ITAT Quashes Multiple Reassessments Over Absence of Escaped Income “Asset”

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that reassessment proceedings initiated against Mirha Exports Pvt. Ltd. for multiple assessment years were invalid where the alleged escaped income was not represented in the form of an “asset” as required under Section 149 of the Income Tax Act. The tribunal also deleted the addition made under Section 41(1) after finding that the liabilities continued to remain reflected in the books of account and had not ceased to exist.

A Bench comprising Judicial Member Madhumita Roy and Accountant Member Naveen Chandra observed, “We are therefore, of the considered view, that in absence of income escaping assessment being represented in the form of ‘asset’, the proceedings initiated for A.Y. 2014-15 to A.Y. 2017-18 is bad-in-law and without jurisdiction.”

The assessee was subjected to a search under Section 132 on 21.01.2023. Pursuant to the search, the Assessing Officer initiated reassessment proceedings for AYs 2013-14 to 2020-21, alleging undisclosed income from unaccounted sales and estimated expenses. Various additions were also made on account of gross profit estimation and alleged unexplained liabilities.

Before the Tribunal, the assessee argued that for reopening beyond the prescribed limitation period, the escaped income should necessarily be represented in the form of an “asset” or fall within the categories specified under Section 149(1)(b). It was submitted that in the present case, no cash or other assets were found during the search, and the additions were only based on alleged unaccounted sales and estimated disallowances.

Accepting the contention, the Tribunal noted that the additions for AYs 2014-15 to 2017-18 were not based on any asset discovered during the course of the search. It held that unaccounted sales and estimated expenses could not be equated with “asset” for the purpose of reopening assessments beyond six years. Accordingly, the reassessment proceedings for those years were quashed as being without jurisdiction.

The Tribunal further held that the reassessment notice issued for AY 2013-14 was itself barred by limitation since it fell beyond the ten-year period prescribed under Section 149. Similarly, for AYs 2018-19 to 2020-21, the tribunal observed that the alleged escaped income did not satisfy the conditions prescribed under Section 149(1)(b), as it was neither represented in the form of an asset nor linked to any expenditure, event, or entries in books of account exceeding the prescribed threshold.

On the issue relating to AY 2021-22, the Tribunal partly accepted the assessee’s plea against the estimation of gross profit. While the CIT(A) had applied a GP rate of 16.50% on alleged unaccounted sales, the Tribunal reduced the rate to 10% after noting that the seized material also reflected indirect expenses, including salary and administrative expenses.

The Tribunal also deleted the addition made under Section 41(1) for AY 2023-24 after observing that the sundry creditor balances continued to remain acknowledged in the books of account and had neither been written back nor ceased to exist. Thus, the Tribunal dismissed all departmental appeals and allowed most of the assessee’s appeals, while partly allowing the appeal for AY 2021-22.

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