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Judgment
PER VIMAL KUMAR, JM:
Both appeals filed by the Assessee are against orders dated 25.08.2017 of Learned Commissioner of Income Tax (Appeals)-Ghaziabad [hereinafter referred to as ‘the Ld. CIT(A)’] passed u/s 250(6) of the Income Tax Act, 1961, [hereinafter referred to as ‘the Act’] arising out of assessment orders dated 28.03.2016 of Ld. Assessing Officer/ Income Tax Officer, Ward-2(3), Ghaziabad [hereinafter referred as ‘the AO’] u/s 143(3)/147 of the Act Asst. Years 2008-09 and 2009-10.
Both appeals involved similar facts, grounds of appeal and issues. Therefore, they were heard together.
Brief facts of the case ITA No.311/Del/2018 are that the case was reopened u/s 147 on ground that a search and seizure action u/s 132 of the Act was carried out in the case of M/s Uflex Group of Companies on 19.02.2014. During the course of search operation, substantial cash was found deposited in bank accounts of M/s Uflex Ltd. Ltd. which was explained as cash sale proceeds from various persons/assessee. Assessee made cash purchase to tune of Rs.1,12,27,857/- during the financial year 2007-08 relevant to assessment year 2008-09. Notice u/s 148 dated 27.03.2015 was issued to the Assessee. Shri Saurabh Gupta, CA attended proceeding and filed written submissions dated 03.11.2015. Notice u/s 143(2) dated 20.11.2015 was issued. Return of income was filed on 03.11.2015 showing taxable income of Rs.5,09,311/-. Despite several opportunities the assessee failed to file details and produce books of accounts. Show cause notice u/s 144 of the Act dated 01.03.2016 was issued. On completion of proceedings, Ld. AO vide order dated 28.03.2016 made addition of Rs.1,12,27,857/-. Against order dated 28.03.2016 of Ld. AO, the assessee filed appeal before the CIT(A) which was dismissed vide order dated 25.08.2017.
Being aggrieved, the appellant assessee preferred present appeal on following grounds:
“1.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not quashing the impugned reassessment order passed by Ld. AO u/s 143(3)/147 and that too without assuming jurisdiction as per law and without complying the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961.
2.That in any case and in any view of the matter, action of Ld. CIT(A) in not quashing the impugned reassessment order passed by Ld. AO u/s 143(3)/147 is bad in law and against the facts and circumstances of the case.
3.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.1,12,27,857/- on account of cash purchases from M/s Uflex Ltd. u/s 40A(3) and that too by recording incorrect facts and findings and without observing the principles of natural justice.
4.That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs. 1, 12,27,857/- on account of cash purchases from M/s Uflex Ltd. u/s 40A(3) is bad in law and against the facts and circumstances of the case.
5.That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
Through application dated 16.12.2025, the assessee sought permission for admission of additional grounds of appeal which are as under:
“1.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not quashing the impugned reassessment order passed by the Ld. AO u/s 143(3)/147 and that too without assuming jurisdiction as per law and without complying with mandatory conditions as envisaged u/s 147 to 151 of the Income Tax Act, 1961.
2.That in any case and in any view of the matter, action of Ld. CIT(A) in not quashing the impugned re-assessment order passed by Ld. AO u/s 143(3)/147, is bad in law and against the facts and circumstances of the case.”
Ld. Authorized Representative for appellant assessee submitted that the action taken by Ld. AO u/s 147 is not tenable for the reason that provisions of section 153C of the Act are applicable in this case and not the provisions laid down u/s 147 of the Act. Re-assessment has been made on the basis of alleged material found on the basis of search took place u/s 132 in the premises of M/s Uflex Ltd. and in such a circumstances action (if any) to be taken in the present case with the help of provisions of section 153C and not u/s 147 of the Act. Therefore, impugned re-assessment needs to be cancelled on this ground alone. Reliance is placed on the following judgments:
a. Rajat Shubra Chatterji vs. ACIT in ITA 2430/Del/2015.
b. ACIT vs. Arun Kapur 140 TTJ 249 (Amritsar)
c. Cargo Clearing Agency vs. JCIT 307 ITR 1 (Guj.)
d. Sushil Gaur in ITA 1500/Del/2017, Date of order 08.08.2017, Delhi ITAT.
e. PCIT vs. RMG Polyvinyl (I) Ltd. in ITA No.29/2017, Date of Order 07.07.2017, Delhi High Court.
f. PCIT vs. Meenakashi Overseas (P) Ltd. in ITA 692/2016, Date of order 26.05.2017, Delhi High Court.
g. Genuine Electricals & Electronics (P) Ltd. vs. ITO in ITA 3623/Del/2014, Date of order 22.04.2016 Delhii ITAT.
h. Sonia Chowdhry vs ITO in ITA 2036-2037/Del/2010, Date of order 07.10.2016, Delhi ITAT.
Pr. CIT vs. G&C Pharma India Ltd. [2015] 94 CCH 0039 Del HC.
j. United Electrical Company (P) Ltd. vs. CIT & Ors 258 ITR 317 (Del.)
k. CIT vs. Atul Jain, 299 ITR 383 (Del.)
l. Sarthak Securities Col (P.) Ltd. 329 ITR 110 (DHC).
m. CIT vs. SFIL Stock Broking Ltd., 325 ITR 285 (DHC)
n. CIT vs. Kamdhenu Steels & Alloys Ltd., 248 CTR 33
o. ITO vs M/s Varindra Hosiery Industry Industries Ltd. in ITA 4712/Del/2009 dated 03.12.2010 (ITAT, Del.)
p. Shree Rajasthan Syntex Ltd. vs. ACIT 93 ITD 78 (ITAT, Jodhpur).
q. CIT vs Shree Rajsthan Syntex Ltd. 313 ITR 231 (RHC).
