Reassessment limitation and evidence-based additions: belated notices and conjectural profit estimates on documented investment sales cannot stand.

For assessment years beginning on or before 1 April 2021, the note explains that the first proviso to Section 149(1) preserves the earlier limitation regime; a reassessment notice issued beyond six years from the end of the relevant assessment year is therefore time-barred and invalid. It further states that an estimated profit addition from investment sale proceeds requires substantive evidence. Where investments were recorded and accepted in earlier assessments, and sales are supported by documents and banking records, conjecture without incriminating material, a cash trail, or other linkage cannot sustain an addition.

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Issues: (i) Whether the reassessment notice for AY 2016-17 was barred by limitation under the first proviso to Section 149(1). (ii) Whether a 5% addition from the sale consideration of investments could be sustained as an estimated profit element.

Issue (i): Whether the reassessment notice for AY 2016-17 was barred by limitation under the first proviso to Section 149(1).

Analysis: For an assessment year beginning on or before 1 April 2021, the first proviso preserves the pre-Finance Act, 2021 limitation regime. The notice issued on 9 October 2023 for AY 2016-17 was beyond six years from the end of the relevant assessment year.

Conclusion: The reassessment notice and the consequential reassessment were time-barred and void. This issue is decided in favour of the assessee.

Issue (ii): Whether a 5% addition from the sale consideration of investments could be sustained as an estimated profit element.

Analysis: The investments had been acquired in earlier years, recorded in the books and accepted in prior assessments. The sale transactions were supported by documentary evidence and banking-channel receipts. No incriminating material, reliable cash trail, adverse statement or other evidence linked the assessee with alleged accommodation entries. Once the source investments were accepted and the sale transactions stood substantiated, an estimated addition based merely on presumptions lacked a substantive evidentiary basis.

Conclusion: The 5% addition was unsustainable and was deleted. This issue is decided in favour of the assessee.

Final Conclusion: The reassessment founded on the belated notice cannot survive, and no estimated income can be retained from the substantiated sale of investments.

Ratio Decidendi: A reassessment notice issued beyond the preserved statutory limitation is invalid, and an addition from sale proceeds of accepted investments cannot rest on conjecture without material disproving the documented transaction.

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