Only Embedded Profit Counts for Extended Reassessment Limits, Rendering Third-Party Reassessment Invalid Without Cross-Examination

ORDER

Naveen Chandra, Accountant Member. – These 8 captioned appeals have been filed by the learned Commissioner of Income Tax (Appeals)-3, Lucknow (hereinafter referred as ‘CIT(A)’) order dated 19.12.2025 arising from the assessment order passed under section 147/144 dated 26.03.2024 of the Income Tax Act (‘the Act’) by the DC/ACIT (Central), Haldwani (‘the AO’) for the A.Y. 2014-15, order passed u/s 147 dated 27.03.2024, 28.03.2024, 27.03.2024, 28.03.2024, 28.03.224, 26.03.2024 of the Act by the DC/ACIT (Central), Haldwani for the A.Y. 2015-16, 2016-17, 2017-18, 2018-19, 2019-20, 2020-21, order passed u/s 143(3)/147 dated 26.03.2024 of the Act by the ACIT Central Circle, Haldwani for the A.Y. 2021-22.

2. The brief facts for all AYs, is that information has been received from the DDIT(Inv.)-III, Ghaziabad that a search and seizure operation u/s 132 of the Act was conducted in the case of M/s Ravindra Oil and Ginning Mills, 1/1, Khurja Peach, Road, Hapur 02.06.2022 wherein it was found that the said entity was engaged in out of books sales and purchases of raw material and finished goods, in collaboration with its suppliers and buyers. In the course of search conducted in the case of M/s Ravindra Oil & Ginning Mills, certain digital data, named as “Sanjeev Tally”, was found. This M/s Ravindra Oil & Ginning Mills used to maintain two sets of books of account, one for the purchases of raw materials for the purpose of submission to the Income-tax department and another to record out of books sales/purchases. On the basis of the said data, the Ld. AO recorded satisfaction under Explanation 2 (iv) of section 148 of the Act, that M/s Ravindra Oil & Ginning Mills was engaged in out-of-books sales to the assessee Shri Chandra Mohan, Prop. M/s Buddhishah Brijbasi Lal. Accordingly, proceedings under section 148 of the Act were initiated against the assessee for Assessment Years 2014-15 to 2021-22.

3. The AO, on the basis of seized materials, held that the assessee has made purchases from M/s Ravindra Oil & Ginning Mills, which were not disclosed and remained unexplained. The AO worked out the undisclosed purchases from M/s Ravindra Oil and Ginning Mills from the said ‘Sanjeev Tally’ and treated them as outside the regular books of account, for different assessment years, and added the same u/s 69C r.w.115BBE of the Act for AY 2014-15 to AY 2021-22. Upon appeal, the CIT(A) upheld the additions. Aggrieved the assessee is before us.

4. Since the above captioned 8 appeals were heard together and the facts in issues and grounds (except amounts) are identical, both the appeals are being disposed of by this common order for the sake of convenience and brevity. We take the ITA 11/DDN/2026 for AY 2014-15 as the lead case, the grounds of appeal for which are as under:

5. The assessee has filed additional Ground for AY 2014-15 to AY 2021-22 vide letter dated 29.05.2026 as follows:

6. On ground 13, for AY 2014-15 to 2021-22 that there is erroneous and mechanical satisfaction under explanation 2(iv) to section 148, the ld AR of the assessee submitted that the satisfaction recorded is substantially similar for all the assessment years and, therefore, AY 2014-15 is being taken as the base year for the present submission. The ld AR stated that the entire reassessment proceedings have culminated from the satisfaction recorded under section 148 of the Act by invoking clause (iv) of Explanation 2 to section 148 for all the A.Ys. The Ld. AR, referring to para 7 of the satisfaction note, stated that the AO, solely relying upon the information shared by the DDIT (Inv.), concluded that the assessee had made purchases from M/s Ravindra Oil & Ginning Mills which were allegedly not disclosed to the Department. On the basis of the said information, the Ld. AO proceeded to invoke Explanation 2(iv) to section 148 of the Act.

7. The ld AR stated that it is a matter of record that the AO of the searched person i.e., M/s Ravindra Oil and Ginning Mills itself analyzed the “Sanjeev Tally” data and found that it pertained to multiple entities, namely M/s Ravindra Oil and Ginning Mills, K.L. Vegetable Oil and J.K. Trading Company and not exclusively to one entity. Therefore, the AO’s primary satisfaction that the alleged entries represented purchases made by the assessee from M/s Ravindra Oil and Ginning Mills alone is factually incorrect and contrary to the Department’s own finding showing non-consideration of seized materials and mechanical satisfaction. Hence, the very basis for assumption of jurisdiction under section 148 is erroneous and unsustainable. Therefore, the satisfaction recorded as per explanation 2(iv) of sec 148 is without application of mind.

