High Court Quashes Old Reassessment: Bogus Purchases Are Not “Assets” for Reopening Beyond Three Years.
The Legal Framework
Under the amended Section 149, the Department can only issue a notice after three years if:
The income escaping assessment is ₹50 lakh or more.
The escaped income is represented in the form of an Asset, an Entry in books, or a Relevant Expenditure (as per the specific clauses of the Act).
Facts of the Case
The Notice: The Revenue issued a notice under Section 148 for AY 2014-15, well beyond the standard three-year window.
The Allegation: The Department claimed the assessee engaged in bogus purchases exceeding ₹50 lakh.
The Assessee’s Defense: Bogus purchases are expenses (P&L items), not “assets” (Balance Sheet items). Since the law for older cases specifically required the escapement to be linked to an asset, the notice was jurisdictionally flawed.
The Judicial Verdict
The Court quashed the assessment, ruling in favour of the Assessee based on a literal interpretation of the statute:
Revenue vs. Capital: The Court held that “purchases” (whether genuine or bogus) are revenue expenditures. They do not constitute an “Asset” unless the Revenue can prove those purchases were used to create a tangible or intangible asset reflected in the Balance Sheet.
Failure of Inference: The Department failed to show that these alleged bogus purchases resulted in the creation of any specific asset. Since the “Asset” prerequisite was not met, the Revenue lost the legal authority to go back further than three years.
Strict Interpretation of Section 149(1)(b): For reopening beyond three years, the presence of an “Asset” is a mandatory jurisdictional fact. If the escapement relates to a simple expenditure or a revenue transaction, the three-year “statute of limitations” is absolute.
Key Takeaways for Taxpayers
The 3-Year Barrier: For most cases not involving a specific “Asset” (like property, shares, or bank deposits), the Department’s power to reopen an assessment effectively ends after three years from the end of the relevant assessment year.
Bogus Purchase Allegations: If you receive a reassessment notice for a year older than 3 years based on “bogus purchases,” “bogus expenses,” or “accommodation entries” that don’t result in an asset, you have strong grounds to challenge the jurisdiction of the notice itself.
Check the Quantum: Even if an asset is involved, the Department cannot reopen a case older than 3 years if the amount is less than ₹50 lakh.
Writ Jurisdiction: This is a “jurisdictional error.” Instead of going through years of appeals, such notices are often challenged directly in the High Court via a Writ Petition to have them quashed at the start.
High Court Quashes Old Reassessment: Bogus Purchases Are Not “Assets” for Reopening Beyond Three Years.
The Legal Framework
Under the amended Section 149, the Department can only issue a notice after three years if:
The income escaping assessment is ₹50 lakh or more.
The escaped income is represented in the form of an Asset, an Entry in books, or a Relevant Expenditure (as per the specific clauses of the Act).
Facts of the Case
The Notice: The Revenue issued a notice under Section 148 for AY 2014-15, well beyond the standard three-year window.
The Allegation: The Department claimed the assessee engaged in bogus purchases exceeding ₹50 lakh.
The Assessee’s Defense: Bogus purchases are expenses (P&L items), not “assets” (Balance Sheet items). Since the law for older cases specifically required the escapement to be linked to an asset, the notice was jurisdictionally flawed.
The Judicial Verdict
The Court quashed the assessment, ruling in favour of the Assessee based on a literal interpretation of the statute:
Revenue vs. Capital: The Court held that “purchases” (whether genuine or bogus) are revenue expenditures. They do not constitute an “Asset” unless the Revenue can prove those purchases were used to create a tangible or intangible asset reflected in the Balance Sheet.
Failure of Inference: The Department failed to show that these alleged bogus purchases resulted in the creation of any specific asset. Since the “Asset” prerequisite was not met, the Revenue lost the legal authority to go back further than three years.
Strict Interpretation of Section 149(1)(b): For reopening beyond three years, the presence of an “Asset” is a mandatory jurisdictional fact. If the escapement relates to a simple expenditure or a revenue transaction, the three-year “statute of limitations” is absolute.
Key Takeaways for Taxpayers
The 3-Year Barrier: For most cases not involving a specific “Asset” (like property, shares, or bank deposits), the Department’s power to reopen an assessment effectively ends after three years from the end of the relevant assessment year.
Bogus Purchase Allegations: If you receive a reassessment notice for a year older than 3 years based on “bogus purchases,” “bogus expenses,” or “accommodation entries” that don’t result in an asset, you have strong grounds to challenge the jurisdiction of the notice itself.
