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Judgment
PER MANISH AGARWAL, AM :
The captioned appeal is filed by assessee against the order dated 18.06.2024 passed by Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi [“ld. CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the reassessment order dated 28.02.2023 passed u/s 147 r.w.s. 144 r.w.s. 144B of the Act pertaining to Assessment Year 2015-16.
Brief facts of the case are that the assessee is an individual and based on the information flagged in Insight portal in the category of NMS that assessee had made cash deposit of INR 56,70,000/- and sold immovable property for INR 56,60,000/- therefore, proceedings u/s 148A(b) of the Act were initiated by issue of notice dated 16.03.2022 and thereafter, the order u/s 148A(d) of the Act was passed on 29.03.2022 followed by the notice u/s 148 of the Act dt. 30.03.2022. Since the assessee failed to file any details during the course of assessment proceedings, therefore, the assessment was completed ex-parte u/s 144 of the Act wherein an addition of INR 56,0,000/- was made u/s 69C of the Act r.w.s. 115BBE of the Act as explained expenditure.
Against the said order, assessee filed appeal before ld. CIT(A) who vide order 18.06.2024 Has allowed part relief to the assessee and allowed the deduction towards the cost of improvement on the property sold by the assessee during the year under appeal.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking following grounds of Appeal:
1.“The Ld. CIT (A) has erred in law and against the facts of the case for confirming the action of the Ld. AO for not allowing the cost of improvement/ demolition of construction incurred on the land under Consideration before its sale.
2.That the Ld. CIT (A) has erred in law and against the facts and circumstances of the case, for not allowing the indexed cost of improvement by saying that in the instant case, only land is in existence and the appellant had sold the land only. There is no improvement on the said land. Without going through to the facts of the case that the said land was sold after demolition of construction and this fact was not denied by him.”
During the course of hearing, vide letter dated 14.01.2026 assessee has filed an application under Rule 11 of the Income Tax Appellate Tribunal Rules, 1963 and raised an additional ground of appeal which reads as under:
1(v) “That the Ld.AO has erred in law as well on facts in assuming jurisdiction under seciton1 47 of the Act as the notice under Section 148A(b) and subsequent order under section 148A(d), culminating in a Section 148 reassessment notice, are invalid because they are solely based on the assertion that the taxpayer was a “non-filer” despite the same was duly filed.”
In the said petition, the ld. AR submits that the additional ground of appeal taken by the assessee, is purely legal in nature and requires no verification, therefore, the same deserves to be admitted. He placed reliance on the judgment of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383(SC) and in the case of Jute Corporation of India vs CIT reported in 187 ITR 688.
On the other hand, ld. Sr. DR for the Revenue vehemently opposed the admission of the additional ground of appeal taken at this stage and submits that this ground has never been raised before the lower authorities and therefore, the same should not be admitted now. He prayed accordingly.
Heard the parties and from the perusal of the additional ground of appeal, it is observed that the assessee has challenged the validity of the reassessment proceedings initiated u/s 147 of the Act and purely legal in nature. By respectfully following the judgment of Hon’ble Supreme Court in the case of NTPC Limited (supra) and of Jute Corporation Limited (supra), the additional Ground of appeal taken by the assessee is admitted for adjudication.
Since the additional ground of appeal taken by the assessee is legal in nature, therefore, the same is taken first for consideration.
Before us, ld. AR for the assessee submits the case of assessee was reopened by treating the assessor as non-filer however, the assessee has filed the return of income on 31.08.2015, declaring total income at Rs. 2,995/- and claimed the gains from the sale of agriculture land as exempt. The AO in the notice issued u/s 148A(b) of the Act and further, in the order passed u/s 148A(d) of the Act has observed that assessee is a non-filer and thereafter, in the reassessment order also, the assessee was treated as non-filer. Ld. AR submits that since the assessee has filed his return of income for the year under appeal u/s 139(1) of the Act, therefore, the vary basis of recording the satisfaction is incorrect. For this, he placed reliance on the judgment of Hon’ble Bombay High Court in the case of Narendra Kumar Shah vs. ACIT in the Writ petition No. 2558 of 2023 order dated 10.10.2023. Ld. AR further placed reliance on the judgment of Hon’ble Delhi High Court in the case of Tarlochan Lal Goyal vs. ACIT in WPC No. 13342/2018 vide order dated 17.08.2023. It is thus, submitted by ld. AR that the reassessment proceedings based on incorrect appreciation of facts, deserves to be hold bad in law and the consequent reassessment order passed deserves to be quashed.
Per contra, the Ld. Sr DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has not declared the transaction of sale of property in the return of income filed. Ld. Sr. DR submits that from the perusal of the return of income filed, it is not clear whether the cash deposits have been considered or not therefore, the AO has rightly initiated reassessment proceedings in the case of assessee. He prayed accordingly.
