Manoj Kumar Agarwal Vs ACIT (ITAT Agra)
Loans Triggered Reopening, TDS Ended It: ITAT Quashes Reassessment
Original Reopening Issue Yielded No Addition
The Agra Tribunal quashed a reassessment where the AO reopened the case to examine ₹1.55 crore of unsecured loans, but ultimately made no addition concerning those loans. Instead, the reassessment resulted only in disallowances for non-deduction of TDS on interest and showroom rent.
The Tribunal held that, once no addition was made on the issue forming the foundation of reopening, the unrelated disallowances could not sustain the reassessment. It allowed the appeal and quashed the consequential assessment order, leaving the remaining factual and legal grounds open.
Investigation of Election Affidavit Prompted Proceedings
The assessee, proprietor of Shakti Automobiles, filed his return on 31 October 2019, declaring income of ₹37,12,120.
Information originating from an investigation of his election affidavit indicated unsecured loans of ₹1,55,48,922 from various parties, family members and relatives. The investigation report stated that supporting bank statements, returns and confirmations had not been submitted to establish the lenders’ identity, creditworthiness and the genuineness of the transactions.
The annexure to the Section 148A(b) notice dated 6 March 2023 identified this loan amount as the income allegedly escaping assessment.
An order under Section 148A(d) and notice under Section 148 followed on 25 March 2023. The assessee filed a return in response, declaring the same income as in the original return.
Loan Documents Furnished, Inquiry Shifted to Expenses
During reassessment, the assessee furnished the documents called for concerning the unsecured loans.
The AO subsequently examined the profit and loss account and questioned TDS compliance on several expenses, including interest, motivation charges, sales incentives, showroom rent and tractor sales promotion charges.
After considering the assessee’s explanation, the AO accepted the position regarding most of those expenses. Only two disallowances under Section 40(a)(ia) remained.
Crucially, no addition was made in respect of the ₹1,55,48,922 unsecured loans that had triggered the reopening.
Two TDS Disallowances Became the Entire Adjustment
The first disallowance concerned ₹4,01,443 of interest charged by Escorts, whose tractors the assessee dealt in. The AO held that the assessee had failed to deduct tax under Section 194A and disallowed 30%, amounting to ₹1,20,432, under Section 40(a)(ia).
The second concerned showroom rent of ₹3,52,840. For alleged non-deduction of TDS, the AO disallowed ₹1,05,852, again representing 30% of the expenditure.
The reassessment order dated 20 March 2024 thus contained aggregate disallowances of ₹2,26,284, arising from issues different from the unsecured-loan issue.
The CIT(A) upheld both disallowances, leading to the present appeal.
Tribunal First Examined the Jurisdictional Objection
The Tribunal condoned a delay of approximately 188 days in filing the appeal, accepting the explanation that the assessee had been unable to consult his legal representative in time.
On merits, the assessee pressed the legal objection that the additions did not arise from the reasons recorded for reopening. The Tribunal considered it appropriate to decide this issue first.
Its examination confirmed that reopening had been initiated only to verify the unsecured loans, whereas the completed assessment contained only TDS-related expenditure disallowances.
Power to Examine Other Income Has a Qualification
The Tribunal relied on Arpita Jena v. ITO, ITA No. 585/CTK/2025, dated 2 February 2026, and ATS Infrastructure Ltd. v. ACIT [2024] 166 taxmann.com 61 (Delhi).
The passages reproduced from ATS Infrastructure recognise that a validly reopened assessment is not necessarily confined to the original subject alone. However, they also identify an important qualification: where the AO concludes that no addition or modification is warranted on the issue that formed the basis of reopening, additions on other items cannot independently sustain those proceedings.
This distinction is central. The Tribunal did not hold that every addition outside the original reasons is prohibited. Relief followed because the original reopening issue resulted in no addition, while the only adjustments concerned other matters.
Reassessment Quashed; Other Grounds Left Open
Applying those decisions, the Tribunal held that the unrelated disallowances could not survive when the unsecured-loan issue yielded no addition.
It declared the AO’s assumption of jurisdiction for reopening bad in law and quashed the consequential assessment order.
The assessee had also raised objections concerning issuance of notices by the jurisdictional AO instead of the faceless authority, the validity of sanction, statutory notices and the merits of the TDS disallowances. Those grounds were not adjudicated and were expressly left open.
Author’s Comments
The practical value of this ruling lies in comparing the issue identified at initiation with the adjustments finally made. Here, the ₹1.55 crore loan allegation disappeared from the assessment outcome, while unrelated TDS disallowances remained.
