Reassessment Beyond Three Years Under Section 148 Void Without Establishing Section 149(1)(b) Conditions

By | August 5, 2026
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Reassessment Beyond Three Years Under Section 148 Void Without Establishing Section 149(1)(b) Conditions

Reassessment Beyond Three Years Under Section 148 Void Without Establishing Section 149(1)(b) Conditions

Issue

Whether a reassessment notice issued under Section 148 beyond the three-year limitation period is legally valid when the Assessing Officer fails to demonstrate that seized materials directly relate to the assessee or satisfy the specific conditions under Section 149(1)(b).

Facts

  • The assessee-company filed its return of income for Assessment Year 2017-18, which was initially accepted under scrutiny assessment.

  • Subsequently, based on a search conducted on the Galaxy Group and alleged entry operators, the Assessing Officer (AO) recorded reasons invoking Explanation 2(iv) to Section 148 and issued a reassessment notice under Section 148 beyond the standard three-year time limit.

  • In the reassessment order, the AO made an addition of Rs. 2 crores under Section 68 read with Section 115BBE, alleging that the assessee failed to establish the identity, creditworthiness, and genuineness of two investor companies.

  • No books of account, documents, or information seized during the third-party search directly pertained to or linked to the assessee.

  • The AO failed to record proper statutory satisfaction or establish how the specific threshold conditions under Section 149(1)(b) were fulfilled, nor was prior approval from the Principal Commissioner or Commissioner appropriately evidenced for the satisfaction.

Decision

  • The Tribunal held that the mere seizure of documents during a search on a third party does not automatically satisfy the statutory preconditions required to reopen an assessment beyond three years.

  • The AO failed to establish the primary nexus between the seized material and the assessee, and failed to record satisfaction regarding the fulfillment of Section 149(1)(b) conditions.

  • Consequently, the notice issued under Section 148 beyond the three-year period from the end of the relevant assessment year was declared barred by limitation.

  • The reassessment notice, along with all consequential proceedings and additions, was set aside and quashed in favor of the assessee.

Key Takeaways

  • Strict Limitation for Reopening Beyond 3 Years: Notice under Section 148 issued after three years from the end of the relevant assessment year is jurisdictionally void unless the AO strictly meets and records the statutory criteria under Section 149(1)(b).

  • Third-Party Search Material Requires Direct Nexus: Evidence seized during search operations on third parties cannot automatically justify reopening an assessment; there must be direct material linking the seized contents to the specific assessee.

  • Mandatory Statutory Satisfaction: Presumptions cannot substitute the AO’s obligation to record clear statutory satisfaction and obtain requisite administrative approvals before invoking extended limitation periods.

