Reassessment Notices Invalid Where No Escaped Income In Form Of 'Asset' Above ₹50 Lakh: ITAT New Delhi

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 17 April, held that reassessment proceedings initiated beyond three years are invalid unless the Revenue demonstrates that the alleged escaped income is represented in the form of an “asset” exceeding Rs. 50 lakh, as required under Section 149(1)(b) of the Income-tax Act.

A Bench comprising Judicial Member Anubhav Sharma and Accountant Member Manish Agarwal quashed reassessment notices issued under Section 148 in the case of Vintage Distillers Ltd., holding them to be barred by limitation. It held:

“assessments beyond 3 years can be reopened only when the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of an asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year......”

The dispute arose from a search conducted under Section 132 on 11 May 2024 in the Vintage Group, during which authorities seized loose papers allegedly indicating unaccounted sales and cash transactions. Based on this material, the Assessing Officer initiated reassessment proceedings for Assessment Years 2019–20 onwards and estimated undisclosed income by applying a profit rate on the alleged unaccounted turnover.

Vintage Distillers challenged the reopening, contending that the notices were issued beyond three years from the end of the relevant assessment years without satisfying the mandatory conditions under Section 149(1)(b).

It argued that the Assessing Officer neither identified any “asset” representing escaped income exceeding Rs. 50 lakh nor established the statutory threshold, and instead relied on estimated profits. It also alleged lack of proper application of mind.

The Revenue argued that the seized material disclosed undisclosed receipts exceeding Rs. 50 lakh and justified invocation of the extended limitation period.

Rejecting these submissions, the Tribunal held that compliance with Section 149(1)(b) is a jurisdictional requirement. It observed that the provision mandates that escaped income must be represented in the form of an asset, expenditure, or entry exceeding Rs. 50 lakh. In the present case, the Assessing Officer failed to identify any such asset or demonstrate how the alleged income satisfied this requirement.

The Bench emphasised that mere estimation of income based on alleged unaccounted sales cannot be equated with the existence of an “asset” for the purposes of Section 149. In the absence of tangible material showing escaped income in the prescribed form, the condition for invoking the extended limitation remained unfulfilled. He held:

“....the AO has failed to satisfy the mandatory condition/s 149(1)(b) where the reopening is done after the expiry of three years and no income whatsoever has been brought on record as escaped assessment in the form of any asset or expenditure of more than Rs.50 lacs. Therefore, the mandatory condition as provided u/s 149(1) of the Act has not been fulfilled in the instant case......”

Accordingly, the ITAT held that the reassessment notices were time-barred and quashed the entire reassessment proceedings.

For Appellant: Amit Goel, CA and Pranav Yadav, Advocate

For Respondent: Sanjeev Kaushal, CIT-DR