Delhi ITAT Delivers Massive Relief in Post-Search Reassessments – No ‘Asset’, No Reopening Beyond 3/6 Years; 148 Notices & Assessments Quashed Across Multiple Years

Mirha Exports Pvt. Ltd. Vs DCIT (ITAT Delhi)

Delhi ITAT Delivers Massive Relief in Post-Search Reassessments – No ‘Asset’, No Reopening Beyond 3/6 Years; 148 Notices & Assessments Quashed Across Multiple Years

In a significant batch ruling involving search assessments of Mirha Exports Pvt. Ltd., the Delhi ITAT quashed reassessment proceedings for several years after holding that the Revenue cannot invoke section 148 beyond prescribed timelines unless strict statutory conditions are satisfied. The Tribunal dealt extensively with the amended post-2021 reassessment regime and repeatedly emphasized that mere allegations of unaccounted sales or estimated profits do not automatically qualify as “asset”-based escapement for extended limitation purposes.

For AY 2013-14, the ITAT held that the notice issued u/s 148 on 29.03.2023 was completely barred by limitation since, after the Finance Act, 2021 amendments, the permissible 10-year block from AY 2023-24 extended only up to AY 2014-15. Accordingly, AY 2013-14 fell outside the statutory reopening period and the reassessment was quashed relying on Ojjus Medicare Pvt. Ltd. and Filatex India Ltd.

For AYs 2014-15 to 2017-18, the Tribunal held that reopening beyond six years was invalid because the alleged escaped income was not represented in the form of an “asset” as required under the amended provisions read with section 153A/149. The Revenue argued that cash constitutes an asset, but the ITAT noted that no cash was found during search and additions were made merely on account of alleged unaccounted sales and estimated expenses. Therefore, the extended limitation provisions could not be invoked.

For AYs 2018-19 to 2020-21, the ITAT again quashed reassessment notices issued beyond three years, holding that alleged unaccounted sales and estimated disallowances did not fall within the categories specified in section 149(1)(b), namely escaped income represented in the form of asset, expenditure, or book entries exceeding ₹50 lakh. The Tribunal relied on decisions including L-1 Identity Solutions and ACE Tyres Pvt. Ltd. to hold that the notices lacked legal jurisdiction.

On merits for AY 2021-22, the Tribunal partly accepted the assessee’s plea against excessive gross profit estimation. While the CIT(A) had sustained GP addition at 16.5% on alleged unaccounted sales, the ITAT reduced the GP rate to 10%, noting that search material itself reflected existence of unaccounted purchases, salary and administrative expenses.

For AY 2022-23, the ITAT delivered another important ruling by holding that after a search conducted on 21.01.2023, the AO could not proceed under normal scrutiny provisions u/s 143(3). The Tribunal held that only reassessment machinery under sections 148/148B could have been invoked in view of Explanation 2 to section 148. Since the AO bypassed the mandatory reassessment procedure, the assessment itself was held to be without jurisdiction.

For AY 2023-24, the Tribunal deleted addition relating to sundry creditors. While the AO had invoked section 68 and the CIT(A) converted the addition into one u/s 41(1) for cessation of liability, the ITAT held that liabilities continued to be reflected and acknowledged in books and had never been written back. Therefore, there was no cessation of liability and no addition could survive u/s 41(1).

FULL TEXT OF THE ORDER OF ITAT DELHI

The above captioned ten appeals by the assessee and five appeals by the Revenue are preferred against order of the ld. Commissioner of Income Tax (Appeals)–24, New Delhi dated 11.08.2025 under section 250 of the Act arising from the assessment order dated 20.07.2024, passed by the Assessing Officer, DCIT, Central Circle – 8, New Delhi under section 147 read with section 143(3) of the Income Tax Act, 1961 (‘the Act’) concerning Assessment Years 2014-15, 2015- 16, 2016-17, 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23 & 2023-24 (for assessee’s appeal), 2013-14, 2014-15, 2017-18, 2018-19 & 2020-21 (for Revenue’s appeal) respectively.

2. Since the underlying facts are common in the asssessee’s as well as Revenue’s appeals and pertain to same assessee, they were heard together and are disposed of by this common order for the sake of convenience and brevity.