8. It is submitted by the ld AR that the Satisfaction under Explanation 2(iv) is not an empty formality; it must demonstrate a live nexus between material and alleged escapement in the Appellant’s case. A satisfaction based on incorrect facts confers no jurisdiction. Further, the seized ledger shows the name “Buddishah” whereas the Appellant’s correct name is “Budhi Shah Brijvasi Lal”. No material, statement, or identification has been brought to link the Appellant with the seized entry. No transactions with the searched person were carried out during AYs 2014-15 to 2017-18, as accepted by the AO. The AO has merely presumed involvement based on transactions in subsequent years (AYs 2018-19 to 2021-22), which is impermissible as third-party seized data cannot be attributed without corroboration or direct linkage. He placed reliance on

9. On ground 15 (A.Y. 2014-15 to 2016-17), on the issue of limitation that reopening is beyond Six Years and the escapement is not an “Asset” (1st Proviso to s.149 r/w s.153A), the ld AR submitted that the search was initiated after 01.04.2021 and hence A.Ys. 201415 to 2016-17 fall outside the six-year limit under the first proviso to s.149(1) and can be reopened only if the fourth proviso to s.153A r/w Explanation 2 is satisfied. The ld AR stated that the charge relates to alleged undisclosed purchases, which fall outside the definition of “asset” restricted under Explanation 2 to section 153A to immovable property, shares/securities, loans/advances and bank deposits, and excluding bogus purchases, expenditure or book entries. The s.148 notices for A.Ys. 2014-15, 2015-16 and 2016-17 were issued on 30.03.2023, 31.03.2023 and 31.03.2023 respectively, with satisfaction recorded on 27.03.2023; the year of search is F.Y. 202223 corresponding to A.Y. 2023-24. On a correct reckoning of the block from the F.Y. of search, A.Ys. 2014-15 to 2016-17 fall at years 8-10 which is beyond the permissible six years and extended limitation cannot be invoked as the alleged escapement is bogus purchases, not an “asset”. The satisfaction was recorded on 27.03.2023, and the relevant “year of search” is FY 2022-23 (corresponding to AY 2023-24). For a non-searched person, the block periods would have to be reckoned not from the date of search as per the Supreme Court in Commissioner of Income-tax v. Jasjit Singh  (SC) and Dinesh Jindal v. Assistant Commissioner of Income-tax [2024]  469 ITR 32 (Delhi)/ [27-05-2024] but from the date of handover/initiation of action. The reckoning of the six years requires one to firstly identify the FY in which the search was undertaken, which leads to the ascertainment of the AY relevant to the previous year of search and the block of six AYs are those which immediately precede that AY. In the present case the date will be FY 2022-23 (AY 2023-24) and hence the A.Ys. 2014-15 to 2016-17 fall at years 8-10 which is beyond the permissible six years. The ld AR relied on the followings cases:

10. On Ground 14 (A.Y. 2014-15 to 2018-19), regarding Rs 50 Lakh threshold under s.149(1)(b) being not satisfied hence reopening is bad in law, the ld AR submitted that the extended period under s.149(1)(b) is not available to the AO as the Rs 50 lakh threshold of alleged escaped income is not met in any year. The AO wrongly treated the entire alleged undisclosed purchases as escaped income, at best, only the embedded profit element can be considered. The searched person’s (M’s Ravindra Oil & Ginning Mills) income was estimated at a 1% net profit rate; applying the same basis to the assessee, the alleged income in each year is far below Rs 50 lakh:

The ld AR stated that “Income chargeable to tax” means receipts minus expenditure, not gross receipts/purchases. Once only the profit element is taken, the jurisdictional condition for extended limitation under s.149(1)(b) is not satisfied, rendering the s.148 notices time-barred and without jurisdiction. The ld AR relied on:

11. On Ground 16 (A.Y. 2014-15), regarding mandatory Notice under Section 143(2) being not Issued, the ld AR stated that the s. 148 notice for A.Y. 2014-15 was issued on 31.03.2023; the Assessee filed the return on 14.03.2024 in response (PB pp. 65-66; order-sheet pp. 6-9). Despite this, the AO completed the reassessment without issuing any notice u/s 143(2). Once the original return is treated as the return in response to the s. 148 notice, the AO is statutorily bound to issue a s. 143(2) notice before completing assessment; its absence vitiates the assessment. The ld AR placed reliance on:

12. On Ground 17 (A.Y. 2016-17, 2017-18, 2018-19), with respect to Invocation of Section 149(1)(b)(iii), the ld AR submitted that the AO wrongly invoked s.149(1)(b)(iii) by treating the alleged escapement as an “entry in the books of account”. The “Sanjeev Tally” is third-party digital data found in the search of M/s Ravindra Oil & Ginning Mills, not the assessee’s books. Section 149(1)(b) contains three independent limbs (i) asset, (ii) expenditure, (iii) entry in books and clause (iii) has been wrongly invoked. The Revenue’s own case is that the purchases were “outside books”, which cannot simultaneously be “entries in books of account”, showing contradiction and nonapplication of mind. “Books of account” under s.2(12A) means books maintained by the assessee, and cannot include memoranda books, digital data or tally records of a third party; jurisdiction under s. 149(1)(b)(iii) is therefore not satisfied. The ld AR placed reliance on:

