ITAT Quashes S.148 Notices Due to Invalid Sanction and Failure to Satisfy S. 149(1)(b) Conditions [Read Order]
Observing that the sanction for reopening the assessment was granted in a mechanical manner and the conditions for issuing a notice beyond three years were not met, the Tribunal ruled that the reassessment notices issued were invalid and liable to be quashed.
Exel Rubber - Taxscan
Exel Rubber - Taxscan
The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) quashed the reassessment notices issued under Section 148 of the Income Tax Act for Assessment Years (AYs) 2015-16 to 2019-20 due to invalid sanction and failure to satisfy section 149 of the Income Tax Act.
Exel Rubber (P) Ltd (assessee) for whom the appeals arose from reassessment orders passed following a search and seizure operation conducted on January 4, 2023. The Assessing Officer (AO) had initiated proceedings on the basis of unaccounted cash transactions found in a laptop seized from the group’s Sr. Accounts Manager.
The assessee challenged the validity of the notices on two primary grounds Invalid Sanction u/s 151 arguing that the sanction granted by the Director General of Income Tax (Inv) for issuing the notices was mechanical and without proper application of mind.
The assessee also challenged on the ground that non-Satisfaction of S. 149(1)(b) Conditions arguing that for AYs beyond the three-year limit (which includes all the years in question), the income that escaped assessment did not satisfy the mandatory condition of being represented in the form of an 'asset' or an 'entry or entries in the books of account'.
The two-member bench comprising Vijay Pal Rao (Vice-President) and Manjunatha, G. (Accountant Member) observed that the reasons recorded by the AO for reopening were vague in nature.
The bench noted that the DGIT (Inv) had granted the sanction by merely concurring with the proposal, which only stated that the "impugned matter is covered u/s 149(1)(b)," without giving any explicit reasons for satisfaction.
The Tribunal held that the loose sheets/data from the laptop, which primarily detailed cash receipts and payments related to business transactions like scrap sales, did not constitute an 'asset' as defined in the Explanation to Section 149(1) (which includes immovable property, shares, loans, etc.).
The tribunal also observed that the data did not constitute 'entries in the books of account'. The tribunal also noted that a second notice u/s 148 was issued after the first one was dropped due to the AO's failure to issue a notice u/s 143(2) within the stipulated time limit.
The Tribunal ruled that the AO could not reinitiate proceedings on the same material after the earlier proceedings were dropped, particularly when the reason for dropping the first notice was not beyond the control of the AO.
The tribunal quashed the reassessment notices for all the appeals based on the failure to meet the mandatory conditions of Section 149(1)(b) and the mechanical grant of sanction under Section 151. The appeals of the assessee were allowed.
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