Reassessment Quashed for Ignoring Reply Filed Under Section 148A(b): ITAT Slams ‘Borrowed Satisfaction’

Chandrakant Kantilal Patel (HUF) Vs ITO (ITAT Ahmedabad)

Reassessment Quashed for Ignoring Reply Filed Under Section 148A(b): ITAT Slams ‘Borrowed Satisfaction’

The Ahmedabad ITAT quashed reassessment proceedings initiated against an HUF after finding that the Assessing Officer ignored the assessee’s detailed reply and documentary evidences filed in response to notice under Section 148A(b), and mechanically proceeded on borrowed information from the Insight Portal without independent application of mind.

The assessee had originally filed return declaring income of about ₹10.92 lakh, which was accepted in scrutiny assessment under Section 143(3). Subsequently, reassessment proceedings were initiated alleging that the assessee had advanced loan of ₹92 lakh to M/s Avadh Buildcon, allegedly disproportionate to returned income. Notices under Section 148A(b) were issued granting extremely short time for compliance, including one notice effectively giving less than one day to respond. Despite this, the assessee filed detailed reply along with bank statements, ITRs, computations and confirmations explaining the source of funds.

However, while passing order under Section 148A(d), the AO incorrectly recorded that no reply was filed and no adjournment was sought. The Tribunal held that this was factually incorrect and demonstrated complete non-application of mind as well as gross violation of principles of natural justice. The ITAT further observed that reopening was based merely on Insight Portal information without any independent enquiry or verification by the AO, amounting to impermissible “borrowed satisfaction.”

Even on merits, the Tribunal found the ₹92 lakh addition under Section 69 unsustainable. The assessee had established identity, creditworthiness and genuineness of transactions through income-tax returns, financial statements, bank records and confirmations of family members. The Tribunal also noted that the alleged borrower company, though claimed by Revenue to be a strike-off entity, had substantial taxable income and tax payments in multiple years. Further, the loan had subsequently been repaid along with interest, which was duly offered to tax.

Criticising the approach of the tax authorities, the ITAT observed that officers should be sensitized not to ignore facts already available on record while disposing of reassessment matters. Accordingly, the entire reassessment proceedings as well as the addition were quashed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “CIT(A)” for short) dated 15.12.2025, passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for Assessment Year (AY) 2018-19.

2. The assessee has raised following grounds of appeal :-

“1. On the facts and circumstances of the case and in law, the learned CIT(A) / AO has erred in issuing notice under section 148 of the Income-tax Act, 1961 and not giving the prescribed time for submitting the response under section 148A(b) of the Act and that there is no escapement of income. Accordingly, notice issued under section 148 of the Act and proceedings under section 148A of the Act are bad in law

2. On the facts and circumstances of the case and in law, the Learned CIT(A) has erred in confirming the issuance of notice under section 148 of the Act, inasmuch as there was no escapement of income. Accordingly, the notice so issued and the consequential assessment order are bad in law and liable to be quashed.

3. On the facts and circumstances of the case and in law, the Learned CIT(A) has further erred in confirming the addition of INR 92,00,000 on account of loan given to M/s Avadh Buildcon, despite the fact that the said loan was advanced out of the Appellant’s own funds and complete details in respect thereof were duly furnished before the Learned Assessing Officer.

4. The Appellant further submits that the Learned Assessing Officer did not raise any adverse query or record any dissatisfaction with respect to the sources of funds from which the aforesaid loan was advanced.”

3. The brief facts of the case are that the assessee is a Hindu Undivided Family (HUF), deriving income from capital gains and income from other sources. The assessee filed its return of income for the year under consideration on 16.07.2018 declaring total income of Rs. 10,92,070/-. The case was selected for limited scrutiny and assessment u/s 143(3) r.w.s. 143(3A) & 143(3B) was completed on 28.12.2020 accepting the returned income without any addition. Subsequently, proceedings u/s 147 were initiated and notice u/s 148A(b) dated 15.03.2022 was issued requiring compliance by 18.03.2022. Thereafter, another notice dated 28.03.2022 was issued requiring compliance by 30.03.2022. In response, the assessee filed a detailed reply on 30.03.2022 along with documentary evidences explaining the source of loan of Rs. 92,00,000/- given to M/s Avadh Buildcon. The Assessing Officer, without considering the reply, passed order u/s 148A(d) on 07.04.2022 stating that no reply was filed and no adjournment was sought, and thereafter issued notice u/s 148. Subsequently, the assessment u/s 147 r.w.s. 143(3) was completed on 14.03.2024 making addition of Rs. 92,00,000/- u/s 69 of the Act.

4. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who confirmed the addition made by the Assessing Officer, dismissing the appeal ex parte.

5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

6. We have carefully considered the rival submissions and perused the material available on record, including the assessment order, order of the CIT(A), and the detailed submissions filed by the assessee.

6.1 The first issue for consideration is the validity of the reassessment proceedings initiated u/s 147 of the Act. From the facts on record, it is observed that the Assessing Officer issued notice u/s 148A(b) dated 15.03.2022 requiring the assessee to furnish a reply by 18.03.2022. Thereafter, a subsequent notice dated 28.03.2022 was issued, which was received by the assessee on 29.03.2022, requiring compliance by 30.03.2022. Thus, effectively less than one day’s time was granted to the assessee to respond. It is an admitted position that the assessee, despite such limited time, filed a detailed reply on 30.03.2022 along with documentary evidences including bank statements, computation of income, income tax returns and contra accounts explaining the source of loan of Rs. 92,00,000/- advanced to M/s Avadh Buildcon. However, while passing the order under section 148A(d) dated 07.04.2022, the Assessing Officer has recorded that no reply was filed and no adjournment was sought by the assessee. This finding is, therefore, factually incorrect and contrary to the material available on record. The above factual position clearly establishes that the Assessing Officer has passed the order u/s 148A(d) without considering the reply and evidences furnished by the assessee. Such action, in our considered view, amounts to a gross violation of the principles of natural justice and reflects complete non-application of mind.

6.2 Further, it is observed from the reasons recorded that the reopening has been initiated merely on the basis of information received through the Insight Portal to the effect that the assessee had advanced a loan of Rs. 92,00,000/- which was not commensurate with its returned income and that corresponding credits were found in the bank account prior to advancing such loan. There is nothing on record to indicate that the Assessing Officer carried out any independent enquiry or verification so as to form his own belief regarding escapement of income. The reasons recorded reflect a mechanical reproduction of information received from another source without independent application of mind. It is well settled that such borrowed satisfaction cannot form the basis for valid assumption of jurisdiction under section 147 of the Act.

6.3 In view of the above factual and legal position, we hold that the initiation of reassessment proceedings is vitiated due to violation of the procedure prescribed u/s 148A as well as absence of independent application of mind. Consequently, the notice issued u/s 148 and the assessment framed in pursuance thereof are liable to be quashed.

6.4 Even on merits, we find that the addition of Rs.92,00,000/- made by the Assessing Officer u/s 69 of the Act is not sustainable. The assessee has consistently explained that the funds were sourced from family members, whose identities, creditworthiness and genuineness of transactions were duly established by furnishing their income tax returns, financial statements, bank statements and contra confirmations. The Assessing Officer has not brought any cogent material on record to disprove the evidences furnished by the assessee.

6.5 From the records, we find that the Revenue alleged that M/s. Avadh Buildcon, which has received loan from the assessee, is a strike-off entity from the records of ROC and has no business activities. We find that the M/s. Avadh Buildcon paid taxes of Rs.12,99,666/- on GTI of Rs.40,88,450/- for the assessment year in question and Rs.8,79,967/- on GTI of Rs.27,66,030/- for AY 2019-20 and tax of Rs.19,32,356/- over the GTI of Rs.57,11,490/- for AY 2020-21. The assessee is also a tax-paying company for the AY 2022-23 also. Further, we find that Revenue alleged that the assessee is a person of no means to extend loan of Rs.92 lakhs for M/s. Avadh Buildcon. The assessee has paid taxes of Rs.6,38,000/- on total income of Rs.23,78,000/- and the family members namely Sumatiben C. Patel paid taxes of Rs.1,53,86,431/- over the total income of Rs.6,06,04,480/-. The total tax paid by the family members was Rs.1,72,88,700/- over the total income of Rs.6,90,31,290/-, hence the allegation of the Revenue is found to be unsubstantiated and speculative in nature. It is also noted that the loan has been repaid in subsequent years along with interest and such interest income has been duly offered to tax by the assessee.

6.6 The Ld. CIT(A), while confirming the addition, has merely relied upon the assessment order and dismissed the appeal primarily on account of non-compliance by the assessee during appellate proceedings. However, the Ld. CIT(A) has failed to examine the evidences already available on record and has not rendered any independent finding on the merits of the addition. Therefore, considering the totality of facts and circumstances of the case, we are of the considered view that both on legal as well as on merits, the addition made by the Assessing Officer is unsustainable. The Officers concerned shall be sensitized not to ignore the facts on records while disposing of the cases.

7. In the result, the appeal of the assessee is allowed.

The order pronounced in the open Court on 15.05.2026