13. On ground 8 (A.Y. 2014-15 to 2021-22), relating to violation of Natural Justice as no Opportunity of Cross-Examination was given, the ld AR stated that the additions rest on third-party data obtained in the search of the searched person. Despite the assessee’s specific request, no opportunity to cross-examine the persons whose statements/material were relied upon was granted on the ground that the witnesses were “connected” with the assessee. No adverse material or third-party statement collected behind the assessee’s back can be used without supplying it and granting effective crossexamination. The denial vitiates the proceedings; such statements/material lose their evidentiary value and cannot be the sole basis for additions. The ld AR relied on:

14. Per contra the ld DR placed heavy reliance on the orders of the AO and the CIT(A). The ld DR vehemently argued that the satisfaction under Explanation 2(iv) of section 148 was properly recorded.

15. We have heard the rival submissions and have perused the materials on record. We first deal with the additional legal grounds raised by the assessee. The additional grounds pertains to various assessment years involved, hence the adjudication is being made assessment year wise and the decision rendered herein would apply to each assessment year involved. For that purpose it would be necessary to reproduce the reasons recorded for reopening the cases for impugned years u/s 148 of the Act, as below:

“1. The assessee, Shri Chandra Mohan, Prop. M/s Buddishah Brijbasi Lal, PAN ADQPM7100G has e-filed his return of income for AY 2014-15 on 23.11.2014 declaring total income at Rs. 3,82,260/-. Subsequently, Rol was processed under section 143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) on 25.12.2014 at the returned income of Rs. 3,82,260/-.

2. In this case information has been received from the DDIT(Inv.) – III, Ghaziabad that a search and seizure operation u/s 132 of the Act was conducted in the case of M/s Ravindra Oil and Ginning Mills, 1/1, Khurja Peach, Garh Road, Hapur on 02.06.2022 wherein it was found that the said entity was engaged in out of books sales and purchases of raw materials and finished goods, in collaboration with its suppliers and buyers. This entity used to maintain two sets of books of account: one for the purpose of submission to the Income-tax department and another to record out of books sales/purchases.

3. During the course of search proceedings, books of account maintained by M/s Ravindra Oil and Ginning Mills in Tally software was found and seized. On analysis of the books of account maintained by M/s Ravindra Oil and Ginning Mills during the course of search proceedings, it was unearthed that the said entity was indulged in practice of maintaining two sets of books of account. It was further revealed from the books of account maintained in Tally software, wherein out of books transactions were found recorded, that M/s Ravindra Oil and Ginning Mills had made sale of Rs. 9,18,77,513/-during the FY 2013-14 to the assessee Shri Chandra Mohan, Prop. M/s Buddishah Brijbasi Lal. However, as per the books of account presented before the department, M/s Ravindra Oil and Ginning Mills has shown to have booked zero sales to the assessee, Shri Chandra Mohan, Prop. M/s Buddishah Brijbasi Lal during the same period.

4. In light of the facts stated above, the information was shared with this office and it was seen that the assessee has made out of books purchase worth Rs. 9,18,77,513/- from M/s Ravindra Oil and Ginning Mills during the previous year relevant to the assessment year 2014-15.

5. For the sake of brevity, the relevant portion of information is reproduced below:

6. The return of income of the assessee furnished for the assessment year 2014-15 has been examined and it was found that the assessee has declared total purchase of Rs. 2,40,97,573/- for the relevant previous year.

7. On perusal of the information shared by the DDIT(Inv.)-III, Ghaziabad, it is seen that the assessee has made purchase of Rs. 9,18,77,513/- from M/s Ravindra Oil and Ginning Mills, however, no sales to the assessee were reported by M/s Ravindra Oil and Ginning Mills, in its books of account presented before the department for the relevant period. Therefore, the information suggests that the assessee has made out of books purchase of Rs. 9,18,77,513/- during the FY 2013-14. Accordingly, I am satisfied that the books of account seized during the course of search u/s 132 of the Act in the case of M/s Ravindra Oil and Ginning Mills on 02.06.2022 contained therein information relating to the assessee Shri Chandra Mohan, Prop. M/s Buddishah Brijbasi Lal in terms of clause (iv) of Explanation 2 to Section 148 of the Act and therefore, suggests that the income chargeable to tax to the extent of Rs. 6,67,18,971/- has escaped assessment.

