Notice issued u/s 148 beyond 3 years is invalid as ineligible expenses can’t be construed as income escaped Assessment represented in form of “Asset” u/s 149(1)(b) of the Act

Held by Income Tax Appellate Tribunal, Delhi

In the case of 

ACIT Vs. M/s. JKM Infra Projects Ltd, (ITA No. 3031/Del/2025)  (Assessment Year: 2013-14)

M/s JKM Infra Projects Limited has filed the ITR for AY 2013-14 on 30th September, 2013. As per information received from DDIT, the AO proceeded to reopen the case on the allegation that the Assessee has disclosed a purchase which is not genuine. For this purpose, the notice u/s 148 was issued on 23rd April, 2021. The reassessment was completed under section 147 read with section 143(3) of the Act on 22-05-2023, disallowing such purchases of INR 99.99 Lacs. However, the Learned CIT(A) sustained the addition only to Rs 8,00,000/- being the profit element embedded in the value of such disputed purchases. Therefore, the Appeal is filed by the Revenue for AY 2013-14 arising out of the order of the Commissioner of Income Tax (Appeals). While filing a cross objection, the Assessee raised a legal ground challenging AO did not have any books of accounts, evidence, or other documents in his possession which reveal that the income of the assessee had escaped assessment and such income is represented in the form of an asset as required under section 149(1)(b) of the Act. Therefore, the notice issued under section 148 of the Act is barred by limitation.

Hon’ble ITAT held that the term “asset” as defined in the 4th proviso to section 153A and in Explanation to section 149(1)(b) as it stood at the relevant point of time for the year under consideration was the same.   With effect from 1st April, 2021, the provisions of section 149(1)(b) are amended wherein income escaping assessment amounting to Rs 50 lakhs or more should be represented in the form of an asset, expenditure or in relation to an event or occasion, or an entry or entries in the books of account.  This amendment is to be construed only prospectively in the light of the decision of Hon‟ble Delhi High Court referred supra. Accordingly, the Learned AO contemplating to disallow the ingenuine purchases of INR 99.99 Lacs had satisfied the first condition of section 149 of the Act that it represents income escaping assessment. But the second condition prescribed thereon that such escaped income should be represented in the form of an asset is not satisfied herein, as the disallowance of expenditure cannot be construed as being represented in the form of an asset.  

Therefore, the notice issued under section 148 of the Act dated 23-42021 is barred by limitation, and the reassessment proceedings are hereby quashed.

1. Brief facts of the case:

• M/s  JKM Infra Projects Ltd (“The Assessee”) filed its original ITR for the assessment year 2013-14 on 30-09-2013 declaring total income of Rs. 27,38,23,720/-. 

• Based on specific information received through the Insight portal uploaded by DDIT (Inv.) 1,  the learned AO proceeded to reopen the case of the assessee on the allegation that the assessee had disclosed a purchase that is not genuine. The Supplier was not traceable at the available address despite efforts taken by the Income Tax Department to serve the summons on him. 

• Therefore, the purchase made by the assessee of INR 99.99 Lacs from such supplier is nothing but an accommodation entry warranting disallowance in the hands of the assessee.

• For this purpose, the assessment reopened in the hands of the assessee through a notice issued u/s 148 of the Act on 23rd April, 2021. The reassessment was completed under section 147 read with section 143(3) of the Act on 22-05-2023, disallowing such purchases of INR 99.99 Lacs.

• The Learned CIT(A) sustained the addition only to the extent of Rs 8,00,000/-, being the profit element embedded in the value of the disputed purchases.

• In the given case, the Appeal is filed by the Revenue for AY 2013-14 arising out of the order of the Commissioner of Income Tax (Appeals).

• While filing a cross objection, the Assessee raised a legal ground challenging the validity of the assumption of jurisdiction under section 147 of the Act. The AO did not have any books of accounts, evidence, or other documents in his possession that reveal that the income of the assessee had escaped assessment and such income is represented in the form of an asset as required under section 149(1)(b) of the Act. Therefore, the notice issued under section 148 of the Act is barred by limitation.  

