Reassessment limitation fails when alleged unrecorded purchases yield only embedded profit below the statutory threshold.
Reassessment jurisdiction under the amended regime requires information suggesting income escapement and approved satisfaction linking seized material to the assessee; an independent enquiry is not required at that stage. Extended limitation cannot be based on gross alleged unrecorded purchases when only the embedded profit is chargeable, the annual threshold is unmet, and separate years cannot be aggregated. Third-party digital tally data cannot constitute entries in the assessee's books, while undisclosed purchases are not an asset for extended reopening. A belated return filed under Section 148 without extension does not require a Section 143(2) notice. Additions resting on untested third-party statements or records fail where requested cross-examination is denied and corroborative evidence is absent.
Issues: (i) Validity of reassessment jurisdiction based on satisfaction under Explanation 2(iv) to Section 148 of the Income-tax Act, 1961; (ii) Applicability of the extended limitation under Section 149(1)(b) where the embedded profit element was below Rs. 50 lakh; (iii) Validity of reopening for assessment years 2014-15 to 2016-17 beyond six years where alleged undisclosed purchases were not an asset; (iv) Whether third-party digital tally data constituted entries in the assessee's books of account under Section 149(1)(b)(iii) of the Income-tax Act, 1961; (v) Effect of non-issuance of notice under Section 143(2) of the Income-tax Act, 1961 after a delayed return in response to notice under Section 148; and (vi) Validity of additions founded on third-party material without granting requested cross-examination.
Issue (i): Validity of reassessment jurisdiction based on satisfaction under Explanation 2(iv) to Section 148 of the Income-tax Act, 1961.
Analysis: Under the amended reassessment regime, the requirement is information suggesting escapement of income and satisfaction, with prescribed approval, that seized information relates to the assessee. The seized tally information was linked to alleged unrecorded purchases, compared with the assessee's return, and supported by approval. Similarity of satisfaction notes across years and the fact that the tally data related to multiple entities did not invalidate the satisfaction; no separate independent enquiry was statutorily required at this stage.
Conclusion: The satisfaction under Explanation 2(iv) to Section 148 was valid; this issue is decided against the assessee.
Issue (ii): Applicability of the extended limitation under Section 149(1)(b) where the embedded profit element was below Rs. 50 lakh.
Analysis: Income chargeable to tax from alleged unrecorded purchases was confined to the embedded profit element rather than the gross purchase amount. On that basis, the escaped income for each assessment year from 2014-15 to 2018-19 was below Rs. 50 lakh. Escaped income of separate assessment years could not be aggregated to meet the statutory threshold.
Conclusion: The extended limitation under Section 149(1)(b) was unavailable, and the notices for assessment years 2014-15 to 2018-19 were time-barred; this issue is decided in favour of the assessee.
Issue (iii): Validity of reopening for assessment years 2014-15 to 2016-17 beyond six years where alleged undisclosed purchases were not an asset.
Analysis: For a non-searched person, the relevant block period was reckoned from initiation of action against that person. The relevant years fell beyond the six-year period. Further, alleged undisclosed purchases did not fall within the restricted statutory definition of an asset for extending the period under the fourth proviso to Section 153A.
Conclusion: The reopenings for assessment years 2014-15 to 2016-17 were invalid and void ab initio; this issue is decided in favour of the assessee.
Issue (iv): Whether third-party digital tally data constituted entries in the assessee's books of account under Section 149(1)(b)(iii) of the Income-tax Act, 1961.
Analysis: The seized digital tally was maintained by third parties, related to multiple entities, and was not reflected in books maintained by the assessee. The allegation itself was of purchases outside the assessee's books. Third-party tally records could not be treated as entries in the assessee's books of account for invoking Section 149(1)(b)(iii).
Conclusion: Invocation of Section 149(1)(b)(iii) was legally unsustainable, and the notices and consequent reassessments for assessment years 2016-17 to 2018-19 were invalid; this issue is decided in favour of the assessee.
Issue (v): Effect of non-issuance of notice under Section 143(2) of the Income-tax Act, 1961 after a delayed return in response to notice under Section 148.
Analysis: The return in response to the Section 148 notice was filed beyond the period allowed and no extension was sought. Under the third proviso to Section 148, such delayed return was not deemed to be a return under Section 139. Consequently, the requirement of notice under Section 143(2), applicable to a return under Section 139 or in response to Section 142(1), was not attracted.
Conclusion: Non-issuance of notice under Section 143(2) did not invalidate the assessment for assessment year 2014-15; this issue is decided against the assessee.
Issue (vi): Validity of additions founded on third-party material without granting requested cross-examination.
Analysis: The additions rested on seized third-party data and statements. The requested cross-examination was denied despite uncertainty over the identity recorded in the seized ledger and absence of corroborative material directly linking the entries to the assessee. Unverified third-party material and statements, not tested by cross-examination, lacked evidentiary value for sustaining the additions.
Conclusion: Denial of the requested cross-examination violated natural justice and vitiated the assessments for assessment years 2014-15 to 2021-22; this issue is decided in favour of the assessee.
Final Conclusion: The reassessments were unsustainable because the extended limitation conditions failed for the relevant years and, independently, the additions were based on third-party material without effective cross-examination. The merits of the additions were not adjudicated.
Ratio Decidendi: An assessment based on adverse third-party statements or material cannot be sustained where a specifically requested cross-examination is denied and no corroborative evidence reliably connects that material with the assessee.