IN THE ITAT MUMBAI BENCH ‘C’
Pace Iron and Steel (P.) Ltd.
v.
Income-tax Officer
Rahul Chaudhary, Judicial Member
and Vikram Singh Yadav, Accountant Member
IT Appeal No. 253 (Mum.) of 2026
[Assessment year 2017-18]
JULY  7, 2026
Ashwani Kumar and Ms. Deepti Aggarwal, CAs for the Appellant. Virabhadra Mahajan, Sr. DR for the Respondent.
ORDER
Vikram Singh Yadav, Accountant Member.- This is an appeal filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’], dated 09.12.2025, pertaining to Assessment Year (AY) 2017-18, wherein the Assessee has taken the following grounds of appeal:
“1. That the order dated 09.12.2025 passed u/s 250 of the Act by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Income Tax Department is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Income Tax Officer, Ward -15(2)(1), Mumbai in computing the total income of the Appellant Company at Rs. 2,02,28,960/- as against returned income of Rs. 2,28,964/-.
2. That the order dated 09.12.2025 passed u/s 250 of the Act by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Income Tax Department is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer, Ward-15(2)(1), Mumbai in resorting to reassessment proceedings and issuing notice under section 148 of the Act.
3. That the order dated 09.12.2025 passed u/s 250 of the Act by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Income Tax Department is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer, Ward-15(2)(1), Mumbai in making an aggregate addition of Rs. 2,00,00,000/- on account of alleged amount received by the Appellant Company from M/s EvalinaPowertec Systems Pvt Ltd (Rs. 1,50,00,000/-) and M/s Vandam Technologies Pvt Ltd (Rs. 50,00,000/-) on account of sale of shares of M/s Delight Resorts Pvt Ltd by treating the same as, alleged, unexplained money u/s 68 r.w.s. 115BBE of the Act
4. That the order dated 09.12.2025 passed u/s 250 of the Act by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Income Tax Department is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer, Ward-15(2)(1), Mumbai in framing the assessment by ignoring the basic principles of natural justice by relying on statements of various persons and documents seized during the course of search on independent third parties copies of which have not been provided to the Appellant Company and without affording the Appellant Company any opportunity to cross examine such persons, thus, making the assessment bad in law.”
2. Briefly, the facts of the case are that the assessee has originally filed its return of income declaring total income of Rs. 2,28,964/-. u/s. 139(1) of the Act on 30.10.2017 which was selected for scrutiny and the assessment was completed u/s. 143(3)vide order dated 10.06.2019, accepting the return income. Thereafter, the Assessing Officer received information, basis search proceedings conducted in case of Galaxy Group of Companies, Shri Pradeep Indra Prasad Agarwalla, Shri Deepak Agarwal and Shri Himanshu Verma on 17.11.2021, that the assessee company has obtained accommodation entries amounting to Rs.50,00,000/- from M/s. Vandam Technologies Pvt. Ltd. and Rs.1,50,00,000/- from M/s. Evalina Powertec Systems Pvt. Ltd., the entities controlled and managed by Shri Deepak Agarwal and basis the said information, the Assessing Officer recorded his satisfaction stating that the matter is covered under the provisions of Explanation 2(iv) of Section 148 of the Act and reasons for reopening the assessment were recorded and thereafter, after seeking approval from the competent authority, notice u/s. 148 was issued on 21.03.2024, which was served on the assessee. In response to the notice, the assessee filed its return of income on 11.05.2024, declaring the income as originally declared at Rs. 2,28,964/-.Subsequently, notices u/s. 143(2) and 142(1) were issued, calling for necessary information and documentation. Thereafter, the proceedings were transferred from the Faceless Assessment Unit to the Jurisdictional Assessing Officer on 22.11.2024 and thereafter, after issuance of notice and calling for further information, a show cause dated 22.03.2025 was issued to the assessee as to why the amount of Rs. 2 crores should not be treated as assessee company’s unexplained and unaccounted income and should not be brought to tax u/s. 68 read withSection115BBE of the Act. In response to the show cause, the assessee filed its submissions dated 24.03.2025 stating that the assessee company has sold shares of M/s. Delight Resorts Pvt. Ltd.to M/s. Evalina Powertec Systems Pvt. Ltd. and to M/s. Vandam Technologies Pvt. Ltd. and the amount has been received from these entities towards the sale consideration of the shares sold by the assessee company. It was also submitted that the shares were purchased way back on 24.03.2012 and the same have been duly reflected in the books of accounts and the payments have been made through the banking channel and necessary filing with the Registrar of companies pursuant to section 75(1)of the Companies Act were also submitted. Further, the confirmation as well as the tax returns and the audited financial statements of these two entities were also submitted before the Assessing Officer. The submissions so filed were considered but not found acceptable to the Assessing Officer. As per the Assessing Officer, the share transactions with M/s. Vandam Technologies Pvt. Ltd. and M/s. Evalina Powertec Systems Pvt. Ltd. are nothing but accommodation entries taken from companies managed and controlled by the entry provider, Shri Deepak Agarwal and his associates and these two entities are the shell companies which were used to provide accommodation entries in the form of bogus share transactions. Further, identity, genuineness and creditworthiness of these companies are questionable, these companies do not have creditworthiness as unaccounted money was routed through these companies and the transactions with these companies are also non-genuine. The Assessing Officer thereafter recorded his satisfaction stating that the assessee has failed to prove identity and creditworthiness of these companies and the genuineness of the transaction, therefore, the amount of Rs. 2 crores was treated as unexplained cash credit and brought to tax u/s. 68 read with Section 115BBE of the Act.
3. The assessee thereafter carried the matter in appeal before the ld. CIT(A) who has since dismissed the appeal of the assessee and against the said order, the assessee is in appeal before us.
4. Ground no. 1 is general in nature and does not require any specific adjudication.
5. In Ground no. 2, the assessee has challenged the action of the ld. CIT(A) in upholding the action of the Assessing Officer in terms of resorting to reassessment proceedings and issuance of notice u/s. 148 of the Act.
