2025 (7) TMI 591 - AT - Income Tax

Reopening of assessment u/s 147 - time limit for issuance of notice u/s 148 - HELD THAT - As per section 149(1)(b) notice u/s 148 of the Act should be issued before elapse of six years from the end of the relevant A.Y. In the instant case we find that the assessee has purchased the immoveable property on 12.12.2011 and the case pertains to A.Y 2012-13. Therefore as per section 149(1)(b) notice u/s 148 of the Act can only be issued before the end of six years i.e. 31.03.2019. In the case in hand admittedly the first notice was issued on 28.03.2019 which was within the prescribed period. The assessee subsequently received this notice along with notice dated 05.08.2019. To emphasize we find that whereas section 148 enjoins the AO must serve the notice to the assessee in stark contrast the provisions of section 149 speaks only of issuance of notice within the prescribed period. Section 149 does not mandate that the such a notice must also be served on the assessee within the prescribed period as held in the case of Mayawati 2009 (2) TMI 17 - DELHI HIGH COURT Proper issuance of notice from the AO - As far as issuance/service of the 1st notice is concerned we further find that the assessee has participated in the reassessment proceedings and therefore the provisions of section 292BB of the Act will apply. There is proper issuance of notice from the AO and there was active participation of the assessee in the reassessment proceedings. We are therefore of the view that the notice u/s 148 was validly issued on 28.03.2019 within the prescribed period u/s 149(1)(b) though served subsequently and the consequent reassessment proceeding were legally undertaken. The ground no 1 is accordingly dismissed. Reasons recorded by the AO do not bear any date hence the same can not be considered has having been recorded before the issue of Notice u/s 148 dated 28.03.2019 - We are of the view that the assessee has raised a suspicion but has not substantiated the same with any cogent evidence. From the materials/documents on record we find that the reasons recorded for the reopening is available on record. AO has recorded the reasons for reopening that the assessee did not respond to the notice u/s 133(6) with regard to verification of the information regarding purchase of immovable property. The facts of the investment in property is correctly mentioned. We therefore hold that the notice u/s 148 is validly issued after proper recording of reasons. AO has proceeded to make the assessment in the manner provided u/s 144 of the Act by following the process of giving opportunity by service of notice and calling the assessee to show cause regarding assessment to be made. Accordingly Ground No. 4 and 5 are dismissed. Unexplained investment u/s 69 - AO made the addition only on the ground that the assessee has not produced all the lenders for verification - AO made the addition without pointing out any defect/discrepancy in the documents/evidences submitted by the assessee. We are of the considered view that where the AO was having any doubts on the lenders he should have pointed out discrepancy in the bank accounts of the assessee/lenders before insisting on their production before him. AO should have carried out further investigation by issuing notices u/s 133(6)/131 to the lenders. In such factual matrix we are of the view that where the assessee has discharged his initial onus of furnishing explanation regarding the loans and the identity genuineness and creditworthiness of lenders the AO when the onus was shifted to him has failed to discharge the same by not making any independent verification to dislodge the claim of the assessee. Having failed to do so the AO was not legally permitted to consider the loans as unverifiable and the investment made in property as unexplained investment u/s 69. We set aside the order of the CIT(A) and direct the AO to delete the addition.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the notice issued under section 148 of the Income-tax Act, 1961 (the Act) was barred by limitation and hence void ab initio.

2. Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in rejecting the assessee's explanation regarding the source of investment and in dismissing the appeal.

3. Whether the addition of Rs. 84,00,000 as unexplained investment under section 69 was justified, particularly when the assessee had disclosed creditors and loans.

4. Whether the order passed under sections 144/147 was bad in law.

5. Whether the reasons recorded for issuance of notice under section 148(2) were valid and based on correct facts.

Issue-wise Detailed Analysis:

1. Validity and Limitation of Notice under Section 148

Legal Framework and Precedents: Section 148 empowers the AO to reopen an assessment if income has escaped assessment. Section 149(1)(b) prescribes a six-year limitation period for issuance of such notice. Section 292BB provides that if the assessee participates in proceedings, the notice is deemed valid despite infirmities in service. The Supreme Court in Commissioner of Income Tax vs. Laxman Das Khandelwal (AIR 2019 SC 3926) clarified that section 292BB cures defects in service but not complete absence of notice. The jurisdictional High Court in Mayawati v CIT (2010) held that only issuance of notice must be within limitation, not necessarily service.