The decision supports a jurisdictional challenge in that factual setting. It does not establish that interest charged by a tractor manufacturer or showroom rent is inherently outside TDS provisions. Those questions became unnecessary after the reassessment was quashed.
For practitioners, the important documents are the Section 148A notice, its annexure, the reopening order and the final assessment computation. Read together, they reveal whether the foundation of reopening survives in the completed assessment.
Cases Discussed
- Arpita Jena Vs ITO, ITA No. 585/CTK/2025, ITAT Cuttack, order dated 02.02.2026 — Relied upon for the principle that where no addition is made on the ground for which reassessment was initiated, the reopening cannot be sustained merely on the basis of an addition made on another issue.
- ATS Infrastructure Ltd. Vs ACIT, [2024] 166 taxmann.com 61 (Delhi High Court) — Relied upon for the distinction between the AO’s power to examine other escaped income after a valid reopening and the situation where no addition or modification is ultimately warranted on the very issue forming the basis of reopening.
- CIT Vs Jet Airways (I) Ltd., [2011] 331 ITR 236 (Bombay High Court) — Referred to in Arpita Jena for the principle governing additions on issues other than the recorded reopening ground where no addition is made on the original ground.
- Anand Cine Services (P) Ltd., [2024] 8 NYPCTR 284 (Madras High Court) — Referred to in Arpita Jena for the proposition that the AO may travel beyond the reopening reasons provided reassessment is also carried out on the ground on which it was initiated.
- Ranbaxy Laboratories Ltd. — Referred to in the passage from ATS Infrastructure concerning the qualification applicable where no addition is ultimately made on the item forming the basis of reassessment.
FULL TEXT OF THE ORDER OF ITAT AGRA
This appeal is directed against the impugned order dated 20.08.2024 passed in appeal No NFAC/2018-19/10337647 by the ld. Commissioner of Income Tax/NFAC (Delhi) [(hereinafter referred to as the “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2019-20, wherein ld CIT(A) has dismissed assessee’s appeal and upheld the additions made by the assessing officer.
2. At the outset, we notice that, according to registry’s report, the assessee filed this second appeal on 25.04.2025 against the impugned order dated 20.08.2024 by a delay of about 188 days. Ld AR has submitted that the assessee could not timely consult his legal representative causing delay in filing the appeal. The delay is not intentional and requested to condone the delay and admit the appeal for hearing on merits. It is settled legal position that the substantial justice cannot be denied on mere technicalities. In the interest of justice, we condone the delay caused in filing this appeal and admit the appeal for hearing.
3. The brief facts state that the appellant filed his return of income 31.10.2019 for A.Y. 2019-20, declaring total income of Rs. 37,12,120/-. The case was reopened u/s 147 of the Act by issuance of notice u/s 148 of the Act dated 25.03.2023. Assessee filed his return of income on 31.03.2023 in response to the notice us/ 148 of the Act, declaring the same income of Rs. 37,12,120/- as declared in the original return. Statutory notices u/s 143(2) and 142(1) of the Act were issued, seeking assessee to furnish the details of unsecured loan of Rs. 1,55,48,922/- taken from various parties/ family members and served upon the assessee, based on the available information with a further request to furnish copy of confirmation, ledger accounts of the lenders, relevant bank account statements and books of accounts extract and copy of ITR etc. to establish the identity, genuineness and credit worthiness of the lenders. Assessee submitted the required details before the assessing officer, who, after perusal of assessee’s P&L account, found that assessee did not deduct TDS on the interest expense of Rs. 61,93,870/-, motivation charge of Rs. 9,15,000/- , sales incentive to AF Rep. of Rs. 28,57,120/-, showroom rent of Rs. 3,52,840/- and tractor sales promotion charges of Rs. 4,37,723/-. Assessee was further asked to show cause as to why an amount of Rs. 41,26,966/- being 30% of Rs. 1,37,56,553/- be not disallowed and added to the total income u/s 40(a)(ia) of the Act. Assessee submitted his response against the show cause notice on 11.03.2024. The assessing officer, after verifying assessee’s submissions was satisfied in respect of all the above referred expenses except two- (i) that the assessee was the dealer of Escorts Tractors Ltd., the tractor agency had directly debited the interest of Rs. 4,01,443.78 to the account of assessee, however assessee failed to deduct TDS u/s 194A of the Act at the time of paying/ crediting this interest to the company, hence committing default u/s 40(a)(ia) of the Act, thus disallowed Rs. 1,20,432/- being 30% of Rs. 4,01,443/- (ii) The assessing officer further found that the assessee also failed to deduct TDS on the payment of tractor agency’s showroom rent of Rs. 3,52,840/-. Accordingly disallowed Rs. 1,05,852/- being 30% of the showroom rent of Rs. 3,52,840/-, vide assessment order dated 20.03.2024 passed u/s 147 of the Act.