6. In this regard, the ld. AR during the course of hearing submitted that there are no circumstances suggesting that any income chargeable to tax in the case of the assessee company has escaped assessment. In this regard, the ld. AR submitted that the assessee company had sold shares of M/s. Delight Resorts Private Limited of Rs. 2,00,00,000/- to two parties, namely, M/s. Vandam Technologies Pvt. Ltd. and M/s. Evalina Powertec Systems Pvt. Ltd. The ld. AR submitted that the entire scheme of the transactions makes it clear that while not only are they duly recorded in the books of accounts and the entire money towards sale of shares were received through proper banking channels, the same are fully compliant with the prevailing legal requirements and regulatory procedures, including specifically the Companies Act as in force at the relevant point of time. It was submitted that it is not clear as to how a transaction for sale of shares to legally incorporated bodies can be equated with or lead to a conclusion as income having escaped assessment. It was submitted that the information relied upon and the various parameters which have been referred to are merely based on some kind of a cursory, even superficial overview of the accounts with no underlying concrete evidence to disprove the genuineness of the transactions and that they are accommodation entries. The various arguments/reasons furnished are merely conjectural whereby it cannot be said to any extent or nature whatsoever that the assessee company has failed to disclose all material facts leading to a conclusion that income has, allegedly, escaped assessment. It was submitted that it is clear that, prima facie and ab-initio, there is no ground to suggest let alone conclude that any income has escaped assessment whereby the notice in question needs to be set-aside at this stage itself.
7. It was further submitted that the Assessing Officer has observed that the funds received by the assessee company on account of sale of shares from two companies namely M/s Evalina Powertec Systems Private Limited (Rs. 1,50,00,000/-) and M/s Vandam Technologies Private Limited (Rs. 50,00,000/-) are accommodation entries. In this regard, it was submitted that the said transactions were duly recorded in the books of accounts cannot be said to even indicative of, let alone conclusive prove the part of income having escaped assessment. In addition, the fact that the movement of funds was recorded in the books of accounts and the fact that the purchase of shares was duly verifiable with reference to the returns filed with the Registrar of Companies cannot be the basis for holding that the assessee company has concealed or even attempted to conceal certain material information. In the facts of the case, it was submitted that the conclusion has been drawn in a predetermined and mechanical manner, in the absence of any concrete and substantive documentary evidence available on record to establish that the genuineness of deposits remains unverified.
8. It was further submitted that the notice in question is barred by limitation as the notice relates to A.Y. 2017-18 which has been issued on 31.03.2024 after 3 years from end of the relevant assessment year 201718 and as required by section 149(1)(b) of the Act, there is no information within the meaning of Explanation (2) to Section 148 which suggests that income chargeable to tax has escaped assessment. In this regard, reference was drawn to the statutory provisions relating to income escaping assessment consequent upon a search in the case of any other person as incorporated into the Act by Finance Act, 2021 and as subsequently amended from time to time and as applicable in the facts of the present case as follows: –
“(i) The first Proviso to section 148 provides that no notice u/s 148 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” (as defined in section 151 of the Act) to the issue of such notice;
(ii) Further Explanation 2(iv) to section 148 provides that where the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized under section 132 in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein relate to the assessee, the Assessing Officer shall be deemed to have information which suggests that 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.
(iii) In addition, section 149 of the Act dealing with time limit for issue of notice provides that no notice under section 148 shall be issued for the relevant assessment year, –
(1) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause(b);
(2) 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.
9. The ld. AR submitted that the above provisions when viewed in their entirety reveal the following salient features: –
(i) Explanation 2(iv) to section 148 explicitly provides that in case any books of accounts, documents seized in the case of any other person pertain to or any information contained therein relates to the Assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of such other assessee.
(ii) In view of the above, the time limits for issue of notice u/s 148 in a case where an assessee has been subjected to search can be laid out as follows: –
(1) For the three immediately preceding assessment years, the Assessing Officer shall be deemed to have information suggesting that income has escaped assessment. In such cases he can proceed to issue notice u/s 148 after obtaining approval of the “specified authority” as mandated by proviso to section 148;
(2) For assessment years beyond the three immediately preceding assessment years, the fact of deemed information has to further conform to the criteria of the Assessing Officer having in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, which as escaped assessment amounts to or is likely to amount to fifty lakh rupees or more and is 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 accounts;
10. The ld. AR further submitted that the Explanation (2) to section 148 was amended by the Finance Act, 2022 w.r.e.f. 01.04.2021 to remove the restriction of three assessment years immediately preceding the assessment year relevant to the previous year in which search is initiated. However, be that as it may, the statutory period of limitation and the conditions prescribed in Section 149 would still be relevant and duly apply. Accordingly, in order to traverse beyond the period of three immediately preceding assessment years, the Assessing Officer has to conclusively demonstrate that he has in his possession the books of account or documents or evidence represented in the form mandated in clause (b) of section 149(1) which would suggest that income which has escaped assessment amounts to or is likely to amount of Rs. 50 lakh or more.
11. It was submitted that in the instant case, the case has been reopened on the basis of search u/s 132 of the Act conducted on 17.11.2021 on Galaxy Group, Shri Pradeep Indra Prasad Agrawalla and entry providers Shri Deepak Agarwal and Shri HimanshuVerma showing that the assessee company had, allegedly, obtained accommodation entries to the tune of Rs. 2,00,00,000/- from the entities, allegedly, controlled by them. However, a copy of the said information and the underlying basis, including statements, documents, credible information etc., were not provided to the assessee company. The ld. AR submitted that the fact of an assessee having undertaken certain transactions which are otherwise fully compliant with law and regulatory procedural requirements while itself not leading to any conclusion as to income having escaped assessment cannot also be termed as information within the meaning of Explanation 1 to section 148. This being the case, since the prevailing legal provisions for initiating the reassessment proceedings are not fulfilled, the impugned notice being bad in law deserves to be set-aside being barred by limitation.