Initial onus u/s 147 proceedings is upon shoulders of revenue to prove that escapement of income. Reliance was placed on the judgment of CIT vs Sh. Pradeep Gupta, 303 ITR 95 (DHC) and SLP has been dismissed by Hon'ble Supreme Court.
Approval given by the higher authority (in applicable case), was not valid approval as per law in as much as there was no application of judicial mind by him to satisfy that it was a case fit for issuance of notice u/s 148. No satisfaction has been recorded by concerned authority. Thus, mandatory conditions of making compliance of section 151 for valid assumption of jurisdiction is missing in this case and thus the reopening is without authority of law and may please be held so. Following are direct judgments on this issue.
a. CIT vs. S Goyanka Lime & Chemicals Ltd., (2015) 64 taxmann.com(SC). (Refer PB 224-225)
b. Chaudhary & Sons Forging Pvt. Ltd. vs. ITO, ITA No. 1008/2015, ITAT Del.
c. GERMAN REMEDIES LTD. vs. DCIT [287 ITR 494 (Bom)]
d. Central India Electric Supply Co. Ltd. vs. ITO: (2011) 333 ITR 237 (Del.) (Refer PB 226-234)
Disallowance made by the Ld. AO u/s 40A(3) on account of cash purchase made by assessee from M/s Uflex Ltd. which were subsequently confirmed by Ld. CIT(A). Reliance is placed on the following judgments:
a. Anupam Tele Services vs. Income-tax Officer [2014] 43 taxmann.com 199 (High Court of Gujrat)
b. Nirmal Kumar Das, Midnapore vs Assessee (ITAT-Kolkata), ITA No.391/Kol/2014.
c. Manoranjan Raha Nadia vs Assessee (ITAT-Kolkata), I.T.A No.1448/Kol/2011
d. Lord Krishna Dwellers Pvt. Ltd. vs. DCIT ITA No.5294/Del/2013 & 2403/Del/2014 dated 17.12.2019, ITAT Delhi Bench.
Ld. Departmental Representative relied on the order of Ld. CIT(A).
From examination of record in light of aforesaid rival contention, it is crystal clear that additional ground is regarding reassessment order dated 28.03.2016 of Ld. AO u/s 143(3) dated 147 of the Act without assuming jurisdiction as per provisions of section 147 to 151 of the Act. The reasons for reopening recorded in assessment order are:- "A search and seizure action under section 132 of the 1.T. Act, 1961 was carried out in the case of U-flex group of companies on 19.02.2014. During the course of search operation, substantial cash was found deposited in the bank accounts of M/s U-flex Ltd. which-was-explained as cash sale proceeds received from various persons/assessee.
As per information received, the assessee has made cash purchase to the tune of Rs.1,12,27,857/- during financial year 2007-08 relevant to assessment year 2008-09. As per the provisions of section 40A(3) of the Income Tax Act, 1961, if the assessee incurs any expenditure in respect of which a payments or aggregate of payments made in a day, otherwise than by an account payee cheque or draft exceeds twenty thousand rupees. 20% of such expenditure/payment is not allowed as deduction.
Since, the assessee had made purchase as mentioned above in respect of which payments were otherwise than by an account payee cheque or draft exceeding Rs.20,000/- and which was not to be allowed under section 40A(3) of the Income Tax Act, 1961, I have reasons to believe that the income of the assessee chargeable to tax at Rs. 22,45,571/- (20% of Rs. 1,12,27,857/-) has escaped for Assessment Year 2008-09, within the meaning of section 147 the Income Tax Act, 1961, being failure to disclosed the correct income on the part of the assessee.”
From perusal of the above reasons, it is evident that the reassessment is based on alleged material recovery during the search u/s 132 in the case of U-flex Ltd.
A Co-ordinate Bench in Rajat Shubra Chatterji vs. ACIT in ITA 2430/Del/2015 held as under:
"In the present case before us, it is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the assessing officer on the basis of information received from the Directorate of Income Tax (Inv.) on the basis of search & seizure operation conducted at the premises of Rock Land Group of cases and the documents related to the assessee found during the course of search were made available to the assessing officer of the present assessee. We thus respectfully following the decision of Co-ordinate Bench of the ITAT in the case of ACIT vs Arun Kapur 140 TTJ 249 (Amritsar) hold that provisions of section 153C were applicable in the present case for framing the assessment, if any, which excludes the application of section 147, hence notice issued w/s 148 and assessment framed in furtherance thereto u/s 147 read with section 143(3) are void ab initio. The re-assessment in question is accordingly quashed."
In light of above material facts i.e., material found in search u/s 132 of the Act in premises of M/s U-flex Ltd. and judicial precedent the action u/s 147 by issuing notice u/s 148 and passing order u/s 143(3) r.w.s 147 of the Act being illegal, null, void are set aside. Additional ground No.1 and ground of appeal No. 1 & 2 are accepted.
Ground No.3 to 5 being academic in nature and are left open.
In the result, appeal of the assessee is allowed.
ITA No.312/Del/2018 for Assessment Year 2009-10
Since the facts of this case are identical to the facts of ITA No.311/Del/2018 for Assessment Year 2008-09, therefore, by following the observations made therein which are mutatis mutandis applied in this year also, and accordingly, the appeal of the assessee for this year 2009-10 in ITA No.312/Del/2018 is allowed.
In the result, both the appeals of the assessee are allowed.
Order is pronounced in the Open Court on 25.03.2026.