4. Aggrieved, assessee preferred an appeal before ld CIT(A), who dismissed assessee’s appeal and upheld the aforesaid additions made by the assessing officer.
5. Appellant assessee has raised following grounds under this second appeal:
“1) That the notices under section 148 of the Income Tax Act 1961 and 148A(b) of the Income Tax Act 1961 has been issued by JAO i.e. Assistant Commissioner of Income Tax Circle 4(1)(1), ALIGARH instead of FAO, National Faceless assessment Centre therefore the notice under section 148 of the Income Tax Act, 1961 is void-ab-initio and liable to be quashed and consequently impugned assessment order is also void-ab-initio and liable to be quashed.
2) That the order passed under section 148A(d) of the Income Tax Act 1961 has been issued by JAO, i.e. Assistant Commissioner of Income Tax Circle 4(1)(1), ALIGARH instead of FAO i.e. National Faceless assessment Centre. Therefore, the order passed under section 148A(d) of the Income Tax Act, 1961 is void-ab-initio and liable to be quashed and consequently impugned assessment order is also void-ab-initio in law and liable to be quashed.
3) That the purported approval granted under section 151 of the Income Tax Act, 1961 is bad in law and void ab initio, as the same has been accorded mechanically and without application of mind by the competent authority, thereby vitiating the entire proceedings. Therefore, the notice issued u/s 148 and the order passed u/s 148A(d) of the Income Tax Act, 1961 is invalid and unsustainable in law. Consequently, impugned assessment order is also unsustainable in law and liable to be deleted.
4) That the mandatory sanction/approval required under section 151 of the Income-tax Act, 1961 was not duly granted in accordance with law, the same being unsigned and thus invalid. Therefore, reassessment proceedings initiated under section 147 and the consequential assessment order passed under section 143(3) read with section 147 are bad in law, illegal, void-ab-initio and liable to be deleted
5) That all the additions made in the assessment order dated 20.03.2024 are illegal and not sustainable in law, as o additions have made on the grounds on which the notice u/s 148 was for reassessment proceedings.
6) That whole of assessment proceedings and the assessment order is illegal and without jurisdiction, void ab initio, hence liable to be quashed.
7) That any other relief or reliefs as your honour may deem fit in the facts and circumstances of the case be granted.
8) Your humble appellant craves leave to add amend or withdraw any ground of appeal, before hearing.
9) That the Ld. CIT(Appeals), National Faceless Appeal Centre, Delhi has erred in law and on facts in sustaining the disallowance of Rs. 1,20,432/- arbitrarily made by the Ld. A.Ο. in the income of the appellant on account of interest paid to M/s. Escorts Limited and allegedly treated the same as default under section 40(a)(ia) of the Income Tax Act, 1961, which is without appreciating and considering the correct facts of the case, therefore the disallowance made is unsustainable in law and deserves to be deleted.
10) That the Ld. CIT, NFAC DELHI has erred in law and on facts in sustaining the disallowance of Rs. 1,05,852/- arbitrarily made by the Ld. A.O. in the income of the appellant on account of Show Room Rent Expenses and allegedly treated the same as default under section 40(a)(ia) of the Income Tax Act, 1961, which is without appreciating and considering the correct facts of the case, therefore the Addition made is unsustainable in law and deserves to be deleted
11) That the Ld. CIT, NFAC DELHI has erred in law and on facts in sustaining the disallowance of Rs. 1,20,432/- arbitrarily made by the Ld. A.O. in the income of the appellant on account of interest paid to M/s. Escorts Limited and allegedly treated the same as default under section 40(a)(ia) of the Income Tax Act, 1961, without bringing any cogent material on record, therefore the disallowance made is unsustainable in law and deserves to be deleted.
12) That the L.d CIT, NFAC DELHI has erred in law and on facts in sustaining the disallowance of Rs. 1,05,852/-arbitrarily made by the Ld. A.O. in the income of the appellant on account of Show Room Rent Expenses and allegedly treated the same as default under section 40(a)(ia) of the Income Tax Act, 1961, without bringing any cogent material on record, therefore the Addition made is unsustainable in law and deserves to be deleted.