Court's Interpretation and Reasoning: The first notice dated 28.03.2019 was issued within the six-year period (before 31.03.2019) for AY 2012-13. Although the notice was addressed incompletely and initially not served, the second notice dated 05.08.2019 was served properly. The Tribunal held that the limitation applies to issuance, not service, of notice. Since the assessee participated in reassessment proceedings after receiving the notices, section 292BB applies, deeming the notice valid despite service defects.

Key Evidence and Findings: The first notice was issued at an incomplete address and was not served timely. The second notice was served with a complete address. The assessee participated in proceedings by filing returns and submissions.

Application of Law to Facts: The Tribunal applied the principle that issuance within limitation suffices and that participation validates the notice under section 292BB.

Treatment of Competing Arguments: The assessee argued the first notice was invalid due to incomplete address and the second notice was time-barred. The Department relied on issuance within limitation and participation by the assessee. The Tribunal favored the Department's position.

Conclusion: The notice under section 148 was validly issued within limitation and served effectively; thus, reopening was lawful. Ground No. 1 was dismissed.

2. Validity of Reasons Recorded for Reopening and Order under Sections 144/147

Legal Framework and Precedents: The AO must record valid reasons before issuing notice under section 148(2). The reopening must be based on tangible material. Section 144 provides for assessment when the assessee fails to comply with notices.

Court's Interpretation and Reasoning: The Tribunal found the reasons recorded by the AO were on record and related to non-response to notice under section 133(6) regarding purchase of immovable property. Although the reasons were undated, the assessee failed to substantiate any malafide or irregularity. The AO followed due procedure by issuing show-cause notice and providing opportunity before making additions under sections 147 and 144.

Key Evidence and Findings: The AO's reasons referred to non-filing of return and non-response to inquiry. The reassessment order was passed after opportunity to the assessee.

Application of Law to Facts: The Tribunal held that the reasons were validly recorded and the AO complied with procedural safeguards.

Treatment of Competing Arguments: The assessee challenged the validity of reasons and the order under sections 144/147. The Department defended the procedural correctness. The Tribunal sided with the Department.

Conclusion: The reasons for reopening and the assessment order under sections 144/147 were valid. Grounds 4 and 5 were dismissed.

3. Addition of Rs. 84,00,000 as Unexplained Investment under Section 69

Legal Framework and Precedents: Section 69 deals with unexplained investments. The burden initially lies on the assessee to explain the source of investment. Once explanation is furnished, the burden shifts to the AO to disprove genuineness. The AO can call for verification of lenders under sections 133(6) or 131.

Court's Interpretation and Reasoning: The assessee disclosed the source of investment as loans from various persons, furnishing confirmations, ITRs, and bank statements of the lenders. The AO made addition solely because the assessee did not produce all lenders for verification, without pointing out any discrepancies in documents. The Tribunal held that the AO failed to discharge the burden of independent verification or investigation to disprove the genuineness of loans. The AO's mere insistence on production of lenders without further inquiry was insufficient to treat the investment as unexplained.

Key Evidence and Findings: Detailed loan amounts from multiple lenders were submitted with documentary evidence. No adverse findings or discrepancies were recorded by the AO.

Application of Law to Facts: The Tribunal applied the principle that once the assessee discharges initial onus, the AO must independently verify before making additions. Failure to do so invalidates the addition.

Treatment of Competing Arguments: The assessee argued full disclosure and substantiation of loans. The Department contended non-production of lenders justified addition. The Tribunal rejected the Department's contention for lack of independent verification.

Conclusion: The addition of Rs. 84 lakh was unjustified and was set aside. Grounds 2 and 3 were allowed.

Significant Holdings:

"The provisions of section 149 prescribes the time limit for issuance of notice u/s 148 of the Act. As per section 149(1)(b) notice u/s 148 of the Act should be issued before elapse of six years from the end of the relevant A.Y. ... whereas section 148 enjoins the AO must serve the notice to the assessee, in stark contrast, the provisions of section 149 speaks only of issuance of notice within the prescribed period. Section 149 does not mandate that such a notice must also be served on the assessee within the prescribed period."

"According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee."

"Where the assessee has discharged his initial onus of furnishing explanation regarding the loans and the identity, genuineness and creditworthiness of lenders, the AO, when the onus was shifted to him, has failed to discharge the same by not making any independent verification to dislodge the claim of the assessee. Having failed to do so, the AO was not legally permitted to consider the loans as unverifiable and the investment made in property as unexplained investment u/s 69."

The Tribunal conclusively held that the notice under section 148 was validly issued within limitation and served effectively; the reasons recorded for reopening were proper; the AO failed to justify addition under section 69 due to lack of independent verification; hence, the addition was deleted and the appeal was partly allowed accordingly.