12. The ld. AR submitted that admittedly as per Explanation 2(iv) to section 148, where the Assessing Officer is satisfied with the prior approval of the Principal Commissioner of Income Tax/Commissioner of Income Tax that books of accounts etc. seized/requisitioned u/s 132/132A in case of any other person on or after 01.04.2021 relating to the Assessee, he shall be deemed to have information that information chargeable to tax in the case of Assessee has escaped assessment. It is implicit in the said provisions that the books of account seized must indicate that income of an assessee appears to have escaped assessment. In other words, the mere discovery of any documents wherein an external assessee may be mentioned cannot by itself lead to a conclusion as to income having escaped assessment, in the absence of any concrete and perceptible indication to suggest and sustain the fact of income having, allegedly, escaped assessment. Extrapolating the above argument further, it was submitted that entries recorded in the books of accounts (as in the instant case) cannot be a ground to even suggest that income has, allegedly, escaped assessment. It was also submitted that the Explanation 2(iv) to section 148 provides that if the Assessing Officer is satisfied that any books of accounts/documents seized u/s. 132 in the case of any other person pertains to or any information contained therein relates to the Assessee, he shall be deemed to have information which suggests that income chargeable to tax has, allegedly, escaped assessment. Be that as it may, it should be noted and emphatically submitted that it cannot be the stated legislative intention as embedded in the statute that regular entries in the books of accounts in the ordinary course of its activities can lead to a conclusion as to income having, allegedly, escaped assessment. The fact remains that a live and in fact concrete link has to be established between the information/entries in the books of accounts to suggest that income have escaped assessment. To put it differently, the information/book of accounts should demonstratively establish income having, allegedly, escaped assessment in order to ensure a legally defensible issue of notice u/s 148 which is evidently not the situation here.
13. The ld. AR submitted that in the instant case, the notice relates to A.Y 2017-18. As postulated by section 149(1)(b) as applicable for the year under consideration “No notice under section 148 shall be issued for the relevant assessment year, 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”. The ld. AR submitted that in terms of the above, a direct link is postulated between the “books of accounts, document or evidence” and they being “represented in the form of assets”. In the instant case, information related to receipts against sale of shares which has been duly recorded in the books of accounts and none of which can be equated to being represented in the form of assets. A payment received through banking channels and transaction duly recorded in books of account cannot be tantamount to be “represented in the form of assets” whereby the provisions of section 148 do not come into play.
14. The ld. AR further submitted that the above issue gets further clarified by the Instructions of CBDT dated 10th December 2021, (F. No. 225/135/2021/ITA-II) conveying instructions regarding uploading of information on insight portal for implementation of risk management strategy for issue of notice u/s 148 wherein vide para 5 reproduced hereunder it has been stated as follows:-
“As per the provisions of section 149(1)(b) of the Act, in specific cases where the Assessing Officer has in his possession evidence which reveal that the income escaping assessment, represented in the form of asset, amounts to or is likely to amount to fifty lakh rupees or more, notice can be issued beyond the period of three years but not beyond the period of ten years from the end of the relevant assessment year. Further, the notice under section 148 of the Act cannot be issued at any time in a case for the relevant assessment year beginning on or before April 01, 2021, if such notice could not have been issued at that time on account of being beyond the time limit prescribed under the provisions of clause (b), as they stood immediately before the proposed amendment. As per explanation provided to section 149 of the Act, the term “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.”
15. The ld. AR submitted that in the instant case, there is no information to even suggest that income allegedly escaping assessment is represented in any form of an asset whereby the extended period is not available and accordingly the said notice is barred by limitation.
16. Without prejudice to the above, it was further submitted that the provisions of section 149(1)(b) are so worded to convey that the evidence in the possession of the Department should “reveal” that income has escaped assessment. The use of the word “reveal” itself conveys that there should be a finality and conclusivity as regards the evidence which should not be merely suggestive in nature. The evidence should itself convey a sense of conclusiveness and the fact that income has actually escaped assessment should be self- evident. The ld. AR submitted that the use of the word “reveal” multiplies manifold the onus and responsibility cast on the Department to back up any claim for income having allegedly escaped assessment by evidence which is iron-clad as opposed to evidence which is merely circumstantial, suggestive and conjectural or based on assumption and surmises as in the instant case. The fact of movement of funds, even if of large amounts and of ostensibly at frequent intervals, being transactions in the ordinary course of activity, by themselves do not reveal any escapement of income and which fact cannot be the basis to arrive at a conclusion that income has, allegedly, escaped assessment. This being the case, since the evidence does not “reveal” as per the mandatory specification of section 149(1)(b) that income has escaped assessment, the mandatory conditions specified therein are not fulfilled rendering the notice issued as barred by limitation on this ground also.
17. It was further submitted that while the information forming the basis for issue of notice u/s 148 does not decisively fall as being “represented in the form of an asset”, the entries to which the sums pertain also donot reveal, let alone establish that income has, allegedly, escaped assessment. While the said entries stand duly recorded in the books of account, they are, and by a large margin at that not emblematic of being even collaterally relatable to income any having, allegedly, escaped assessment. This is in view of the fact that the same represent proceeds against sale of shares, a transaction which is not only fully vouched and legally executed but is also recorded in the books of account and duly confirmed by all the parties thereto. It was submitted that dealings in the regular course of business with an independent third party who has been found to be, allegedly, engaged in providing accommodation entries cannot be equated with income having escaped assessment. It was submitted that a reasonable and practical interpretation of Explanation 2(iv) would suggest some kind of a viable and evident link between the books of accounts and income escaping assessment and not to bring within its ambit the mere facts of some entries accorded which are duly accounted. In view of the same under the provisions of section 148 read with proviso 149(1)(b) and as further reiterated by the Central Board of Direct Taxes Instructions dated 10.12.2021 cited above, it was submitted that the assessment for A.Y 2017-18 cannot be reopened on the ground that any income has escaped assessment in view of the following: –