Heard both the parties and perused the material available on record. On the perusal of the notice issued u/s 148A(b) dated 16.03.2022 and the order passed u/s 148A(d) of the Act dated 29.03.2022, it is observed that assessee was treated as non-filer by the AO though he has filed the return of income u/s 139(1) of the ACT which fact has been ignored by the Assessing Officer at the time of initiating the reassessment proceedings in in his case. It appears that while recording the satisfaction for reopening the assessment, the AO has not applied his mind nor has referred the records available with him and simply proceeded on the basis of information available in the insight portal for alleging that the assessee has not filed any return of income thus, the source of cash deposited remained explained. The Hon’ble Bombay High court in the case of Narendra Kumar Shah (supra) has quashed the notice issued u/s 148 and order u/s 148A(d) where the AO has treated the assessee as non-filer though the return of income was filed, by making following observations:
7.“In our view, the order dated 26th April 2023 passed under Section 148A(d) of the Act is unsustainable. This is because the notice under Section 148A(b) of the Act does not call upon Petitioner to provide any justification on any transaction in question. The entire basis for issuing the notice under Section 148A(b) of the Act was that Petitioner was a non-filer for Assessment Year 2019-2020 as he has failed to file the Return of Income and therefore, the income from salary and purchase of securities have not been declared/offered for taxation. But the fact is Petitioner has filed his Return of Income and has also paid total tax of Rs. 18,36,575/and had also claimed refund of Rs. 1,27,100/-. Therefore, the order under Section 148A(d) of the Act, passed on 26th April 2023, has to be quashed and set aside. Consequentially the notice issued under Section 148A(b) of the Act, that is also dated 26th April 2023, has to be quashed and set aside.
8.We would go a step further and say that even the notice under Section 148A(b) of the Act was unjustified. This is because the Assessing Officer ("AO") before issuing the notice, was bound to atleast verify or enquire following the information that was received in accordance with the Risk Management Strategy. In fact the guidelines for issuance of notice under Section 148 of the Act bearing F No. 299/10/2022-Dir(Inv.III)/611 dated 1st August 2022 at paragraph 2.1 (vi) and (vii) read as under :
(vi)The AO shall, if required, undertake enquiries on any "information" received/available with him which suggests that the income chargeable to tax has escaped assessment in a previous year only with the prior approval of "specified authority".
(vii)If the result of enquiry/information available suggests that the income chargeable to tax has escaped assessment, the AO shall provide an opportunity of being heard to the assessee by issuing a show cause notice u/s 148A(b) of the Act. The said notice shall provide between 7 to 30 days' time to the assessee for submitting the reply A template of show cause notice is enclosed at Annexure-A1.
The instruction regarding uploading of data on functionalities/portal of the Income Tax Department bearing F No. 299/10/2022-Dir(Inv.III)/647 dated 22nd August 2022 at paragraphs 3 and 4 read as under :
3.Further, it in re-emphasized that
(i)Before initiating proceedings under Section 148/147 of the Act, any information available database/portal of the Income Tax on Department shall be verified before drawing any adverse inference against the taxpayers. It is not out of place to mention here that the information made available/data uploaded by the reporting entities may not be fully accurate due to inter alia, error of human nature technical nature, etc. Therefore, due verification may be carried out and opportunity of being heard be given to the taxpayer before initiating proceedings under Section 148/147 of the Act.
(ii)The supervisory authorities are hereby advised to keep an effective supervision as to ensure that all extant Instructions/ Guidelines/Circulars/SOPs are duly followed by the Assessing Officers in their charge.
4.In addition to above, it is also advised that all the information/reports which are being uploaded on any of the functionalities/portal of Directorate of Systems should be verified by the Officer uploading the said information/reports. Supervisory authorities are to ensure that all extant Instructions/ Guidelines/Circulars/SOPs in this regard are duly followed by Officer uploading the said information/reports.
If the AO had only verified in the portal of assessee before initiating proceedings, particularly when he had the PAN number with him, AO would have realized that not only Petitioner has filed the Return of Income, but also the return has been processed and an order dated 26th February 2020 under Section 143(1) of the Act had been passed. Therefore, the notice that was issued under Section 148A(b) of the Act also has to be quashed and set aside.
The Co-ordinate bench of Delhi Tribunal, in the case of Nikita Mahajan in ITA No. 3147/Del/2024 vide order 24.01.2025 under identical circumstances held the reassessment proceedings initiated u/s 147 on the basis wrong appreciation of facts as invalid by making following observations:
7.“'Reason to believe' is the starting point for re-opening a case. A freak foundation or reason that assessee did not file ROI is blatantly contrary to the facts. Belief stemmed from wholly unfounded reasons thus betrays the pre- requisites of s. 147 of the Act. We find that the issue is squarely covered in favour of the assessee by the judgements rendered in the case of Arvind Sahdeo Gupta vs ITO-1 and Kunwar Ayub Ali vs ITO (supra) by the Co-ordinate Bench wherein several judgements of the Hon'ble High Courts of different jurisdictions have been referred and it was held that where the reasons cited that the assessee did not file the return of income was found to be factually incorrect, the notice issued under s. 148 of the Act for re-opening of assessment requires to be quashed for assumption of jurisdiction on extraneous grounds.
8.In the light of the judgements rendered in the case of Arvind Sahdeo Gupta vs ITO-1 (supra) and Kunwar Ayub Ali vs ITO (supra) expounding the position of law, we find palpable merit in the plea of the assessee towards inherent lack of jurisdiction under s. 147 of the Act.”
Thus, by respectfully following the aforesaid judgements of Hon’ble Bombay High Court and of the Co-ordinate Bench of Delhi ITAT, we hold that the satisfaction reached and reasons recorded by the AO for reopening the assessment are based on grossly wrong facts and the AO while initiating the reassessment proceedings has not applied his mind nor referred the material available on record and simply proceeded on the basis of the information available at insight portal thus, the re-assessment proceedings initiated u/s 147 of the Act is bad in law. Hence, the jurisdiction acquired by the AO u/s 147 of the Act is cancelled and consequent reassessment order passed is set aside.
This being so, other aspects touching the merits are rendered academic and hence, not adjudicated.
In the result, appeal of the assessee is allowed.