8. Further, as per clause (c) to proviso to section 148A of the Act, provisions of section 148A shall not apply in this case. Clause (c) to proviso 148A reads as under:

9. As evident from the facts mentioned above it is held that it is a fit case issue notice under section 148 in view of information (supra) shared by the DDIT(Inv.)- Ghaziabad which suggest that the income chargeable to tax represented in the form of entries in the books of accounts as mentioned in section 149 (1)(b)(iii) of the IT Act 1961 to the extent of Rs. 9,18,77,513/- has escaped assessment for the assessment year 2014-15.

10. This satisfaction note has been approved by Pr.CIT, Bareilly vide order dated 26.03.2023 for the purposes of the section 148 as per clause (iv) of Explanation 2 to Section 148 of the Act.

11. This notice u/s 148 of the Act is issued after approval of Pr. Chief Commissioner of Income-tax, UP (East), under section 151 read with clause (iv) of Explanation 2 to section 148 of the Act.”

16. With the ‘satisfaction’ recorded reproduced as above, we shall examine the objections against the very assumption of jurisdiction under section 148 of the Income-tax Act, 1961, on the ground that the satisfaction recorded by the Ld. AO under Explanation 2(iv) to section 148 is based on incorrect, incomplete and unverified facts. The assessee has objected that the ‘satisfaction’ is identical/verbatim similar for all the assessment years and solely relies upon the information shared by the DDIT (Inv.) and is defective as it is mere reproduction of Investigation Wing Information. The assessee’s further grievance is that the Ld. AO has not carried out any independent enquiry, verification, examination or analysis of the alleged material before assuming jurisdiction. The satisfaction recorded is thus not based on the independent application of mind of the Ld. AO, but is merely borrowed satisfaction based on DDIT information.

17. We are not convinced with the various objections to the ‘satisfaction’ recorded. The law as amended from 01.04.2021 has substantially altered the landscape with regard to the reopening proceedings u/s 147/148 of the Act. We shall reproduce the relevant provisions, existing at the time, dealing with reassessment as follows:

147. If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).

Explanation. ************

“148. Issue of notice where income has escaped assessment—-. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:

Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:

Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:

Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139.

Explanation 1. For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,-

Explanation 2.-For the purposes of this section, where,-

the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.

Explanation 3. For the purposes of this section, specified authority means the specified authority referred to in section 151.

18. The crucial amendment made in law since 01.04.2021 is that the amended provisions has discarded the condition of “reason to believe” to be recorded before initiating proceedings u/s 147 of the Act. The AO now, in the current dispensation of law, is empowered to serve notice u/s 148 to assess or reassess income where the information is available with the assessing officer which suggests that income has escaped assessment. The crucial change brought in the law is that no notice u/s 148 shall be issued unless there is “information” with the AO which suggests that the income has escaped. The law further explains in Explanation 2 (iv) to section 148 of the Act that where the AO is satisfied, with prior approval of specified authority, that any information contained in any books of account or documents seized under section 132 in case of any other person, relate to the assessee, the AO would be deemed to have information which suggests escapement of income.

19. We are of the considered view that in the instant case, the AO received information in “Sanjeev Tally” data regarding the purchases made by assessee not recorded in the books of account, from M/s Ravindra Oil & Ginning Mills. From the search on ‘other person’ i.e., M/s Ravindra Oil & Ginning Mills, documents, as defined in section 2(22AA), were seized which related to the assessee. We are of the view that the law, under the amended provisions, at this stage only requires the AO to be satisfied with regard to the information contained in the seized documents, being related to the assessee and also to obtain prior approval from the PCIT. In the instant case, from the satisfaction note recorded, we find that the information forwarded by the Investigation Wing has been examined by the AO who, after examination, reached at a conclusion that the documents namely “Sanjeev Tally” data, relates to the assessee. The AO was satisfied that the said information regarding, purchase made out of books from M/s Ravindra Oil and Ginning Mills, relates to the assessee and that the said information of the assessee, suggests income chargeable to tax has escaped assessment.

20. We also note that the assessee has objected that the satisfaction recorded as per explanation 2(iv) of sec 148 is without application of mind on the ground that the Department itself analyzed the alleged “Sanjeev Tally” data and found that it pertained to multiple entities, namely M/s Ravindra Oil and Ginning Mills, K.L. Vegetable Oil and J.K. Trading Company. Therefore, the AO’s primary satisfaction that the alleged entries represented purchases made by the assessee from M/s Ravindra Oil and Ginning Mills alone is factually incorrect and contrary to the Department’s own finding.

21. We reiterate that at this stage, the AO had to be satisfied that the information, received from the Investigation Wing regarding purchase from M/s Ravindra Oil and Ginning Mills related to the assessee. The ‘Sanjeev data’ may pertain to multiple entities, but it also depicts purchase made from M/s Ravindra Oil and Ginning Mills. Therefore, the AO recording the name of M/s Ravindra Oil and Ginning Mills, is neither factually incorrect or contrary to Department finding. We therefore are of the view that assumption of jurisdiction under section 148 on this basis is neither erroneous nor unsustainable.