13) That the CIT, NFAC DELHI, National Faceless Appeal Centre, Delhi has erred in law and on facts in sustaining that the Ld. A.O. did not draw any adverse inference nor demanded any clarification for the disallowance of interest amounting to Rs. 1,20,432/- and Rent Expenses amounting to Rs. 1,05,852/- during the course of virtual hearing through Video Conferencing scheduled on 16.03.2024 at 3.00 p.m., therefore the disallowance/addition made by the Ld. A.O. is unsustainable in law and liable to be deleted.
14) That the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in law and on facts in sustaining the disallowance of Rs. 1,20,432/- and addition of Rs. 1,05,852/- arbitrarily made by the Ld. A.O. in the income of the appellant is based on conjectures and surmises and without proper basis, therefore the disallowance/addition made by the Ld. A.O. is unsustainable in law and liable to be deleted.
15) That the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in law and on facts in sustaining the impugned Assessment Order ignoring the fact that vague reasons have been recorded by the Ld. A.O. which have no live link with the reasons recorded therefore the assumption of jurisdiction by the Ld. A.O. in inititating the proceedings under section 147 of the Income Tax Act, 1961 for 8 the A.Y. 2019-20 is unsustainable in law and consequently the impugned assessment order is void ab-initio and liable to be quashed.
16) That the Notice issued under section 148 of the Income Tax Act, 1961 for the Assessment Year 2019-20 is illegal, therefore the proceedings initiated under section 147 of the Income Tax Act, 1961 is unsustainable in law and liable to be dropped and the impugned Assessment Order is liable to be quashed.
17). That the Notice issued under section 143(2) of the Income Tax Act, 1961 for the Assessment Year 2019-20 is illegal, therefore the impugned Assessment Order is unsustainable in law and liable to be quashed.
18) That the Assessment Order passed by the Ld. A.O. is without Jurisdiction and therefore liable to be quashed.
….…………”
6. Perused the records. Heard ld AR for the appellant assessee and ld Sr DR for the respondent revenue.
7. At the very outset, ld representative for the assessee has pressed legal ground no.15 above and submitted that the assessing officer has made the impugned additions beyond the reasons recorded, hence the assumption of jurisdiction by Assessing Officer in initiating the reopening proceedings u/s 147 of the Act, are unsustainable and consequent assessment order is void ab initio.
8. Ld Sr DR has supported the impugned order.
9. In view of the legal ground raised by the assessee, we deem it just and appropriate to first adjudicate on the limited legal issue as to whether the impugned additions, not being based on the reasons recorded for the purpose of reopening, are sustainable under law?
10. The ‘reasons recorded’ are contained in ‘annexure’ enclosed to the notice dated 06.03.2023 issued u/s 148A(b) of the Act, as part of assessee’s paper book at pages from 66 to 67, which read as under:
“Annexure
1. As per the office record, the assessee Shri Manoj Kumar Agrawal (PAN:AALPA7812P) has filed ITR for AY 2019-20 on 31.10.2019 at income of Rs. 37,12,120/-. As per the record/system, no regular assessment u/s 143(3) or action U/s 147 of I.T. Act, 1961 has been done for this Assessment Year.
2. In this case, the undersigned has certain information in his possession which is available in ITBA system (Income Tax Business Application software available for Income Tax Authorities) and Insight Portal. The information in this case has been identified by the Directorate of Income Tax (Systems), CBDT in accordance with the risk management strategy formulated by the Board as per the provisions clause (i) of Explanation 1 to Section 148 of the Income Tax Act, 1961.
3. The information contains inquiry report of DDIT, Investigation Unit, Aligarh in the case of Shri Manoj Agrawal regarding investigation of Election Affidavit. As per inquiry report you have taken unsecured loan of Rs.1,55,48,922/- from various parties/ family members and relatives however no supporting documents/evidences in the form of Bank accounts, ITRs, confirmation letter etc has been submitted to the investigation unit to prove the identity, genuineness and creditworthiness of the lenders/creditors. In the investigation, report it is recommended to verify the genuineness of the unsecured loan taken from various parties.
4. In view of the above, the above information suggests that the income chargeable to tax amounting to Rs. 1,55,48,922/- as detailed above has escaped assessment in your case for AY 2019-20.”
11. It is noticed that the para 3 of the aforesaid annexure discloses the ‘reasons recorded’ by the assessing officer before passing order u/s 148A(d) dated 25.03.2023 and before issuance of notice u/s 148 of the Act dated 25.03.2023. Based on the department’s inquiry report, from the election affidavit filed by the assessee, the reopening was initiated only for the verification of identity, genuineness and credit worthiness of the lenders/ creditors in respect of the unsecured loan of Rs. 1,55,48,922/-. However, the assessing officer, despite having failed to make any addition in respect of the aforestated unsecured loan, made additions only to the extent of non-deduction of TDS on payment of interest to his tractor agency and on payment to agency’s showroom rent. Admittedly, no addition has been made in respect of the said unsecured loan.
