Source of funds burden cannot be applied retrospectively; reopening notice invalid where pre amendment disclosures were scrutinised.

A post enactment extension of the assessee's burden to explain the 'source of the source' for credited loans cannot be applied to an earlier assessment year; therefore notices issued under Section 148A(b), the order under Section 148A(d) and the subsequent notice under Section 148 were invalid to the extent they relied on the post amendment proviso to Section 68. The assessee had disclosed the loan and supporting bank and agreement documents in scrutiny assessment; absent retrospective application of the 2022 amendment effective from 01.04.2023, statutory preconditions for reopening and notice issuance were not met, leading to quashing of the impugned actions.

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Issues: Whether the notice under Section 148A(b) and the subsequent order under Section 148A(d) and notice under Section 148 of the Income-tax Act, 1961 for Assessment Year 2018-19 are valid where the assessee had disclosed the transactions in scrutiny assessment and the proviso to Section 68 (requiring explanation of the "source of the source") was introduced only by the Finance Act, 2022 effective from 01.04.2023.

Analysis: The assessee filed return for AY 2018-19 and the transactions concerning payment to Gitanjali Infratech Ltd. and receipt of an unsecured loan from Rakesh Girdharlal Gajera were disclosed and examined in scrutiny proceedings culminating in assessment under Section 143(3) read with Sections 143(3A) and 143(3B). The impugned Section 148A(b) show cause notice and the Section 148A(d) order proceeded on the basis that the assessee failed to prove the "source of the source" of funds and that alleged bogus transactions resulted in escapement of income. The proviso to Section 68 of the Income-tax Act, 1961 expanding the assessee's onus to include explanation of the "source of the source" for amounts credited as loans was inserted by the Finance Act, 2022 and made effective from 01.04.2023. Prior to that effective date, such an extended burden was not statutorily required. The facts show the assessee had disclosed the relevant loan and payments during scrutiny and produced documentary evidence of banking transactions and the registered development agreement. The department's case that further inquiry into the source of the lender was necessary relies on the post-2023 proviso which does not apply retrospectively to AY 2018-19. The requirement to explain the source of the lender's funds cannot be imposed for the relevant assessment year by invoking an amendment effective after the assessment year. In these circumstances, the statutory preconditions for reopening under Section 148A(b) and issuance of notice under Section 148, insofar as they rest upon the non-application of the post-2023 proviso to Section 68, are not satisfied.

Conclusion: The impugned notices under Section 148A(b) and Section 148 and the order under Section 148A(d) are quashed and set aside; the writ petition is allowed in favour of the assessee.

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