Check the Quantum: Even if an asset is involved, the Department cannot reopen a case older than 3 years if the amount is less than ₹50 lakh.
Writ Jurisdiction: This is a “jurisdictional error.” Instead of going through years of appeals, such notices are often challenged directly in the High Court via a Writ Petition to have them quashed at the start.
IN THE ITAT MUMBAI BENCH ‘G’
Shairul Impex
v.
Income-tax Officer*
Justice C.V. Bhadang, President
and ARUN KHODPIA, Accountant Member
and ARUN KHODPIA, Accountant Member
IT Appeal No. 6613 (Mum) OF 2025
[Assessment year 2014-15]
[Assessment year 2014-15]
MARCH 6, 2026
Shashi Bekal, Adv. for the Appellant. Swapnil Choudhary, Sr. DR for the Respondent.
ORDER
Arun Khodpia, Accountant Member. – This appeal is preferred by the assessee to challenge the order of Commissioner of Income Tax (Appeals), NFAC, Delhi [in short “Ld. CIT(A)”], dated 22.08.2025 for the Assessment Year (AY) 2014-15, which in turn arises from the assessment order passed u/s 147 r.w.s. 144 of the Income Tax Act, 1961 (in short “The Act”) dated 11.05.2023. The grounds of appeal raised by the assessee are as under:
“1. Reassessment is bad in law.
1.1. That on the facts and circumstances of the case and in law the Ld. National Faceless Appeal Centre (NFAC) has erred in upholding the Reassessment proceedings for as the Notice under section 148 of the Act is issued in violation of section 151A of the Income-tax Act, 1961 (Act)
1.2. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings for as the Notice under section 148 of the Act is issued in violation of CBDT Circular 19 of 2019.
1.3. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings, though the income escaping assessment is not in the form of an asset.
1.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings, though the information and statements relied on by the Ld. Assessing Officer (AO) was not shared with the Appellant in spite of specific requests
2. Addition of Rs. 3,02,93,611/- as Bogus Purchases
2.1. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO without any basis.
2.2. That on the facts and circumstances of the case and in law the Ed. NFAC has erred in confirming the additions made by the Ld. AO, whereas the appellant has provided all documents and shifted the burden of proof onto the revenue.
2.3. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO without giving an opportunity for cross-examination.
2.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO without conducting any enquiry in the matter
2.5. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO as an addition, if any, could be made only gross profit element in the alleged bogus purchases.
2.6. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in confirming the additions made by the Ld. AO as the report of the Task Group for Diamond Section (issued by the Government of India) itself shows that the Gross Profit rate for entities in the said industry was 2 percent. Hence, the additions, if any, ought to have been restricted to 2 per cent of the impugned purchases.”
2. At the outset, ld. Counsel of the assessee preferred to not press Ground No. 1.1 and 1.2 of the present appeal challenging the validity of notice under section 148 of the Act being alleged to be issued in violation of section 151A of the Act and the same notice gets invalidated in absence of Din Number, being issued in violation of CBDT’s Circular No. 19 of 2019. Similar contentions raised through additional grounds dated January 05, 2026 are also treated as dismissed, being not pressed.
3. The ld. AR reiterated the facts of the case through material available on record, stating that the assessee is a partnership firm, had filed its return of income for AY 2014-15 on 25.09.2014, declaring a total income of Rs. 12,69,240/-. Further as per information available during the search and seizure action on Rajendra Jain Group, it is revealed that the assessee has obtained accommodation entries in the nature of bogus purchase from M/s Narayan Gems and M/s Nazar Impex Pvt. Ltd. amounting to Rs. 3,02,93,611/- during the relevant year. Such information prompted the revenue to form a belief that the income chargeable to tax has escaped in the present matter. Accordingly notice under section 148 was issued on 19.04.2021 after recording reasons along with prior approval of the sanctioning authority. Subsequently, the procedure of reopening was initiated, as per amended regime following the decision of Union of India v. Ashish Agarwal ITR 1 (SC). After following the entire proceedings, notice under section 148 dated 27.03.2022 was issued to the assessee. During the course of proceedings statutory notices under section 143(2) and 142(1) of the Act were issued along with questionnaire which were responded by the assessee. On deliberations, the ld. AO was not convinced with the submissions of assessee, therefore had added the entire amount of alleged bogus purchase to the income of the assessee. The issue then was carried before the ld. CIT(A), who had discussed the legal contentions raised by the assessee as well as the contentions on merits and have dismissed the appeal of assessee by confirming the addition made by ld. AO.
