ITAT: Reassessment Under Section 148 Set Aside for Absence of Live Nexus

The tribunal held that reopening the case only because the assessee showed low profit was not legally valid, and there was no proper reason to believe income had escaped assessment. Therefore, the reassessment was cancelled, and the appeal of the assessee was allowed.

The present appeal has been filed by Shamim Ahmad against the I.T.O. in the ITAT New Delhi, challenging the order dated June 18, 2024, passed by NFAC, Delhi for AY 2012-13.

The assessee is involved in the business of trading livestock such as old buffaloes, bulls, jhota, and unused milkless animals. He filed his income tax return on July 25, 2012, declaring an income of Rs. 4,99,507.

Later, the Income Tax Department reopened the case by issuing a notice under Section 148 on March 28, 2019. After reassessment under Sections 143(3) and 147, the Assessing Officer increased the income to Rs. 38,56,085.

This was done by applying a 2% net profit rate on the total turnover of Rs. 19,53,03,238, instead of the 0.28% shown by the assessee. As a result, AO made an addition of Rs. 33,56,558.

The assessee challenged this order before the CIT(A). However, the CIT(A) confirmed the addition made by the Assessing Officer.

Being aggrieved by the decision of CIT(A), the assessee further approached the tribunal. During the hearing, the AR of the assessee argued that the case was reopened only because the net profit shown, 0.28%, was lower than in the comparative cases, 2%. Merely showing a low profit is not a valid reason for reopening assessment. AR also pointed out that in the assessee’s own case for AY 2014-15, a similar addition was already deleted by the ITAT in 2024.

On the other hand, DR supported the orders passed by the lower authorities and requested that the addition be upheld.

After hearing both sides, the tribunal observed that low net profit alone cannot be treated as proof of income escaping assessment. There was no live nexus between the material available and the reason for reopening. Therefore, the reopening was not legally valid.

Tribunal added that the CIT(A) had relied on the decision for AY 2014-15. But later, the ITAT had deleted the addition in that year. So, the basis of the CIT(A)’s decision was no longer valid.

Tribunal stated that the reasons recorded for reopening the assessment are not valid and sustainable in law. As a result, the tribunal quashed the reassessment notice and allowed the appeal of the assessee.