(i) the absence of any linkage between any books of accounts or other documents or evidence which reveals that the income chargeable to tax, “represented in the form of asset”, or “entries in the books of accounts” has escaped assessment;
(ii) The absence of any evidence which “reveals” that income has escaped assessment;
18. It was further submitted that the assessee was not even provided with complete copy of the reasons along with the supporting documentation and there is thus a clear violation of the guidelines laid done by the Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. v. ITO[2003] 259 ITR 19 (SC). In this regard, it was submitted that the assessee company was provided with a copy of the information on the issue of which the case was sought to be reopened on 19.11.2024. It was further submitted that a review of the reasons recorded for issue of notice u/s 148 would bring out the fact that they only give the file notings made by the Assessing Officer including a brief reference to the information received, the purported analysis and subsequent enquiry etc. However, the underlying basis i.e. the information received which forms the basis for the action of the Ld. Assessing Officer, the documentary evidence of the enquiry conducted by him and the process followed for obtaining the requisite and mandatory sanction u/s 151 of the Act have not been provided to it thereby defeating the very purpose, rationale and logic behind the reassessment provisions in the Act. In particular, the reasons provided to the assessee company were incomplete in as much as the underlying basis, including statements, documents, credible information etc. received on the basis of search u/s 132 of the Act conducted on 17.11.2021 on Galaxy Group Shri Pradeep Indra Prasad Agrawalla and entry providers Shri Deepak Agarwal and Shri Himanshu Verma showing that the assessee company had, allegedly, obtained accommodation entries to the tune of Rs. 2,00,00,000/- from the entities, allegedly, controlled by them was not provided to the assessee company. Further, the approval of the “Specified Authority” was also not provided to the assessee company. It was further submitted that the reassessment provisions incorporated in the Act provide for a stringent and mandatory procedure and compliances for arriving at a satisfaction as to escapement of income as also the requisite sanctions to be obtained from the Competent Authority. The framework is designed to provide stringent safeguards to ensure that only genuine cases where it can be reasonably concluded that “income has escaped assessment” are subjected to the rigorous of reassessment. Further, the said mode of recording satisfaction is also supplemented by a prescribed procedure of obtaining approvals from the Competent Authority which is only meant to ensure due application of mind at several levels so that the entire process of reassessment is resorted to only in genuine cases. It was submitted that the absence of sharing complete reasons and the approval of the specified authority renders the entire process liable to be declared void ab-initio. The reliance was placed on the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra), wherein, while clearly laying down the procedure to be followed in reassessment proceedings, the Hon’ble Supreme Court held that “nonproviding to an Assessee of complete reasons recorded (including sanction, documents relied upon etc.) is fatal to the validity of the reassessment proceedings” and that an Assessing Officer “is bound to furnishreasons within a reasonable time.” The non-provision of the complete reasons particularly the information received from the Investigation Wing mitigates against the specific observations made by the Hon’ble Supreme Court. In view of the above submissions, since complete reasons recorded were not furnished to the assessee company, it was submitted that the impugned proceedings deserve to be treated as bad in law on the ground alone and the consequent order passed as void – ab initio on this ground itself.
19. It was further submitted that the proceedings so initiated by issuance of notice u/s. 148 is based on change of opinion and therefore, the same cannot be the basis for reopening and invocation of jurisdiction u/s. 147 of the Act. In this regard, it was submitted that reassessment provisions give power to an Assessing Officer to re-assess some income which has escaped assessment earlier and not to review or change his opinion on a matter which has already been deliberated upon and examined, in particular, when an assessment has been completed vide order dated 10.06.2019 passed u/s 143(3) after scrutiny of books/records and examination of books of accounts which predicates a due application of mind before finalizing the assessment. Thus, when a matter has been duly examined in earlier assessment proceedings and a view formed on that basis, subsequent reopening of the case on the grounds of income has allegedly, “escaped assessment would amount to exercise of a power to review tantamount to a change of opinion and which action should not and cannot stand the test of law. It was further submitted that in the instant case, the matter had been duly dealt with by the Ld. Assessing Officer in the course of original assessment framed vide order dated 10.06.2019 passed u/s 143(3) of the Act wherein relevant documents/evidence were duly filed before him and who after due verification/examination of the same did not draw any adverse inference in respect thereof. In the light of these facts, it is clear that issue of notice u/s 148 of the Act is only based on a change of opinion which goes beyond the mandate of law thereby calling for the reassessment proceedings to be void ab-initio and non-est.In this connection, reliance was placed on following decisions:
a. CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC)
b. CIT v. Usha International Ltd. 348 ITR 485 (Delhi)
c. Marico Ltd. v. Asstt. CIT [2020] 425 ITR 177 (Bombay)
d. Orient News Prints Ltd. v. Dy. CIT 393 ITR 527 (Gujarat).
20. The ld. DR has been heard who has relied on the orders so passed by the Assessing Officer as well as that of the ld. CIT(A) and our reference was drawn to the reasons so recorded by the Assessing Officer before issuance of the notice u/s. 148. It was submitted that the reasons are reproduced in the assessment order so passed by the Assessing Officer and reference to the reasons are drawn which are contained at paragraph 3 of the assessment order which we deem it appropriate to reproduce in verbatim as under:
“3. The reasons for re-opening the assessment are reproduced (relevant portion) as under:
“Credible information, in accordance with the risk management strategy formulated by the CBDT, has been flagged in the case of the assessee Company for the F.Y. 2016-2017 relevant to the A.Y 2017-2018 through “Insight Portal” under the category “High risk CRIU/VRU information”