3. In ITA No. 5795-5898/DEL/2025 (Assessee’s Appeal) for A.Y. 2014-15 to A.Y.2017-18 and in ITA No. 8131,8132-8133/DEL/2025 (Department’s Appeal) for A.Y. 2013-14; 2014-15 & Α.Υ.2017-18, at the outset the ld counsel of the assessee submitted that there was a search conducted on the assessee on 21/01/2023 i.e., in previous year A.Y. 2022-23 relevant to A.Y. 2023-24. Accordingly, the 10 years which can be taken up for assessment (subject to compliance to provisions of the Act) would be from A.Y. 2014-15 to A.Y. 2023-24.

4. It is therefore, the say of the ld AR that, the appeal of the Revenue for AY 2013-14 in ITA 8131/Del/2025 is barred by limitation as beyond 10 years and therefore would not be sustainable in law. The ld AR relied on the decision Hon’ble Delhi High Court in the case of PCIT v. Ojjus Medicare Pvt. Ltd. 2024 (4)TMI 268 (Del) and Filatex India Ltd. v. DCIT, 2023(9) TMI 1484(Delhi High Court).

5. The ld AR also submitted that for AY 2014-15 to AY 2016-17, the notice u/s 143(2) was issued beyond prescribed time limit. It is stated that the notice u/s 148 was issued on 29.03.2023 and the Return of Income was filed on 13.05.2023. It was thus incumbent upon the AO to issue notice u/s 143(2) by 30.06.2024. The AO however issued notice u/s 143(2) on 19.07.2024 and thus barred by time limitation. The ld AR relied on the hon’ble Delhi High Court decision of Paramount Biotech Industries Ltd (2017) 398 ITR 701 (Del)and the decision of hon’ble Supreme Court in the case of Hotel Blue Moon (2010) 321 ITR 362(SC).

6. On the other hand, the ld DR submitted that there is no requirement of issuance of notice u/s 143(2) in search case as held in the case of Ashok Chadda 20 com 387 (Del).

7. The ld AR further submitted that for A.Y. 2014-15; A.Y. 2015-16, Α.Υ. 2016-17 and AY 2017-18, being beyond 6 years from the relevant assessment year, could be taken up for assessment u/s 148 only if income represented is in the form of asset, which has escaped assessment and amounts to or is likely to amount to Rs. 50 Lakh or more in accordance with Fourth proviso to section 153A. It is submitted

that as per proviso to section 149, the case u/s 148 could have been reopened only if such case could have been reopened u/s 153A. As per section 153A the case beyond 6 years, can only be reopened only if the income escaping assessment is represented in the Form of “Asset”. The ld AR stated that for A.Y. 2017-18 to A.Y. 2014-15, there is no alleged income escaping assessment represented in the form of ‘Asset’, therefore the proceedings initiated for A.Y. 2017-18 to A.Y. 2014-15 is bad-in-law and without jurisdiction and relied on the decision of the Hon’ble Delhi High Court in the case of Dinesh Jindal v. ACIT, Central Circle – 20 [2024] 469 ITR 32 (Del) and Smart Chip Pvt. Ltd. vs. ACIT, Central Circle-25, New Delhi, 2025 (5) TMI 216-Delhi High Court.

8. On the other hand, the ld DR stated that cash is an ‘asset’. In rejoinder, the ld AR stated that cash found in search is an ‘asset’ but in the case of the assessee, no cash was found and addition was made on account of unaccounted sales.

9. In ITA No. 5799-5801/DEL/2025 [A.Y. 2018-19 to A.Y. 2020-21(Assessee’s Appeal)] and in ITA No. 8134-8135/DEL/2025 [Α.Υ. 2018-19 and A.Y. 2020-21 (Department Appeals), the ld AR stated that the notice issued u/s 148 is barred by limitation being beyond 3 years and the condition of section 149(1)(b) are not met. It is submitted that notice u/s 148 for the year under consideration i.e. A.Y. 2018-19 to A.Y. 2020-21 has been issued on 28.06.2024 i.e. after the expiry of 3 years from the end of the relevant assessment year. Further, the provisions of section 149(1) of the Act are not met as there is no income escaping assessment represented in the form of (i) asset, (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more. The ld AR stated that the AO has made addition on transactions, which according to AO himself, were in respect of unaccounted sales and disallowance of expenses. Such estimated income does not fall in any of the category specified in clause (b) of section 149(1). The ld AR relied on the decision of the Hon’ble Delhi High Court in the case of L-1 Identity Solutions Operating Company Private Limited Versus ACIT, CC-25-2025 (4) TMI 1363 Delhi High Court and the case of M/s ACE Tyres (P) Ltd Hyderabad Vs. ACIT Central Circle 2025 (10) TMI 936 ITAT Hyderabad.