2. Findings and Analysis by Hon’ble ITAT

The Hon’ble ITAT made the following findings and Analysis:

• Provisions of Section 149 of the Act had been amended with effect from 1-4-2021. As per the amended provisions of Section 149(1) of the Act, an assessment after 1st April, 2021 can be reopened after 3 years only when the assessing officer has information in his possession which reveal that the income chargeable to tax represented in the form of an asset which has escaped assessment amounts to or is likely to amount to Rs 50 lakhs or more for that year. 

• The term “Asset” is defined as follows in the Explanation to Section 149 of the Act:- 

“For clause b of this subsection, 'asset' shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in a bank account.”

• Therefore, to open an assessment after a period of 3 years, not only do the incomes exceeding Rs 50 lakhs escape, but it should also be represented in the form of an “asset”.

• In the given case, the learned AO had recorded reasons for reopening the assessment to disallow only the expenses in the form of purchase, treating it as inauthentic. The same is not represented in the form of an “asset‟. Hence, the assessment cannot be reopened after 3 years. 

• It is not in dispute that the notice under Section 148 of the Act was issued on 23-04-2021, which is beyond 3 years from the assessment year 2013-14. 

• It was accordingly submitted that the notice under Section 148 of the  Act dated 23-04-2021 is barred by limitation.  

• In this case, the reliance is placed on the decision of the Hon’ble Jurisdictional High Court in the case of Smart Chip Private Limited vs ACIT  reported in 476 ITR 389 (Del) dated 23-042025 wherein it was held that:

• The AO believed that the petitioner's income had escaped assessment for AY 2016-17 on essentially the following 3 grounds:
  
  • The petitioner had deducted expenses relating to amounts paid to certain persons who had not filed their income tax returns, and the AO thus doubted the genuineness of the said transactions. 
  • The petitioner had booked expenses of a personal nature.
  • The petitioner had paid certain amounts as expenses for availing contractual manpower services, and the AO doubted the genuineness of the said payments.  

• There is no allegation that the income which has escaped assessment was represented in the form of an asset. 

• Therefore, the conditions as stipulated in Clause (a) of the fourth proviso to Section 153A(1) of the Act are not satisfied.

• The AO does not possess any books of account, other documents, or evidence, which reveals that the petitioner's income, which is represented in the form of an asset, has escaped assessment.

• As per Explanation 2 to Section 153A(1) of the Act, the term 'asset' is defined to include immovable property, being land or building or both, shares and securities, loans and advances, and deposits in bank accounts.  

• In this case, no material is available to establish that such expenses had resulted in the acquisition of any asset, the conditions stipulated in the fourth proviso to Section 153A(1) of the Act would remain unsatisfied.  

• In view of the above, the impugned notice as well as the proceedings initiated pursuant thereto are set aside.

• The term “asset” as defined in the 4th proviso to section 153A and in Explanation to section 149(1)(b) as it stood at the relevant point of time for the year under consideration was the same.  

• With effect from 1st April, 2021, the provisions of section 149(1)(b) are amended wherein income escaping assessment amounting to Rs 50 lakhs or more should be 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. 

• This amendment is to be construed only prospectively in nature in the light of the decision of Hon‟ble Delhi High Court referred supra. 

• Accordingly, the Learned AO contemplating to disallow the ingenuine purchases of INR 99.99 Lacs had satisfied the first condition of section 149 of the Act that it represents income escaping assessment. But the second condition prescribed thereon that such escaped income should be represented in the form of an asset is not satisfied herein, as disallowance of expenditure cannot be construed as being represented in the form of an asset.  

3. Final Order

The Hon’ble ITAT held that:

• In view of the aforesaid observations and in the light of the decision of the Hon’ble Delhi High Court, it could be safely concluded that the reopening made after 3 years cannot be made.

• Therefore, the notice issued under section 148 of the Act dated 23-42021 is barred by limitation, and the reassessment proceedings are hereby quashed.