As per information received from DDIT/ADIT (inv.) Unit 2(1), New Delhi, a search operation u/s 132 of the Income Tax Act, 1961 was conducted on Galaxy Group, Shri Pradeep Indra Prasad Agarwalla (Founder of Galaxy Groups) and entry providers Shri Deepak Agarwal and Shri Himanshu Verma.

It is found that both of them are involved in providing various types of accommodation entries to large number of the beneficiaries through non-descript entities managed and controlled by them with the help of dummy directors and professionals. Both of these persons Shri Deepak Agarwal and Shri Himanshu Verma are separately running syndicates who form, control and manage large number of nondescript corporate and non-corporate entities for the purpose of providing various types of accommodation entries to various beneficiaries. These entries are provided by way of layering through multiple non-descript entities. Shri Deepak Agarwal and Shri Himanshu Verma engaged in providing entries on a huge level by utilizing web of bank accounts in different banks in the name of paper companies.

During the search proceedings on 17.11.2021 at the office of the premises of Shri Deepak Agarwal ie B-7, 2nd floor, Ashoka Niketan, New Delhi certain incriminating WhatsApp chats were noticed and extracted from the phone of Shri Rasik Agarwal (son of Shri Deepak Agarwal) whereby various photos of rupees notes and chats of cash/kg transfer were found. In his statement on oath on 17.11.201 Shri Rasik Agarwal was confronted with these extracted WhatsApp chats and he was asked to explain the content of these chats. While explaining these chats, Shri Agarwal admitted that the chats pertained to providing bank entries by their entities on the directions of his father Shri Deepak Agarwal against cash. He admitted that kg in the chat denotes Lakh and thus 100kg refer to 100 Lakh i.e. 1 crore. In one of such transactions Shri Rasik Agarwal accepted about picking up of cash amounting to Rs.40 lakhs against Rs. 10 note bearing number 47V685223 using it as token for delivery as per the directions of his father Shri Deepak Agarwal.