10. For the A.Y. 2021-22 in ITA No. 5803/DEL/2025,(assessee’s appeal), the ld AR submitted that the addition confirmed by CIT(A) applying GP rate of 16.50% is erroneous and in any case highly excessive. Instead of applying GP rate, the CIT(A) should have applied NP rate. Even the GP rate applied by CIT(A) is higher than the GP rate declared by the assessee in the audited books of accounts and ITR which have been accepted by AO. The GP/NP rate declared by assessee in the books of accounts and ITR for Assessment Year 2021-22 is 7.75% and 0.87% respectively. The ld AR submitted that the CIT(A) should have applied only the NP ratio because as per the seized material itself, there were evidence found of not only the direct expenses (i.e. purchases) but also the indirect expenses such as salary and other expenses. As per the seized material there were evidence found of unaccounted purchases as well as unaccounted indirect expenses including salary and other administrative expenses and expenses as pointed out by CIT(A) in para 5.4.6. and para 5.4.7. Therefore, the Hon’ble CIT(A) should have applied NP rate only. The ld AR relied on the decision of Hon’ble Delhi High Court in the case of Indeo Airways (P.) Ltd Vs. Commissioner of Income Tax [2012] 26 taxmann.com 244.

11. In ITA No. 5803/DEL/2025 (Assessee’s Appeal) for A.Y. 2022­23, the ld AR submitted that as the search u/s 132, in the present case, was conducted on 21.01.2023 i.e. F.Y. 2022-23 relevant to A.Y. 2023-24, therefore, as per the Explanation 2 to section 148, the only permissible statutory course available to AO for initiating the assessment proceedings was to issue notice u/s 148 and to complete the assessment after obtaining prior approval u/s 148B before passing assessment order. In the present case, there has no compliance by the AO either the provisions of section 148 or the provisions of section 148B of the Act. Therefore, the assessment proceedings initiated and also assessment order passed by the AO is bad-in-law and without jurisdiction. The ld AR placed his reliance on Montage Enterprises Pvt. Ltd. v. DCIT, Central Circle II, Delhi ITA no. 5458/DEL/2025.

12. For Α.Υ. 2023-24 in ITA No. 5804/DEL/2025 (assessee’s appeal), the ld AR submitted that the addition was made by the AO as unexplained cash credit u/s 68 of the Act. The Id. CIT(A) changed the addition from unexplained cash credit to cessation of liability u/s 41(1). It is submitted that there is no cessation of liability as the liabilities of the sundry creditors is duly recorded in the books of accounts and in audited financial statement. The ld AR submitted that the CIT(A) has erred in confirming addition of Rs. 25,19,876/- on account of alleged cessation of liability as against addition made by AO on account of unexplained cash credit. The assessee is duly acknowledging the liabilities and the assessing officer cannot treat the liabilities as having been ceased. The amount was never claimed as deduction in the earlier year. Further the amount has not been written back in the books of account. The assessee company is still admitting its liability. The ld AR relied on CIT v Sugauli Sugar Works (P.) Ltd [1999] 102 Taxman 713 (SC); CIT v Shri Vardhman Overseas Ltd 2011(12) TMI 77 – Delhi High Court and CIT v Kesaria Tea Co. Ltd.* [2002] 122 Taxman 91 (SC).

13. The ld AR further submitted that the CIT(A) changed the head of addition without issuing any enhancement notice. The ld AR further contested that the CIT(A) has no power to assess income under new source and relied on the decision in the case of Sardarilal & Co 251 ITR 864 of the hon’ble Delhi High Court.

14. Per contra, the ld DR submitted that since 01.04.2021, the search provisions in the Act has been drastically amended. The ld DR stated that in the instant case, the relevant search year is AY 2023-24 and hence AY 2022-23 to AY 2020-21 falls under 3 years block and therefore there is no requirement of fulfilling the condition of “asset”. For the block period beyond 3 years i.e., AY 2019-20 to AY 2013-14, unaccounted sales in cash is “asset” which is an inclusive definition. For AY 2021-22, the ld DR, on the issue of GP addition, submitted that in the case of the assessee, the sale proceeds of offal and extra organs bye-products which are sold in cash, there is no requirement of granting any benefit of expense as the entire expense on sale of meat of the cattle is already booked by the assessee. In the peculiar facts of the trade of the assessee, expense related to the sale of cattle is already booked and accounted for in the books. It is submitted therefore that the entire sale proceeds itself from the bye-product of the cattle, is income of the assessee and no gross profit addition is required. For AY 2023-24, the ld DR submitted that liability has ceased to exist, hence provision of section 41(1) is applicable. It is submitted that no new source is introduced by the CIT(A) as the trade is same and the advance is existing in the books since last eight years.