12. The assessee has referred order dated 02.02.2026, passed by the Cuttack bench of this tribunal, in ITA No. 585/CTK/2025 (A.Y. 2016-17), Arpita Jena vs. ITO. The relevant part of the order read as under:
“4. It was the submission that the AO did not accept the response of the assessee and had reopened the assessment and completed the assessment. It was submission that in the assessment no addition has been made on account of the reasons recorded for the purpose of the reopening. It was submission that the addition has been made in respect of the source for the purchase of property. It was submission that the in view of the decision of the Hon’ble Supreme Court in the case of Jet Airways (1) Ltd., reported in (2011) 331 ITR 236 (Bom) and the decision of the Hon’ble Madras High Court in the case of Anand Cine Services (P) Ltd., reported in (2024) 8 NYPCTR 284 (Mad), wherein the Hon’ble Madras High Court has categorically held that section 147 of the Act enables the Assessing Officer to travel beyond the reasons for initiating reassessment proceedings provided such reassessment is also carried out on the grounds or reasons on which reassessment was initiated. On the other hand, if the ground on which reassessment was initiated was no longer available to the Assessing Officer, reassessment cannot be continued on the basis of the original notice u/s.148 of the Act and that a fresh notice is necessary. The AO having not made any addition on the basis of the reasons on which the reopening was done, the reopening is held to be bad in law and consequently quashed. Accordingly, the consequential assessment order also stands quashed.”
13. Ld AR has referred ATS Infrastructure Ltd. v. ACIT, (2024) 166 taxmann.com 61 (Del-H.C.), wherein Hon’ble Delhi High Court has held as under:
“24. This clearly appeals to reason, since Section 147 of the Act embodies a power to assess, reassess as well also to recompute. Consequently, and once that power is validly invoked, the original assessment would cease to exist in the eyes of law. Undoubtedly, once an assessment already made comes to be reopened, the AO stands empowered statutorily to undertake an assessment afresh in respect of the entire income which may have escaped assessment. However, the only additional caveat which Ranbaxy Laboratories Ltd. enters is with respect to a situation where, in the course of reassessment, the AO ultimately comes to the conclusion that no additions or variations were warranted in respect of the heads or items of income which had formed the basis for initiation of action under Section 148 of the Act. It is in the aforesaid backdrop that the Court in Ranbaxy Laboratories Ltd. (supra) proceeded on facts to hold that since no additions had ultimately been made in respect of items such as club fees, gifts and presents, and which constituted the basis for initiation of reassessment, it would not be open to the AO to revise or modulate findings on any other head or items that may have been dealt with in the original assessment.
25. The position in law which emerges from the aforesaid discussion is that while it is true that the AO would have to establish that reassessment is warranted on account of information in its possession which appears to indicate that income chargeable to tax had escaped assessment, once the assessment itself is reopened it would not be confined to those subjects only. This would, however, be subject only to one additional rider and that being if, in the course of reassessment, the AO ultimately comes to conclude that no additions or modifications are warranted under those heads, it would not be entitled to make any additions in respect of other items forming part of the original return.
30. We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A(b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened.
32. Explanation 3, cannot consequently be read as enabling the AO to attempt to either deviate from the reasons originally recorded for initiating action under Section 147/148 of the Act nor can those Explanations be read as empowering the AO to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions.”
14. From the perusal of the aforesaid binding precedent, it becomes clear that if the impugned additions have not been made emanating from the ‘reason to believe’ than the additions made in the reassessment, which are not part of the ‘reason to believe’ would not survive. In the instant case, the reason for reopening was with respect to the verification of unsecured loan of R.s 1,55,48,922/-, whereas the disallowance in the instance case have been made u/s 40(a)(ia) of the Act, for non-deduction of TDS on the payment of interest expense and rent, and no addition has been made on account of unsecured loan. Hence, the impugned additions not emanating from the reason for reopening do not survive. Respectfully following the ratio of aforesaid decisions, we hold that the assumption of jurisdiction by ld assessing officer in reopening the case u/s 147 of the Act is bad in law. The consequent assessment order is quashed. The aforesaid legal point is accordingly determined in positive in favour of the appellant assessee and against the respondent revenue. Since we have quashed the reassessment order, the remaining factual/legal issues are not being adjudicated upon and are left open. The appeal is liable to be allowed.
15. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on – 28.09.2026