4. Being aggrieved with the aforesaid decision of ld. CIT(A), the assessee preferred the present appeal which is under consideration before us.
The first legal contention raised by ld. AR was that the assessee’s case was reopened following the provisions of section 149 of the Act. The ld. AR has submitted an comparison of section 149(1) and its application to the relevant AY and the amended provisions, the same is extracted as under:
Income-Tax Act, 1961 – As Amended by Finance Act 2025 | Income-Tax Act, 1961 – As Amended by Finance Act 2021 |
Time limit for notices under sections 148 and 148A. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if three years and three months have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years and three months, but not more than five years and three months, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more. (2) No notice to show cause under section 148A shall be issued for the relevant assessment year,- (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than five years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is likely to amount to fifty lakh rupees or more.] 91. Substituted by the Finance (No. 2) Act, to its 2024, w.e.f. 1-9-2024. Prior substitution, section 149, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989, Finance Act, 2001, w.e.f. 1-6-2001, Finance Act, 2012, w.e.f. 1-72012, Finance Act, 2021, w.e.f. 1-4-2021, Finance Act, 2022, w.e.f. 1-4-2022/w.r.e.f. 1-42021 and Finance Act, 2023, w.e.f. 1-4-2023, read as under: ‘149. Time limit for notice.- (1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of- (i) an asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more: Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 1530 read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021: Provided also that for cases referred to in clauses (i), (iii) and (iv) of Explanation 2 to section 148, where, (a) a search is initiated under section 132; or (b) a search under section 132 for which the last of authorizations is executed, or (c) requisition is made under section 132A, after the 15th day of March of any financial year and the period for issue of notice under section 148 expires on the 31st day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the noticeissued under section 148 in such case shall be deemed to have been issued on the 31st day of March of such financial year: Provided also that where the information as referred to in Explanation 1 to section 148 emanates from a statement recorded documents impounded under section 131 or section 133A, as the case may be, on or before the 31st day of March of a financial year, in consequence of,–or (a) a search under section 132 which is initiated; or (b) a search under section 132 for which the last authorisations is executed; or of (c) a requisition made under section 132A, after the 15th day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under clause (b) of section 148A in such case shall be deemed to have been issued on the 31st day of March of such financial year: Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order injunction of any court, shall be excluded: or Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A does not exceed seven days, such remaining period shall be extended to seven days and the period of limitation under this subsection shall be deemed to be extended accordingly. Explanation.-For the purposes of clause (b) of this subsection, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. (1A) Notwithstanding anything contained in sub-section (1), where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of subsection (1), has escaped the assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant. | [Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year;- (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year: Provided that no notice under section 148 shall be issued at any time in a case for the relevant -assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause -(b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A. or section 153C read with section 1534, is required to be issued in relation to a search initiated under section 132 or books of other documents account, or assets any requisitioned under section 1324, on or before the 31st day of March, 2021: Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 1484 is stayed by an order or injunction of any court, shall be excluded Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 1484 is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly. Explanation. For the purposes of clause (b) of this subsection, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.1 28-36. Substituted by the Finance Act, 2021, w.e.f. 1-4-2021. Prior to its substitution, section 149, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989, Finance Act, 2001, w.e.f. 1-6-2001 and Finance Act, 2012, w.e.f. 1-7-2012, read as under: “*149.Time limit for notice. (1) No notice under section 148 shall be issued* for the relevant assessment year,- (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year, (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation.- In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a noticeunder section 148 is to be served is a person treated as the agent of a nonresident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such nonresident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year. Explanation. For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.” to the assessment years within the period referred to in clause (b) of subsection (1), a notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.’. |
5. Referring to the aforesaid changes in section 149, it is submitted by the ld. AR that the case of assessee was reopened beyond three years and there is no income represented in the form of asset that has escaped assessment in accordance with the applicable provisions of section 149(1)(b) of the Act as per finance Act, 2021 which was later amended by Finance (No.2) Act, 2024 w.e.f. 01.09.2024. It was the submission that earlier the provisions of section 149(1)(b) were applicable only in cases wherein the ld. AO has in his possession books of accounts or other documents or evidence which reveals that the income chargeable to tax represented in the form of ‘asset’, which has escaped assessment or amounts to Rs. 50,00,000/- or more for that year. The section was amended w.e.f. 01.09.2024 adding there in the category of information in the form of “any asset or expenditure or transactions or entries”. It is submitted, that the extant provision before amendment by Finance (No.2) Act, 2024, shall apply in the present matter and accordingly it has to be proved that the information from books of accounts or other documents or evidence reveals some income escaped assessment represented in the form of ‘asset’, amounts to or is likely to amount to Rs. 50,00,000/- or more.