15. We have heard the rival submissions and have perused the materials on record. We find the following additions have been made by the AO in various years involved. The assessee as well as the Department have raised legal grounds as well as on merits. We accordingly adjudicate on the issues year wise. The AO has made additions for various years as under:

16. The assessee’s arguments, in brief, are as under:

17. We now adjudicate the issues raised Assessment year-wise as follows:

For AY 2013-14:

It is an admitted fact that the search on the assessee took place on 21/01/2023 i.e., in previous year A.Y. 2022-23 relevant to A.Y. 2023­24. It is also an admitted fact that the notice u/s 148 for AY 2013-14, was issued on 29.03.2023, considering the AY 2013-14 as the relevant assessment year for which the AO has considered that income has escaped assessment as per the provision of section 147 of the Act. Now, as per the provision of section 149(1)(b) of the Act, which prescribes the time limit for issuance of notice u/s 148, no notice shall be issued for the relevant assessment year if three years but not more than ten years have elapsed from the end of relevant assessment year. Accordingly, the 10 years, for which the notice u/s 148 dated 29.03.2023 can be issued, would commence from A.Y. 2023-24 upto AY 2014-15. The 10 years covered under section 148, in accordance with First Proviso to section 149, would be as under: –

We therefore find that AY 2013-14 is beyond the period of ten years for which notice u/s 148 could have been issued in FY 2022-23. We are therefore of the considered view that the notice u/s 148 of the Act for AY 2013-14 and the consequent reassessment made is barred by limitation, as being beyond 10 years, in accordance with the decision Hon’ble Delhi High Court in the case of PCIT v. Ojjus Medicare Pvt. Ltd. (supra) and therefore would not be sustainable in law. The grounds of Revenue are dismissed.

18. For A.Y. 2014-15; A.Y. 2015-16; Α.Υ. 2016-17 and AY 2017-18

It is undisputed fact that the A.Y. 2014-15; A.Y. 2015-16 and Α.Υ. 2016­17, the notice u/s 148 of the Act was issued on 29.03.2023 and for AY 2017-18, it was issued on 28.06.2024. It is thus undisputed fact, as reflected in the table above, that the relevant assessment year of AYs 2014-15; A.Y. 2015-16; Α.Υ. 2016-17, and AY 2017-18 are beyond 6 years from the date of issuance of notice u/s 148 of the Act. We agree with the assessee that as per proviso to section 149, the cases A.Y. 2014-15; A.Y. 2015-16 and Α.Υ. 2016-17, and for AY 2017-18, could have been reopened u/s 148 only if such case could have been reopened u/s 153A. As per section 153A the cases beyond 6 years, can be reopened only if the income escaping assessment is represented in the form of “Asset”. We find that for AY 2014-15 to A.Y. 2017-18, the income escaping assessment are not represented in the form of ‘Asset’. We agree that cash found in search is considered as an ‘asset’ but in the case of the assessee, no cash was found and addition was made on account of unaccounted sales and estimated expenses. We are therefore, of the considered view, that in absence of income escaping assessment being represented in the form of “asset”, the proceedings initiated for A.Y. 2014-15 to A.Y. 2017-18 is bad-in-law and without jurisdiction in accordance with the decision of the Hon’ble Delhi High Court in the case of Dinesh Jindal v. ACIT, Central Circle – 20 [2024] 469 ITR 32 (Del) and Smart Chip Pvt. Ltd. vs. ACIT, Central Circle-25, New Delhi, 2025 (5) TMI 216-Delhi High Court. The grounds of Revenue are accordingly dismissed while that of the assessee is allowed.