An exercise was done to identify the companies which are associated with the directors who are found to be managed and controlled by Shri Deepak Agarwal and companies of which tally containing Bank book is found from the data seized from the office premises of Shri Deepak Agarwal. On the basis of this exercise, a total of 158 companies have been identified as non-descript companies which are managed and controlled by Shri Deepak Agarwal and his associates. The list of these entities is annexed as annexure -B of the report.

As per the list of companies managed and controlled by the entry provider Shri Deepak Agarwal, it is found that the three companies M/s. Vandam Technologies Private Limited (Sr. No. 156) and M/s Evalina Powertec Systems Pvt. Ltd. (Sr.no.53) were controlled and managed by him. The Investigation wing, New Delhi has also provided the ledger copies of the assessee M/s. Pace Iron and Steel Pvt. Ltd. for the A. Y. 2017-18 in the books of the above two companies controlled and managed by Shri Deepak Agarwal. As per the ledger copies, the said three companies have provided accommodation entries aggregating to Rs. 50,00,000/-and Rs. 1,50,00,000/- each to the assessee M/s. Pace Iron and Steel Pvt. Ltd during the Assessment Year 2017-2018 under consideration.

During the post search investigations, statements of various CAs were recorded who were being reported as Statutory Tax Auditors on Financial statement of non-descript entities. During statement of oath recorded u/s 131(1A) of the Income tax Act, 1961 of CAs Shri Pushpa Kumar and CA Smt. Swati Mittal stated that they did the audit without following procedures as per laws and merely signed the documents of such companies without verifying actual business, vouchers/bill/invoice and also not verified addresses of such companies where the books of account of such companies were maintained.

Further, during the investigation, CA Smt. Swati Mittal stated that Ms. Sonia Sharma (an employee of Sh. Deepak Agarwal and dummy director of Covet Financial Services Pvt. Ltd and Phont Real Estate Pvt. Ltd) was used to share documents related to the non-descript entities with her merely for signature and later on she used to courier all her signed documents/financial statements and Audit report to Ms. Pooja Modi, B-7, Second Floor, Ashoka Niketan, Anand Vihar, New Delhi-92. Ms. Pooja Modi is an employee of Sh. Rajesh Agarwal (C.A of Sh. Deepak Agarwal) and the address on which these documents were used to send is the office premises of Sh. Deepak Agarwal i.e. B-7, Second Floor, Ashoka Niketan, Anand Vihar, New Delhi-92.