22. In the light of the above, we are of the considered view that the impugned ‘satisfaction’, being identical/verbatim similar for all the assessment years, does not affect its validity or renders it fatal to the assessment made. Under the amended law of reopening u/s 147/148 of the Act, at this point of time, the AO is only required to examine whether the information relates to the assessee or not which after examination, which in the instant case, the AO concluded that the information relates to the assessee. In the instant case, we find that the AO has not merely reproduced the Investigation Wing Information, but also has tallied it with the return filed by the assessee. With the amended law, there is no statutory requirement to carry out independent enquiry, verification, examination or analysis of the “information” before assuming jurisdiction. The satisfaction recorded, at this stage, is only for the purpose of establishing that the information relates to the assessee which the AO has done in this case. We thus reject the assessee’s objection that the satisfaction is not based on the independent application of mind and is merely borrowed satisfaction based on DDIT information.

23. We would now deal with the case laws relied upon by the assessee on the subject of “satisfaction” recorded under Explanation 2(iv) of section 148 of the Act. We find that all the case laws relied upon, deals with the issue of recording of satisfaction under the provisions of section 153C of the Act. We also find that the facts in all these cases were also distinguishable. In Canyon Financial Services Ltd v. ITO, the hon’ble Delhi High Court was dealing with validity of satisfaction note under section 153C(1) and whether the legal requirement of recording seized documents “belong to” to the assessee was fulfilled or not. In that case, the AO did not record that seized documents belonged to the assessee and hence the satisfaction note was quashed.

23.1 In Shokeen Construction Co. (supra), the hon’ble ITAT was again dealing with validity of satisfaction note under section 153C(1). The ITAT found that the satisfaction note recorded u/s 153C, did not record that it contained entries which had direct bearing on the determination of income. Similarly, in Rajiv Agarwal v. ACIT, the ITAT dealing with satisfaction note u/s 153C, followed the decision of Canyon Financial Services Ltd. (supra). In Rajdeo Singh & Shishir (supra), the ITAT dealing with satisfaction note u/s 153C, found that the satisfaction u/s 153C was founded on an undated and unsigned document and had no bearing on the determination of income. In Agni Vishnu Ventures (P.) Ltd. (supra), the hon’ble Madras High Court was dealing with satisfaction recorded u/s 153C, and quashed the assessment u/s 153C wherein the AO had not recorded in his satisfaction note that the incriminating materials has a bearing on the determination of total income of the assessee.

23.2 In N.S. Software (supra), the hon’ble Delhi High Court, dealing with satisfaction recorded u/s 153C, held that where the AO failed to record a specific satisfaction as to how the recovered material belonged to the assessee, the assessment u/s 153C is unjustified.

24. We are of the considered view that the legal obligations of the AO under the provisions of section 153C was more onerous than the statutory requirement under Explanation 2(iv) of section 148 of the amended Act. In our view the AO of the assessee has recorded proper and valid satisfaction under Explanation 2(iv) of the section 148 of the Act, which is limited to the fact of recording that the information is related to the assessee. The ground 13 is accordingly dismissed.

25. As far as ground 14 for A.Y. 2014-15 to 2018-19, regarding Rs 50 Lakh threshold under s.149(1)(b) being not satisfied is considered, we find that the assessee has argued for taxation of only the embedded profit element in the bogus purchase, on the ground that “Income chargeable to tax” means receipts minus expenditure, not gross receipts/purchases. The assessee also sought parity with the assessment u/s 153A of the Act made on the searched person’s (M/s Ravindra Oil & Ginning Mills) wherein the AO has estimated the undisclosed income at a 1% net profit rate of the undisclosed sales. The assessee stand is that applying the same basis to the assessee, the income in each year is far below Rs 50 lakh:

The assessee has argued that since the Rs 50 lakh threshold of escaped income is not met in any year, the extended period under section 149(1)(b) is not available to the AO and consequently, the reopening is bad in law.

26. In so far as estimation of income is concerned, we find substantial force in the assertion of the assessee that only the embedded profit element in the bogus purchase can be brought to tax as judicial precedent, established by the hon’ble Supreme Court in the case of Nitin Nema (supra), which mandates that “Income chargeable to tax” means receipts minus expenditure, not gross receipts/purchases. Moreover, the Revenue itself has estimated the undisclosed income at a 1% net profit rate of the undisclosed sale in the case of the searched person’s (M/s Ravindra Oil & Ginning Mills) assessment u/s 153A of the Act which strengthened the assessee’s assertion. We therefore are of the considered view, following the decision of hon’ble Karnataka High Court in the case of Sanath Kumar Murali, (supra), that the ‘escaped income’ of the assessee is below the prescribed limit of Rs 50 lakh for each A.Y. from 2014-15 to 2018-19.