19. For AY 2018-19 to 2020-21

It is undisputed fact that the A.Y. 2018-19 to AY 2020-21, the notice u/s 148 of the Act was issued on 28.06.2024. The three years for which the notice u/s 148 dated 28.06.2024 can be issued u/s 149(1)(a), without any conditions, are AY 2023-24; AY 2022-23 and 2021-22. Accordingly, the relevant assessment years of A.Y. 2018-19 to AY 2020­21 are beyond the three year period from the date of issuance of notice u/s 148 of the Act. In such facts and circumstances, the condition of section 149(1)(b) are to be met which mandates that income escaping assessment be represented in the form of:

I. asset,

II. expenditure in respect of a transaction or in relation to an event or occasion; or

III. an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.

20. We find that the AO has made the assessments for AY 2018-19 to 2020-21, on account of unaccounted sales and estimation of disallowance of expenses. It remains an uncontroverted fact that there is no income escaping assessment represented in the form of (i) asset, (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more. We are of the considered view that such income on unaccounted sales and estimated disallowance of expense, does not fall in any of the category specified in clause (b) of section 149(1) and in accordance with the decision of the Hon’ble Delhi High Court in the case of L-1 Identity Solutions Operating Company Private Limited Versus ACIT, CC-25-2025 (4) TMI 1363 Delhi High Court and the case of M/s ACE Tyres (P) Ltd Hyderabad Vs. ACIT Central Circle 2025 (10) TMI 936 ITAT Hyderabad, we hold that the notice u/s 148 issued for Α.Υ. 2018-19 and A.Y. 2020-21, are without legal jurisdiction and accordingly the notices u/s 148 and the consequent reassessment orders are quashed. The grounds of Revenue are dismissed while that of assessee is allowed.

21. For the Y. 2021-22

We find that in AY 2021-21, the AO has made addition of unaccounted sales which the CIT(A) has restricted to the addition of GP rate of 16.50 % of the sales. The assessee argues that CIT(A) applying GP rate of 16.50% is highly excessive considering the GP rate of 7.75% declared by the assessee in the audited books of accounts and ITR which have been accepted by AO. We find that the assessee could hardly dispute that in the course of search, evidences were found indicating unaccounted purchases as well as unaccounted indirect expenses including salary and other administrative expenses. In such circumstances, in the instant case, it would meet the end of justice, to restrict the G.P. rate to 10% as against 16.50% adopted by the CIT(A). The grounds are partly allowed.

22. For A.Y. 2022-23,

We find that for the instant year, it is an admitted fact that the assessment is made under the provisions of section 143(3) of the Act. We also note that a search u/s 132, in the present case, was conducted on 21.01.2023 i.e. F.Y. 2022-23 relevant to A.Y. 2023-24. We therefore, agree with the assessee that as per the Explanation 2 to section 148, the only permissible statutory course available to AO for initiating the assessment proceedings was to issue notice u/s 148 and to complete the assessment after obtaining prior approval u/s 148B before passing assessment order. Instead, we find that in the impugned AY, the AO has taken recourse to normal provisions of section 143(3) of the Act as against conducting reassessment proceedings u/s 148 of the Act and complying with the provision of section 148B of the Act. We therefore, following the decision of ITAT in Montage Enterprises Pvt. Ltd. v. DCIT, Central Circle II, Delhi (supra), are of the considered view that the assessment proceedings initiated as also assessment order passed by the AO for AY 2022-23, is without jurisdiction and therefore bad-in-law. The grounds are allowed.

23. For A.U. 2023-24

We find for the impugned AY, the AO made an addition as unexplained cash credit u/s 68 of the Act. The Id. CIT(A) changed the addition from unexplained cash credit to cessation of liability u/s 41(1) of the Act. We find that there is no cessation of liability, as the impugned liabilities of Rs. 25,19,876/- of the sundry creditors, duly remain recorded and acknowledged in the books of accounts and in audited financial statement for the said AY. We further find that it remains an uncontroverted fact that the said amount has not been written back in the books of account nor the assessee has claimed the same as deduction in the earlier year. We therefore agree with assessee that when the assessee has duly acknowledged the liabilities in its books of account, the CIT(A) cannot treat the liabilities as having been ceased. We therefore hold, in accordance with the decisions of the hon’ble Supreme Court in the cases of CIT v Sugauli Sugar Works (P.) Ltd and CIT v Kesaria Tea Co. Ltd (supra) and the hon’ble Delhi High Court in the case of CIT v Shri Vardhman Overseas Ltd (supra), addition u/s 41(1) of the Act is unwarranted and is accordingly directed to be deleted. The grounds are allowed.

24. In the result, the appeals are decided as under:

ITA No. 8131; 8132; 8133; 8134; 8135/DEL/2025 (Department’s Appeal) are dismissed.

ITA No.5795; 5796; 5797; 5798; 5799; 5800; 5801; 5802 and 5804/DEL/2025 (Assessee’s Appeal) are allowed.

ITA No. 5803/DEL/2025,(assessee’s appeal) is partly allowed. Order pronounced in the open court on 22.05.2026