issued by the AO failed to fulfil the mandatory conditions provided u/sec.149(1)(b) of the Act. As respectfully following the Order passed in the case of M/s. ACE Tyres (P) Ltd. [2025 (10) TMI 936 - ITAT HYDERABAD] we are of the considered view that notice issued by the Assessing Officer u/sec.148 of the Act, in consequence to search operation conducted u/sec.132 of the Act on 04.01.2023 is bad in law, void abinitio and liable to be quashed because, the Assessing Officer has issued notice without fulfilling the conditions prescribed for issuance of such notice beyond three years from the end of the relevant assessment years which is evident from the reasons recorded by the AO for reopening of the assessment, where the AO has failed to make out a case of income escaped assessment in excess of Rs. 50 lakhs which represents an asset, expenditure in respect of transaction or in relation to an event or occasion or an entry or entries in the books of accounts. Therefore, the notice issued by the AO on the basis of reasons recorded for issuing of such notice without satisfying the mandatory conditions can be said to be a vague notice and hence, the same is bad in law, void abinitio and liable to be quashed. Thus, we quash the notice issued by the Assessing Officer u/sec.148 of the Act and consequently, the assessment order passed by the AO for the assessment years 2014-2015 to 2018-2019 are quashed. Validity of the second notice u/s 148 issued after the earlier reassessment proceedings were dropped without following section 148A procedure - On identical set of facts in the case of M/s. ACE Tyres (P) Ltd. [2025 (10) TMI 936 - ITAT HYDERABAD] has held that after dropping the notice issued u/sec.148 of the Act dated 18.03.2023, the AO cannot issue 2nd notice u/sec.148 of the Act dated 14.11.2024, without following procedure provided u/s 148A of the Act, and thus, second notice issued u/s 148 dated 14.11.2024 is invalid and liable to be quashed. In the present case, there is no dispute with regard to the fact that the Assessing Officer has issued notice u/sec.148 of the Act on 18.03.2023 in response to which the assessee has filed return of income on 15.11.2023. Further, the Assessing Officer dropped the re-assessment proceedings initiated vide notice issued u/sec.148 of the Act dated 18.03.2023 and had issued a fresh notice u/sec.148, without issuing notice u/s 148A(b), calling for explanation if any, from the assessee and passing an order u/sec.148A(d) of the Act disposing of the objections if any, filed by the assessee before issuing the notice u/sec.148 of the Act. In our considered view, the 2nd notice issued by the Assessing Officer u/sec.148 of the Act dated 14.11.2024 is not in conformity with the Scheme of Re-Assessment provided u/sec.148A of the Act and thus, the same cannot be upheld. AO cannot get a second chance to revive otherwise bad or illegal assessment for not issuing notice u/a 143(2) of the Act, by issuing second notice u/s 148 on same set of reasons and without fulfilling mandatory conditions provided u/s 148A of the Act. Therefore, in our opinion, second notice issued u/s 148 of the Act, dated 14.11.2024 is bad in law and liable to be quashed. Thus, we quash second notice issued u/s 148 of the Act, dated 14.11.2024 and consequent assessment order passed by the Assessing Officer for the assessment year 2019-2020. Issues: (i) Whether notices issued under Section 148 (and consequent reassessments) beyond three years from the end of the relevant assessment years are valid where the Assessing Officer and specified authorities failed to satisfy and record the conditions in Section 149(1)(b) and where sanction/approval under Section 151/148B was accorded mechanically without application of mind; (ii) Whether a second notice under Section 148 issued after the Assessing Officer dropped earlier reassessment proceedings can be issued without following the procedure under Section 148A.Issue (i): Validity of notices under Section 148 issued beyond three years vis-a -vis Section 149(1)(b) and validity of sanction/approval under Section 151/148B if recorded mechanically.Analysis: The material relied upon for reopening consisted largely of data and excel workbooks seized from the personal premises of a third person (senior accounts manager) and consolidated group-level cash records; those records were not shown to constitute identifiable assets, specified expenditure, or entries in the assessee's books of account for the relevant years. The reasons recorded for reopening did not identify asset(s) or book entries nor perform necessary year- and entity-specific allocation to demonstrate escapement exceeding the statutory threshold. The approval/sanction forms evidence concurrence by higher authorities but lack independent reasons or application of mind and thus are mechanistic endorsements. Established principles require that sanctioning authorities record satisfaction based on objective material and not by mere formality; mechanical approvals negate jurisdiction to reopen beyond the three-year period where Section 149(1)(b) criteria are not met.Conclusion: Notices issued under Section 148 for the relevant years are void and quashed because the preconditions of Section 149(1)(b) were not satisfied and the sanction/approval under Section 151/148B was granted in a mechanical manner without application of mind. The reopening therefore lacked jurisdiction.Issue (ii): Validity of second Section 148 notice issued after earlier reassessment proceedings were dropped without following Section 148A procedure.Analysis: The first reassessment proceedings pursuant to an initial Section 148 notice were dropped by the Assessing Officer (acceptance of return/closure). No fresh material or change in facts was shown before issuance of the second notice. The statutory scheme of Section 148A requires the Assessing Officer to issue a show-cause notice under Section 148A(b), consider the response, and pass an order under Section 148A(d) before initiating a fresh Section 148 proceeding in such circumstances. Bypassing the Section 148A process and issuing a second Section 148 notice on the same material without complying with the mandated procedure renders the second notice invalid.Conclusion: The second notice under Section 148 issued after dropping the earlier proceedings is invalid and quashed for failure to follow the procedure under Section 148A.Final Conclusion: The reassessment notices and consequential assessment orders for the challenged assessment years are quashed for want of jurisdiction and procedural non-compliance; the appeals are allowed.Ratio Decidendi: Reopening of assessment beyond three years under Section 148/147 is invalid unless the Assessing Officer possesses and records, with objective basis, material demonstrating that escaped income is represented by an asset, specified expenditure or entries in the assessee's books amounting to the statutory threshold, and any sanction/approval required under Section 151/148B must reflect independent application of mind rather than mechanical endorsement; where an earlier reassessment is dropped, any fresh reopening must comply with Section 148A procedural safeguards.