ACIT Vs Arjun Enterprises Pvt. Ltd. (ITAT Delhi)
NEW SECTION 149 CANNOT REVIVE A DEAD YEAR—₹1.18-CRORE “COMMISSION ENTRY” IS NOT AN “ASSET” UNDER OLD SECTION 153A
The Delhi ITAT has held that the extended ten-year limitation u/s 149(1)(b) cannot reopen an assessment year which was already beyond limitation under the provisions existing before the Finance Act, 2021. In view of the first proviso to section 149(1), the new reassessment law cannot revive a time-barred year. Since estimated commission income was merely an entry in the books & not income represented in the form of an “asset” as required under the erstwhile section 153A, notice u/s 148 for AY 2017-18 was quashed.
Facts of the case
The assessee, Arjun Enterprises Pvt. Ltd., was engaged in importing, exporting, trading & dealing with machinery and its components.
It filed its return for AY 2017-18 on 31.03.2018 declaring income of ₹1,11,62,080 under the normal provisions & book profit of ₹99,37,957 under MAT provisions. The return was processed u/s 143(1) on 26.04.2018 accepting the returned income.
A search & seizure action u/s 132 was conducted on 19.12.2023 in the KBS Group cases, including the assessee.
Based upon material allegedly found during the search, the AO issued notice u/s 148 on 31.01.2025. The assessee filed its return in response, declaring the same income as originally returned.
The reassessment was completed u/s 147 r.w.s. 143(3) on 16.04.2025 at an assessed income of ₹2,29,71,747 after making an addition of ₹1,18,09,668.
The addition represented estimated commission allegedly earned by the assessee from bogus trading transactions entered into with M/s JSK Marketing Ltd. & its associated entities.
AO invokes the ten-year limit
The AO proceeded on the basis that income exceeding ₹50 lakh had escaped assessment & was represented by entries appearing in the books of account.
According to the Revenue, section 149(1)(b), as applicable under the post-2021 reassessment regime, permits issuance of notice within ten years from the end of the relevant assessment year where escaped income exceeds ₹50 lakh & is represented in the form of an asset, expenditure relating to a transaction or entries in the books of account.
Since the alleged escaped commission was ₹1.18 crore & was represented by book entries, the AO considered notice dated 31.01.2025 to be within the extended limitation period.
CIT(A) applies the grandfathering restriction
The CIT(A) examined the recorded reasons & noticed that the AO had consistently characterised the alleged escaped income as commission represented by an entry or entries in the books of account.
There was no allegation that the escaped income was represented in the form of an asset.
Under the fourth proviso to the erstwhile section 153A(1), an assessment year falling beyond six years could be opened only if the AO possessed evidence revealing escaped income of ₹50 lakh or more represented in the form of an asset.
Explanation 2 to section 153A defined “asset” to include immovable property consisting of land or building, shares & securities, loans & advances and deposits in bank accounts.
The alleged commission income did not fall within this definition. A book entry reflecting alleged commission was not equivalent to income represented in the form of an asset.
The search was conducted during FY 2023-24, relevant to AY 2024-25. The six immediately preceding assessment years were AYs 2018-19 to 2023-24. AY 2017-18 fell beyond this six-year block.
Since the “asset” condition required for travelling beyond six years was not satisfied, no notice could have been issued for AY 2017-18 under the pre-2021 search-assessment law.
The CIT(A) therefore applied the first proviso to section 149(1) & quashed the reassessment as time-barred.
Revenue’s argument before the ITAT
The Revenue contended that the search had been conducted after 01.04.2021 & therefore the case was governed by the amended provisions of sections 147 & 149, not section 153A.
It was argued that section 149(1)(b) now expressly covers escaped income represented not only by an asset but also by expenditure or entries in the books of account.
Since the escaped income exceeded ₹50 lakh & was represented by book entries, the Revenue submitted that the notice was validly issued within ten years.
The assessee relied upon the coordinate Bench’s decision in Mirha Exports Pvt. Ltd. v. DCIT, where similar additions relating to unaccounted sales & estimated expenses were held insufficient to reopen a year beyond the permissible period because the escaped income was not represented by an asset.
Cases Discussed
- Mirha Exports Pvt. Ltd. v. DCIT, ITA Nos. 5795 to 5804/Del/2025 (ITAT Delhi).
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH
This appeal by the Revenue is directed against the order dated 30.01.2026 of the Ld. Commissioner of Income Tax, (Appeal), Delhi-23, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the Order dated 16.04.2025 passed under section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) Central Circle-4, Delhi (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2017-18.
2. The Revenue has raised the following grounds of appeal:
“ 1. The Ld. CIT(A) has wrongly quashed the assessment order passed u/s 147 for A.Y. 2017-18 by holding that the notice issued u/s 148 was time-barred, without correctly applying the amended provisions of the Act.
2. The Ld. CIT(A) has wrongly held that reassessment could not be initiated beyond six assessment years from the year of search by applying the provisions of section 153A, which are not applicable to the present case.
3. The Ld. CIT(A) failed to appreciate that the search was conducted on 19.12.2023, i.e., after 01.04.2021, and therefore the reassessment proceedings are governed by the amended provisions of sections 147 and 149 of the Act, and not by section 153A of the Act.
4. The Ld. CIT(A) failed to appreciate that as per section 149(1)(b), notice u/s 148 can be issued within ten years from the end of the relevant assessment year where the escaped income exceeds Rs. 50 lakh and is represented in the form of an asset, expenditure, or entry in the books of account.
5. The Ld. CIT(A) failed to consider that in the present case the escaped income of Rs. 1,18,09,668/-is more than Rs. 50 lakh and is represented in the form of entries in the books of account, and therefore the notice u/s 148 on 31.01.2025 was within the permissible time limit of ten years.