27. We are also in agreement with the assessee’s argument that once only the profit element, in each year separately, is taken, the jurisdictional condition for extended limitation under s.149(1)(b) is not satisfied, rendering the section 148 notices time-barred and without jurisdiction. The hon’ble Delhi Court in the case of L-1 Identity Solutions Operating Company (P.) Ltd. v. Assistant Commissioner of Income-tax  (Delhi)/W.P.(C) 4845/2025 decided on 17 April 2025, has held that income alleged to have escaped assessment for different previous years cannot be clubbed together for satisfying condition prescribed u/s 149(1)(b) of the Income Tax Act (i.e. threshold amount of Rs. 50 lakhs). Hence, notice u/s. 148 issued beyond period of three years cannot be sustained. In the instant case, we find that in each year from AY 2014-15 to AY 2018-19, the income estimated is less than Rs 50 lakh, hence the jurisdictional condition for extended limitation u/s 149(1)(b) of the Act is not satisfied. We therefore are of the considered view, that the notice issued for AY 2014-15 to AY 2018-19 are beyond the prescribed time period and are barred by limitation. Ground 15 is thus allowed.

28. We now come to ground 15 for A.Y. 2014-15 to 2016-17, to adjudicate on the issue of limitation that reopening is beyond six years and the escapement is not an “Asset” (1st Proviso to s.149 r/w s.153A). The facts of the instant case for impugned years shows that the search on M/s Ravindra Oil and Ginning Mills was conducted on 02.06.2022. The AO initiated action in the case of non-searched person i.e., the assessee, by recording satisfaction on 27.03.2023, for issuance of notices u/s 148 of the Act. We find that all three notices u/s 148 of the Act, for A.Ys. 2014-15, 2015-16 and 2016-17, were issued on 30.03.2023. In such factual matrix, following the jurisprudence laid down by Supreme Court in Jasjit Singh (supra) and Dinesh Jindal (supra), the block periods, for a non-searched person, would have to be reckoned not from the date of search but from the date of handover/initiation of action.

29. In the instant case, as the search was conducted on ‘Other person’ on 02.06.2022, and the satisfaction, in the case of the assessee, for issuing the said notices u/s 148 for AY 2014-15 to 201617, were recorded on 27.03.2023 and the notices u/s 148 was issued on 30.03.2023, the relevant assessment year of search, in the case of non-searched person i.e., the assessee, would become F.Y. 2022-23 corresponding to AY 2023-24. In such factual matrix of the instant case, the block of six years would commence from the AY 2023-24. Counting backwards from AY 2023-24, the first year would be AY. 2023-24, the 2^nd year would be AY 2022-23 and so forth. The period beyond six years is calculated as under:-

Accordingly, the AY 2016-17 to AY 2014-15 would fall at years 8-10 which is beyond the permissible six years under the provisions of section 153C of the Act. As the search was initiated after 01.04.2021, therefore the A.Ys. 2014-15 to 2016-17 would fall outside the six-year limit prescribed under the first proviso to section 149(1) of the Act read with section 153A of the Act.

30. Moreover, the AY 2014-15 to AY 2016-17 can be reopened only if the fourth proviso to section 153A r/w Explanation 2 is satisfied. We find that the charge relates to escapement of undisclosed purchases, which to our mind fall outside the definition of “asset” under Explanation 2 to section 153A of the Act. The said explanation restricts the definition of “assets” to immovable property, shares/securities, loans/advances and bank deposits. Following the decision of the hon’ble Delhi High Court in the case of Smart Chip Pvt. Ltd. (supra), we are therefore of the considered view that not only the AYs 2014-15 to 2016-17 falls beyond the block of six years, the charge of “undisclosed purchase” is not covered under the definition of “assets”. In view of the same, the reopening of these three assessment years, from AYs 2014-15 to 2016-17, are held as invalid and void ab initio. The ground 15 is allowed.

31. We now take up the ground no. 16 with regard to nonissuance of notice u/s 143(2) of the Act for AY 2014-15, rendering the assessment order void. We find that the AO issued notice u/s 148 dated 31.03.2023 for A.Y. 2014-15 in response to which the assessee filed the return on 14.03.2024 (PB pp. 65-66). The assessee has objected that despite filing of return u/s 148, the AO completed the assessment without issuing notice u/s 143(2) of the Act.

32. To adjudicate the issue, we reproduce the amended section 148 of the Act which provides:

“…………………… the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.”

The third proviso to section 148 provides as follows:

“Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139”.