6. The ld. AR further submitted that the identical issue has been came up before the Hon’ble Madras High Court in the case of IDFC Ltd. v. Dy. CIT (Madras) / 459 ITR 169 (Madras) , wherein Hon’ble Court while dealing with a case pertaining to AY 2014-15, has held as under:
“54. Section 149, as it stood then, does not contemplate that the books of account/documents/evidences mus themselves represent an asset. In fact, that provision has been amended by Finance Act 2022 to include situations such as the present as well, By virtue of this amendment, Section 149 we.f. 1-4-2022 reads as follows:
“149. Time limit for notice
No notice under section 148 shall be issued for the relevant assessment year.
(a) If three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) If three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of-
(i) an asset
(ii) expenditure in respect of a transaction or in relation to an event or occasion:
or
(iii) an entry or entries in the books of account
which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.””
7. It is further submitted by the ld. AR that the subject matter of disallowance in the present case was bogus purchase, which a profit and loss item and cannot be considered as an asset. To support this contention the ld. AR placed his reliance on the decision of Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd. v. ACIT ITR 430 (Bombay), wherein on the issue of deduction under section 80JJA it was held by the Hon’ble Court that the deduction under section 80JJA cannot represent escapement of income in the form of asset, therefore the notice issued by ld. AO has been held as invalid. The relevant findings of Hon’ble Court in Hexaware Technologies Ltd. (supra) are as under:
“40. As regards issue no. 5, it is petitioner’s case that the issues raised in the impugned initial notice and the impugned order pertain to correct claim of deduction/allowances or the expenditure incurred. There is also no allegation regarding income escaping tax on account of any undisclosed asset. In the impugned order, the Assessing Officer has restricted the escapement of income only with regard to Rs. 6,54,04,038/-on the claim of deduction under section 80JJAA of the Act and disallowance of excess claim of Forex loss of Rs. 6,90,80,180/-, On the Forex loss, respondent has prima facie accepted the contentions of petitioner that there was a Forex loss. Therefore, the same cannot be justified as an escapement of income. Respondent no. 1 has also accepted that the transactions of Calibre Point Business Solutions Ltd. have been duly incorporated in the accounts of petitioner and that no deduction is claimed in respect of the deduction allowed under section 10AA of the Act. None of the issues raised in the impugned order show an alleged escapement of income represented in the form of asset as required in Section 149(1)(b) of the Act.
41. As regards the claim of deduction under section 80JJAA of the Act, an issue of correctness of claim of deduction under Chapter VI of the Act, in our view, cannot be covered by Section 149(1)(b) of the Act.
Section 149(1)(b) of the Act prescribes that escaped home must be represented in the fonts of (7) a (1) expenditure in respect of a transaction or in relation to an event; (iii) an entry in the books of Account.
The question of a correctness of the claim of deduction under section 801JAA of the Act cannot represent escapement of income in the form of an asset. The term ‘asset’ is defined in Explanation to Section 147 of the Alt to include immovable property being land or building or both, shares and securities, loans and advances, deposit in bank account. The present case does not fall in any of the types of the assets as mentioned above. Further, the alleged claim of disallowance of deduction also can never fall under the category of either clause (b) or clause (c) as it is neither a case of expenditure in relation to an event nor a case of an entry in the books of account as no entries are passed in the books of account for claiming a deduction under the provisions of the Act. On this ground also the impugned notice will be invalid.