6. The appellant craves to add, amend withdraw any/all the ground(s) of appeal before or during the hearing of the appeal.”
3. Brief facts are that the assessee was a private company engaged in the business of importing, exporting, trading, and dealing in machinery and its components. The appellant filed its income tax return for the A.Y. 2017-18 on 31.03.2018, declaring a total income of Rs. 1,11,62,080/- under normal provisions of the Income Tax Act, 1961 and Rs. 99,37,957/- under MAT provisions. The return was processed u/s 143(1) of the Act vide intimation order dated 26-04-2018 wherein returned income was accepted. Later, on 19.12.2023 a search and seizure operation was carried out u/s 132 of the Act on the KBS group including appellant. Subsequently, notice u/s 148 of the Act was issued on 31.01.2025.
3.1 In response, the assessee filed return on 05.04.20025 declaring same income as in the original return. After scrutiny, assessment u/s 147 r.w.s. 143(3) was completed at assessed income of Rs. 229,71,747/- after making addition of Rs. 1,18,09,668/- on account of commissioner earned from bogus trading activities undertaken with M/s JSK Marketing Limited and its associated entities.
3.2 Aggrieved, the assessee preferred an appeal before the CIT(A). After examining the reasons recorded for issuance of notice u/s 148, in the light of the relevant provisions of the Act, the CIT(A) allowed the assessee’s appeal with the following observations:
“10. It is apparent from the above that the AO believed it is a fit case for issue of notice u/s 148 and that the petitioner’s income had escaped assessment for AY 2017-18 on essentially the ground that during the Financial Year 2016-17, the assessee had entered into transactions with JSK Marketing Limited and its group entities and earned commission @ 3% on such transactions amounting to Rs. 1,18,09,668/-.
Hence, the AO firmly believed that he had evidence to show that income of Rs. 1,18,09,668/- has escaped assessment which is represented in the form of an “an entry or entries in the books of account”.
Thus it is clear from the reasons and approval accorded for reopening that there is no allegation from the AO that the income which has escaped assessment was represented in the form of an asset. Therefore, the conditions as stipulated in Clause (a) of the fourth proviso to Section 153A(1) of the Act are not satisfied. The AO does not have in his possession any books of account, other documents or evidence, which reveals that the petitioner’s income that is represented in the form of an asset has escaped assessment.
11. In terms of Explanation 2 to Section 153A (1) of the Act, the term ‘asset’ is defined to include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank accounts. In the present case the income escaping assessment in the form of commission is not getting covered in the definition of the term asset as provided in the Explanation 2 to Section 153A(1) in any manner.
12. The AO in the present case has always maintained that the income escaping assessment is represented in the form of “an entry or entries in the books of account” and not represented in the form of an asset. That being the case, the conditions stipulated in the fourth proviso to Section 153A(1) of the Act would remain unsatisfied.
13. In the aforesaid view the period of limitation for issuing a notice under Section 153A of the Act, in the given facts of this case, would necessarily have to be confined to a period of six assessment years immediately preceding the assessment year relevant to the previous year in which the search under Section 132 of the Act was conducted. The search in question was conducted in Financial Year 2023-24 (19-12-2023) thus, the relevant block of six assessment years would be the six assessment years preceding AY 2024-25. i.e. AY 18-19 to AY 23-24. Accordingly, AY 2017-18 falls beyond the block of six years. Therefore, in the present case the proceedings u/s 148 initiated for Assessment Years 2017-18 are void and time barred. Accordingly, the order is quashed on this ground alone.”
3.3 Aggrieved with the order of the CIT(A), Revenue has filed present appeal before the Tribunal.
4. Before us, Ld. DR has strongly relied on the order of the AO and has argued that the condition regarding escapement of income being represented in the form of an asset etc. for the purposes of reopening beyond a period of three years is satisfied in the instant case. It is contended that the escaped income of Rs. 11,8,09,668/- is represented in the form of entries in the books of accounts and therefore, the notice u/s 148 was correctly issued within the extended period of 10 years by the AO.
5. On the other hand, the Ld. AR vehemently has argued that the requisites conditions for reopening of the case beyond 3 years were not satisfied and, therefore, Ld. CIT(A) has rightly quashed the reassessment proceedings.
5.1 Ld. AR further placed reliance on a decision of the coordinate bench in the case of Mirha Exports Pvt. Ltd. vs. DCIT in ITA Nos. 5795 to 5804 /Del/2025, wherein, under similar facts and circumstances, following the decisions of the Hon’ble jurisdiction High Court, it has been held that addition made on account of unaccounted sales and estimated expenses could not be sustained as the income escaping assessment was not represented in the form of an asset as required under proviso 149 of the Act for the purposes of reopening beyond three years.
6. We have heard the rival submissions and carefully perused the facts of the case in the light of applicable provisions of the Act. Admittedly, the reopening of assessment was based on the estimated commission income earned on bogus accommodation entries shown by the assessee from M/s JSK Marketing Pvt. Ltd. and other group entities.
6.1 We are of the considered view that the A.Y. 2017-18, being beyond the period of 6 years from A.Y. 2024-25 (the relevant year in which search was conducted) was, therefore, hit by the provisions of the first proviso to section 149(1) which states as under:
“Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021.”
Since the A.Y. 2017-18 is more than 6 years prior to A.Y. 2024-25, therefore, no notice could have been issued u/s 148 (or u/s 153A and 153C) of the Act.
6.3 We, accordingly, hold that the order of the Ld. CIT(A), in view of above factual and legal position was justified and, therefore, we find no reason to interfere with the same.
7. In the result, Revenue’s appeal is hereby dismissed.
Order pronounced in the open court on 09.09.2026