The conjoint reading of the aforesaid provisions of law shows that return not filed within the time allowed in the notice u/s 148 shall not be considered as return u/s 139 of the Act. We find that it is an unrebutted fact that the AO issued the notice u/s 148 for AY 2014-15, on 31.03.2023, requiring him to file return within 30 days of the service of the notice. It is also an undisputed fact that return in response to notice u/s 148 was filed on 14.03.2024, beyond the allowed period. The assessee has further not placed any evidence/materials before us to suggest that the assessee requested for any extension of the period for filing the return. Given these facts and circumstances of the case, the provisions of third proviso of the section 148, as amended w.e.f 01.04.2022, kicks in. While section 148 provides that return filed in response to notice u/s 148 of the Act will be treated as return furnished u/s 139, the third proviso of section 148 postulates that any return filed beyond the period allowed in notice u/s 148, shall not be deemed to be return under section 139 of the Act. Once such return filed is not considered as deemed return under section 139, the provision of section 143(2) do not apply to such return as the provisions of section u/s 143(2) mandates service of notice u/s 143(2) only against return filed u/s 139 or in response to notice u/s 142(1) of the Act.In the instant case, since there is no return, in the eyes of law u/s 139, the AO has nothing before him to repudiate the claim of the assessee. We are therefore of the view that non-issuance of notice u/s 143(2) in the instant case is not fatal to the assessment order.

33. Coming to the case laws relied upon by the assessee, we find that each case is distinguishable on law. In none of the cases, the provisions of amended section 148 and its 3^rd proviso was put forth for the Court’s interpretation. In Assistant Commissioner of Income-tax v. Hotel Blue Moon [2010] 229 CTR 219/321 ITR 362  (SC), the hon’ble Court held that the non-issuance of notice u/s 143(2) for making assessment u/s 158BC, renders the assessment invalid as section 158BC(b) incorporates sub-section (2) and (3) of the section 143 of the Act. The case of Shri Jai Shiv Shankar Traders (P.) Ltd. (supra), pertained to AY 2008-09, where the assessee had informed the AO that the return filed originally should be treated as return in response to notice u/s 148. In such situation, the hon’ble court held that failure to issue notice u/s 143(2) was fatal to the assessment order. We find that the hon’ble Court was not dealing with the effect of law as existing on 30.03.2023 under the 3^rd proviso of amended section 148 of the Act which renders the return filed beyond the time allowed in the notice u/s 148 as no return filed u/s 139 and hence there is no legal requirement to issue notice u/s 143(2) of the Act. In Geno Pharmaceuticals Ltd. (supra), the issue pertained to AY 2005-06 wherein the hon’ble Court held that in absence of notice u/s 143(2), the AO cannot proceed to make an enquiry on return filed in compliance to notice u/s 148 of the Act. In Ambika Uniyal (old name Ambika Rawat) (supra), the ITAT found that the assessee had filed a letter to treat the return originally u/s 139(1) as return filed in response to section 148. In such facts, failure to issue notice u/s 143(2) was fatal. In Smt. Amina Ismil Rangari (supra), the ITAT was dealing with AY 2003-04 in the context of section 54F where return filed in response to section 148 with slight delay, was considered as valid. This decision is again not dealing with the amended provisions of law u/s 148 of the Act.

34. In the instant case, we note that the AO has considered the income declared at Rs 3,82,260/- in the original return filed u/s 139(1) as the starting point for the purpose of income computation. In the given facts and circumstances of the case, we are of the view that in absence of any return u/s 139 of the Act, there was nothing before the AO to repudiate the claim after making enquiry. In other words, since the return filed in response to notice u/s 148 is beyond the period allowed and consequently under the prevailing law, it has to be considered that no return exists u/s 139, in repudiation of which the AO could proceed to make an enquiry. In such situation, we are of the view that the AO is not legally required to issue notice u/s 143(2) of the Act for making an assessment. We are therefore, inclined to reject the assessee argument that the return, in response to notice u/s 148, filed beyond period allowed by the AO, can be treated as the original return u/s 139 and therefore, the AO is statutorily bound to issue notice u/s 143(2) of the Act before completing assessment. The ground 16 is dismissed.