42. As regards issue no. 6, respondent no. I has no power to review his own assessment when the same information was provided and considered by him during the original assessment proceedings. We agree with petitioner that there cannot be a reopening based on a change of opinion. The claim of deduction under section 801JAA of the Act was made by petitioner in the return of income and petitioner had filed Form 10DA being the report of the Chartered Accountant. In the said Form, a note has been filed alongwith Form 10DA and it has specifically been submitted by petitioner that software development activity constitutes ‘manufacture/production of article or thing’. The claim of deduction under section 80JJAA of the Act was also disclosed in the Tax Audit Report filed by petitioner alongwith the return of income. Further, during the assessment proceedings, the Assessing Officer had issued a notice dated 5th October 2017 asking for details of deduction claimed under Chapter VI of the Act. Petitioner vide a letter dated 13th November 2017 gave the details of deduction claimed under Chapter VI of the Act alongwith supporting documents. The Assessing Officer has passed the assessment order dated 30th November, 2017 allowing the claim of deduction under section 80JJAA of the Act. The claim for deduction under section 80JJAA of the Act was allowed by the Assessing Officer in the previous years as well. Hence, the present case is clearly a case of change of opinion or review of the original assessment order which is not permissible even under the new provisions.”
8. The ld. AR further placed his reliance on the aforesaid issue that whether suppression of income / wrong claim of disallowance will constitute an asset, Hon’ble Madras High Court in the case of IDFC Ltd. (supra) has discussed his issue and held as under:
“52. Additionally, the validity of the impugned proceedings have also to be tested on the anvil of the statutory condition in section 149 that the officer has in his possession, books of accounts or other documents of evidence which reveal that income chargeable to tax, represented in the form of an asset’ has escaped assessment. This additional requirement flows from the reason that the notices have been issued beyond three years from the end of the relevant assessment years. In the present case, the petitioner argues that there is no such asset”
9. Based on aforesaid decisions, it was the submission by ld. AR that in the case of assessee in the present matter which is before the Finance Act, 2022 the alleged bogus purchase cannot constitute an asset to be treated as income that has escaped assessment, therefore the notice issued under section 148 in violation of provisions of section 149(1)(b) of the Act is liable to be quashed.
10. Per contra, the ld. Sr. DR representing the revenue submitted that the ld. AO as well as the ld. CIT(A) has rightly adjudicated the issues and have arrived at a logical conclusion based on credible information with the ld. AO, whereas the assessee was squarely failed to prove the genuineness of purchases recorded in the books, therefore the impugned decision was on a proper appreciation of the facts and cannot be held to be on surmises. It is submitted that the order of ld. CIT(A) deserves to be upheld.
11. We have considered the rival submissions and perused the material available on record and case laws relied upon by the parties. Admittedly, the case of assessee for AY 2014-15, falls under the pre-amended section 149(1)(b) effective from 01.04.2021, as per Finance Act, 2021. As per the provisions of sub-clause (b) of clause (1) to section 149 the reopening after three years prerequisites escapement of income chargeable to tax represented in the form of asset which has escaped assessment and the quantum of such income escaped assessment amounts to or likely to amount to Rs. 50,00,000/- or more for that year. Adverting to the facts of present case the allegation herein is regarding transaction of bogus purchases which is a revenue item in the scheme of accounting policies and practices and that cannot be treated as an asset unless such purchases create certain asset and the same is reflected in the balance-sheet of the assessee as an asset. No such allegation or inference have been drawn by the revenue in the present case. We, thus following the ratio of law laid down by Hon’ble Madras High Court in the case of IDFC Ltd. (supra) and Hon’ble Mumbai High Court in the case of Hexaware Technologies Ltd. (supra) are of the considered view that the provisions of section 149(1)(b) are not taken into cognizance while invoking the provisions of section 148 by the ld. AO. So, the contention raised by the ld. AR stands on merits, that provisions of section 149(1)(b) are not adhered to by the ld. AO, leading to violation of provisions of the act, wherein the re-assessment proceedings are initiated beyond three years and nothing can be brought on record to show that the income escaped assessment was represented in the form of an asset.
12. We, thus, in backdrop of aforesaid facts and circumstances are of the considered view that the pre-requisite conditions of section 149(1)(b) could not be complied by the ld. AO, while issuing the notice under section 148, such notice issued, thus, cannot be treated to be a valid notice and therefore the proceedings consequent to such notice would be also be treated as bad-in-law, so the impugned assessment framed on the foundation of a invalid notice cannot survive in the eyes of law.
13. Since, we have held that the impugned notice under section 148 in the present case was an invalid notice in the eyes of law and consequential assessment is liable to be quashed, the quantum addition made in present case, therefore stands deleted. The other legal contention or controversies raised on merits are, thus, rendered as academic only, so are not adjudicated.
14. In result the appeal of assessee is allowed, in terms of our aforesaid observations.