On the basis of the above information received from the Investigation Wing wherein it has been stated that the documents seized during search u/s 132 in the case of Galaxy group pertain to or information contained therein related to the assessee M/s. Pace Iron and Steel Pvt. Ltd. for the A.Y. 201718. As discussed above, I am satisfied that this case is covered under the provisions of explanation 2(iv) of the Section 148 of the Income Tax Act, 1961. As the information referred above suggests that the income chargeable to tax has escaped assessment in this case for the A.Y. 2017-18. Therefore, approval may be accorded to initiate proceedings u/s. 148 of the Act, if deemed fit.”
21. It was submitted by the ld. DR that the Assessing Officer was seized of the credible information in accordance with the risk management strategy formulated by the Central Board of Direct Taxes that the assessee has obtained accommodation entries from two entities namely M/s. Vandam Technologies Pvt. Ltd. and M/s. Evalina Powertec Systems Pvt. Ltd. totaling to Rs. 2 crores and basis search operation conducted u/s. 132 of the Act, it has been found that these entities are shell entities which are controlled and managed by Shri Deepak Agarwal, the entry operator. Further, the ledger copies of the assessee in the books accounts of these entities were also found and which clearly reflect that these companies have provided accommodation entries to the assessee company. It was submitted that the basis the said information, the Assessing Officer has clearly recorded his satisfaction that in terms of Explanation 2(iv) of section 148, the information so referred clearly suggests that the income chargeable to tax has escaped assessment in the hands of the assessee for A.Y. 2017-18 and accordingly, the reasons were recorded, necessary approvals were obtained from the competent authority and notice u/s. 148 was issued to the assessee. It was accordingly submitted that there is no legal infirmity in the exercise of jurisdiction u/s. 147 by the Assessing Officer and therefore, the ground of appeal and the contentions so raised by the ld. AR deserves to be dismissed.
22. We have heard the rival contentions and perused the material available on record. We firstly refer to contention advanced by the ld AR that the notice u/s 148 so issued by the AO is barred by limitation in absence of requisite conditions being satisfied before issuance of such notice. The assessment year under consideration is A.Y. 2017-18 and notice u/s. 148 which has been issued on 29.03.2024 is admittedly issued after the end of three years from the end of the relevant assessment year.
23. In this regard, we refer to the provisions of section 147 of the Act which provides that where any income chargeable to tax in the case of the assessee has escaped assessment for any assessment year, the Assessing officer may, subject to provisions of section 148 to 153, assess or reassess such income for such assessment year.
24. We further refer to the provisions of Section 148 of the Act, which talks about service of notice on the assessee to file the return of income in prescribed form and manner. It provides that no notice u/s. 148 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 a notice.
25. Further, as per clause (iv) of explanation (2) to Section 148, where the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned u/s. 132 or section 132A in case of any other person on or after the 1stday of April, 2021, pertains or pertain to, or any information contained therein, relates to the assessee, 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 has 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.
26. Further, Section 149 talks about time limit for issuance of notice u/s 148 of the Act. Clause (a) of Sub-section (1) of section 149 provides that no notice u/s. 148 shall be issued for the relevant assessment year, if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); and clause (b) provides that no notice u/s. 148 shall be issued for the relevant assessment year, 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 an asset, expenditure in respect of a transaction or in relation to an event or occasion, or 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.
27. We therefore find that where the notice u/s 148 is issued within three years from the end of the relevant assessment year, there is no added condition which has been prescribed u/s. 149 of the Act. However, where the notice is issued after the end of three years from the relevant assessment year, there is an added condition which needs to be satisfied, whereby the Assessing Officer has to have in his possession books of account or other documents or evidence which reveal that income chargeable to tax is represented in the form of an asset, expenditure in respect of a transaction or in relation to an event or occasion or any 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.
28. In the instant case, as we noted earlier, the notice u/s 148 has been issued after the end of the three years from the end of the relevant assessment year. Therefore, the conditions so prescribed u/s. 148 as well as added condition as so prescribed u/s. 149(1)(b) needs to be cumulatively satisfied. Section 148 talks about possession of information or deemed possession of information with the Assessing Officer which “suggests that the income chargeable to tax has escaped assessment” for the relevant assessment year. Section 149 talks about the fact that the Assessing Officer should have in his possession books of accounts or other documents or evidence which “reveal that income chargeable to tax has escaped assessment” and thereafter, it has further defined the income chargeable to tax which has escaped assessment as represented in the form of an asset, expenditure in respect of a transaction or in relation to an event or occasion or an entry or entries in the books of account. The revelation of income escaping assessment therefore has to be demonstrated with some concrete/tangible material and such revelation of income which has escaped assessment necessarily has to be evident in form of an asset, expenditure in respect of a transaction or in relation to an event or occasion or an entry or entries in the books of account.
29. In light of aforesaid statutory mandate, let’s see how the Assessing officer has recorded his satisfaction in the instant case. From perusal of the reasons so recorded, we find that firstly, the Assessing officer has referred to the information so received from the Investigation Wing and thereafter, the Assessing Officer has stated that the information so received from the investigation wing, wherein the documents seized during the search u/s. 132 in the case of the Galaxy Group pertains or pertain to, or any information contained therein, relates to the assessee and he accordingly recorded his satisfaction stating that the matter is covered under Explanation 2(iv) of Section 148 of the Act. As we have noted earlier, if we looks at the Explanation 2(iv) of Section 148 of the Act, it talks about the satisfaction of the Assessing Officer, with the prior approval of Principal Commissioner or Commissioner, that any books of accounts or documents, seized or requisition u/s. 132 or 132A in case of any other person on or after the 1stday of April, 2021, pertains or pertain to, or any information contained therein, relate to the assessee. For the purposes, firstly, there has to be identification of books of accounts and documents which has been seized in case of any other person and which pertains to the assessee. Where the books of accounts and documents so seized do not pertain to the assessee, there has to be determination as to whether any information contained therein relates to the assessee. Such determination and satisfaction is to be recorded by the Assessing officer and that too, with the prior approval of the Principal Commissioner or Commissioner. However, in the instant case, there is nothing on record in terms of particulars of the books of accounts or documents so seized which pertain to the assessee or any information contained therein which relates to the assessee and whether the Assessing Officer has sought any prior approval of Principal Commissioner or Commissioner before recording his satisfaction. Mere fact that certain documents have been seized from search in case of any other person, cannot by default lead to satisfaction as so contemplated by the statute. The satisfaction so recorded by the Assessing officer therefore doesn’t meet the statutory requirement as so provided under Explanation 2(iv) of Section 148 of the Act.
30. Having said that, we find that the Assessing Officer has not recorded any satisfaction as to how the conditions specified u/s. 149(1)(b) of the Act are fulfilled in the instant case. As per Section 149(1)(b) of the Act, the Assessing Officer has to have in its possession books of accounts or other documents or evidence which reveal that the income chargeable to tax has escaped assessment as represented in the form of an asset, expenditure in respect of a transaction or in relation to an event or occasion or an entry or entries in the books of account. Therefore, the emphasis so laid down by the legislature is on the documents and evidences which reveal that the income chargeable to tax has escaped assessment as against the language used in Section 148, which talks about the information with the Assessing Officer which suggests that income chargeable to tax has escaped assessment. We find that the phrase “suggest” and “reveal” cannot be read as synonyms given the context in which they have been provided in the statute which is evident from the fact that where the notice is issued within 3 years from the end of the relevant assessment year so long as the conditions of Section 148 are satisfied, there are no additional condition which needs to be satisfied. The factum of the additional conditions to be satisfied as so provided u/s. 149(1)(b) of the Act clearly demonstrates that these are specific conditions which needs to be satisfied, in addition to conditions u/s 148, and these conditions are more onerous than what has been provided u/s 148 and the same needs to be fulfilled before the Assessing Officer acquires jurisdiction where the matter is reopened beyond 3 years from the end of the relevant assessment year. In such cases, the information in the possession of the Assessing Officer not only pertains to or any information contained therein, relates to the assessee but at the same time, such information has to reveal that the income chargeable to tax has escaped assessment and which is represented specifically in the form of an asset, an expenditure or an entry in the books of accounts and there has to be specific satisfaction to be recorded by the Assessing Officer as so provided u/s. 149(1)(b) of the Act. However, in the instant case, we find that no such finding is recorded in terms of satisfaction of the aforesaid conditions before issuance of notice u/s 148 as evident from the records placed before us and therefore, the conditions prescribed u/s 149(1)(b) for issue of notice beyond three years from the end of the relevant assessment year are not fulfilled in absence of any satisfaction so recorded by the Assessing officer.
31. One may argue that unlike the requirement of recording of satisfaction as so provided in Explanation 2(iv) of Section 148 of the Act, there is no such requirement of recording of specific satisfaction in terms of section 149(1)(b) of the Act so long as it can be demonstrated that the conditions specified therein are satisfied in a particular case. However, the question remains that a specific finding has to be recorded by the Assessing officer as to whether such conditions have been specified in the instant case or not and the answer to the same is not in affirmative. There is nothing on record whereby the Assessing officer has recorded any findings in terms of compliance of the conditions so provided u/s 149(1)(b) before issuance of notice u/s 148 of the Act.
32. Having said that, we refer to the reasons recorded by the Assessing officer wherein the Assessing officer states that the Investigation Wing has provided ledger copies of the assessee in the books of two companies which are controlled and managed by Deepak Agarwal who is found to be engaged in providing accommodation entries and as per ledger copies, these companies have provided accommodation entries to the assessee company. The contents of the ledger accounts, the nature of the transactions reflected therein and number/periodicity of entries therein are not known and nothing is discernable from the reasons so recorded. The question therefore is whether the so called ledger entries in books of these two entities irrespective of their nature, quantum and periodicity are sufficient enough to reveal that income chargeable to tax has escaped assessment in the hands of the assessee company. In other words, the fact that these entities are controlled and managed by Deepak Agarwal, whether the same is sufficient enough to hold that the ledger entries in the books of accounts so maintained by these entities are nothing but accommodation entries and by default, reveal that the income has escaped assessment in the hands of the assessee. To our mind, before arriving at any conclusion in this regard, one need to determine how the assessee has accounted for these transactions in its books of accounts and treatment thereof for tax purposes. What happens where the assessee has already offered these transactions in its return of income, what happens where the assessee disputes these transactions as doesn’t belong to it or wrongly entered in its name by these entities. Therefore, unless the assessee is confronted with the nature and contents of the ledger entries in the books of accounts of the person searched, which admittedly has not happened in the instant case, one cannot determine that these ledger entries on standalone basis reveal income escaping assessment in the hands of the assessee. Even where the assessee is not confronted, atleast, there has to be examination and verification by the Assessing officer of corresponding entries and treatment thereof in the books of accounts of the assessee before it can be held that there is revelation that income has escaped assessment as represented by these entries in the books of the other person being searched. However, again, we find that there is nothing on record to this effect and in any case, as we have noted earlier, there is no satisfaction which has been recorded by the AO in terms of section 149(1)(b) of the Act.
33. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that the notice u/s 148 so issued by the AO beyond the period of three years from the end of the relevant assessment year is barred by limitation in absence of requisite conditions being satisfied before issuance of such notice in terms of section 149(1)(b) of the Act and consequentially, the notice so issued and reassessment proceedings so initiated and concluded deserve to be set-aside and is hereby set-aside.
34. In light of above, other contentions so raised by the ld. AR and other grounds of appeal have become academic in nature and the same are dismissed as infructuous.
35. In the result, the appeal filed by the assessee is allowed.
Order pronounced in terms of Proviso to Rule 34(4) of Income Tax (Appellate Tribunal) Rules,1963 on 07.07.2026.