35. With ground 17, for A.Y. 2016-17, 2017-18, 2018-19, the assessee has contested that the AO has wrongly invoked section 149(1)(b)(iii) of the Act by treating the alleged escapement as an “entry in the books of account”. We find that in the course of search on M/s Ravindra Oil and Ginning Mills, data in the form of “Sanjeev Tally” was found and seized. We note that it is an admitted fact that the ‘Sanjeev Tally’ is a third-party digital data found in the search of M/s Ravindra Oil & Ginning Mills, and pertained to multiple entities, namely M/s Ravindra Oil and Ginning Mills, K.L. Vegetable Oil and J.K. Trading Company. These data are not reflected in the books of account maintained by the assessee. The provision of Section 149(1)(b) constitutes three independent limbs (i) asset, (ii) expenditure, (iii) entry in books. We find that the charge against the assessee is that it has made undisclosed purchase from M/s Ravindra Oil & Ginning Mills and such purchases made from M/s Ravindra Oil & Ginning Mills were “outside books”. We have to adjudicate whether clause (iii) of section 149(1)(b) can be invoked for considering the entries found in the “Sanjeev Tally” as “entries in books of account” of the assessee. We are inclined to agree with the assessee that the “Books of account” under section 2(12A) of the Act means books maintained by the assessee, and cannot include memoranda books, digital data or tally records of a third party. In such facts and circumstances, we are of the considered view that jurisdiction for issuance of notice 148 of the Act can not be assumed by invoking the provisions of section 149(1)(b)(iii) for A.Y. 2016-17, 2017-18, 2018-19 and treating the “Sanjeev Tally” as books of accounts of the assessee. Thus, the invocation of section 148 of the Act for the assessment for the period beyond three years, by relying upon section 149(1)(b)(iii), is legally unsustainable. The notice u/s 148 of the Act for A.Y. 201617, 2017-18, 2018-19, are hereby quashed as invalid and the consequent reassessment order for A.Y. 2016-17, 2017-18, 2018-19 are also quashed. The ground 17 is allowed.

36. With respect to Ground no 8 (A.Y 2014-15 to 2021-22) regarding denial of cross examination, we find that the additions made by the Ld. AO are clearly based on third-party data seized during the course of search in the case of the searched person. We note that the AO has recorded in the assessment order that the assessee had specifically requested the Ld. AO to provide an opportunity to cross-examine the persons whose statements were being relied upon against the assessee. We find that the ld AO however, denied any opportunity of cross-examination the person on whose statement the ld AO has relied upon adversely against the assessee. The denial was on the ground that the witness were connected person. It is a settled principle of law that no adverse statement or third-party material can be used against the assessee unless the assessee is supplied with such material and granted an effective opportunity to cross-examine the person whose statement is relied upon. The assessee has a valuable right to test the correctness and credibility of such data by way of cross-examination. In the instant case, it is a denial of right as the assessee especially had questioned the name appearing in the seized ledger which is merely “Buddishah”, whereas the correct name of the assessee is “Budhi Shah Brijvasi Lal”. We find that the Ld. AO has not brought any material or corroborative evidence on record to establish how the said name appearing in the seized material was identified and linked with the assessee. Further, no statement of the searched person has been provided to the assessee wherein the said party has been specifically identified as the assessee. In such facts and circumstances, we are of the considered view that assumption that third-party seized data is correct or relatable to the assessee, without any corroborative evidence is legally sustainable. We also find that that assessee’s assertion that no sale or purchase transactions were carried out by the assessee in the regular books of accounts with the searched person during AYs 2014-15 to 2017-18, has been rebutted by the Revenue. In fact, this position has also been accepted by the Ld. AO. It appears to us that the Ld. AO has merely drawn a presumption on the basis of purchases made by the assessee in subsequent years, i.e., AYs 2018-19 to 2021-22 as per regular books of accounts.

37. In the present case, under the given facts and circumstances of the case, the denial of assessee’s specific request for crossexamination deprived the assessee of a fair and reasonable opportunity of being heard. To our mind such denial amounts to a clear violation of the principles of natural justice. Further, it is legal dictum that the statements/material relied upon by the Ld. AO, having not been tested through cross-examination, lose their evidentiary value and cannot be made the basis for sustaining any addition in the hands of the assessee. We are fortified in our view by the various judgements relied upon by the assessee in Anand Kumar Jain (supra) and Principal Commissioner of Income-tax v. Hadoti Punj Vikas Ltd; Principal Commissioner of income-tax v. Kishore Kumar; Principal Commissioner of income-tax v. Kuntala Mohapatra; Commissioner of Income Tax-7, New Delhi v. Odeon Builders (P.) Ltd.  (SC); Commissioner of Income-tax, Central-II, New Delhi v. S.M. Aggarwal (Delhi HC); Commissioner of Incometax, Delhi v. SMC Share Brokers Ltd (Delhi HC). In view of the above judicial precedents, we hold that denial of cross examination, when specifically requested at the assessment stage itself, has led to violation of natural justice. The assessment for AY 2014-15 to AY 2021-22, so made on the basis of materials and statements without giving opportunity to cross examine, is vitiated and to our mind not sustainable in the eyes of law. The ground 8 is allowed.

38. Since the appeal is allowed on legal grounds, the issues on merits are not adjudicated upon.

39. In the result, the appeal in the following

ITA No.11 /DDN/2026 is allowed.

ITA No.07/DDN/2026 is allowed.

ITA No.13/DDN/2026 is allowed.

ITA No.08/DDN/2026 is allowed.

ITA No.10/DDN/2026 is allowed.

ITA No.14/DDN/2026 is allowed.

ITA No.09/DDN/2026 is allowed.

ITA No.12/DDN/2026 is allowed.