The assessee, an individual, filed an appeal against the order dated 24 February 2025 passed by the National Faceless Appeal Centre, arising from a reassessment order dated 27 March 2023 passed under sections 147 read with section 144B of the Income-tax Act, 1961, for Assessment Year 2018-19.

The assessee had originally filed the return of income declaring total income of ₹1,10,90,564, and the scrutiny assessment was completed at the returned income. Subsequently, the assessment was reopened on the allegation that the assessee had received unsecured loans from dummy entities linked to a search conducted under section 132 in the case of M/s K.K. Spun India Ltd. on 23 March 2021. A notice under section 148A(b) was issued, followed by an order under section 148A(d) and issuance of notice under section 148. In the reassessment proceedings, the Assessing Officer made an addition of ₹50,00,000 as unexplained cash credit under section 68 read with section 115BBE, which was sustained by the Commissioner (Appeals).

Before the Tribunal, the assessee challenged the reassessment on legal grounds, contending that no fresh tangible material was supplied along with the notice issued under section 148A(b). It was pointed out that the show cause notice merely made general allegations regarding receipt of unsecured loans from dummy companies without specifying the names of entities, transaction details, or amounts involved. The assessee further submitted that despite filing a detailed reply with confirmations, bank statements, income-tax returns of lenders, and denying any transaction with M/s K.K. Spun India Ltd., the Assessing Officer proceeded mechanically on the basis of an investigation report without confronting the relied-upon material.

The Tribunal examined the notice under section 148A(b), the assessee’s reply, and the order passed under section 148A(d), and found that no material evidence or statements forming the basis of reopening were ever supplied to the assessee. It was observed that the Assessing Officer merely relied on vague information allegedly received from the Insight Portal and did not conduct any independent enquiry as mandated under section 148A(a). The Tribunal further noted that the reply of the assessee was not meaningfully dealt with while passing the order under section 148A(d).

Relying on the decision of the Coordinate Bench in ITO v. BC Enterprises, which in turn followed the judgment of the Hon’ble Supreme Court in Union of India v. Ashish Agarwal, the Tribunal held that failure to supply the relied-upon material and denial of effective opportunity to rebut the allegations is fatal to the validity of reassessment proceedings. The Tribunal also referred to settled law that reliance on third-party statements without granting opportunity of cross-examination amounts to violation of principles of natural justice.

In view of these procedural infirmities, the Tribunal held that the notice issued under section 148 and the consequent reassessment proceedings were bad in law. Accordingly, the reassessment order was quashed and the appeal of the assessee was allowed.

Source Link- https://itat.gov.in/public/files/upload/1767953542-TFRqbX-1-TO.pdf

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