ITAT Jaipur Deletes ₹11.52 Lakh Addition Under Section 69C

Manish Bhatia Vs ACIT (ITAT Jaipur)

Cash Entries Alone Cannot Establish ₹50 Lakh Escaped Income: ITAT Quashes Reassessment

Introduction

The Income Tax Appellate Tribunal, Jaipur, quashed reassessment proceedings against Manish Bhatia, holding that a seized document recording cash transactions could not, without supporting evidence or inquiry, establish that income escaping assessment crossed the ₹50 lakh threshold necessary for invoking the extended limitation period considered in the case.

The Tribunal distinguished between suspicion arising from transaction entries and material establishing that those entries represented undisclosed taxable income. Since the cash investment was subsequently explained as originating from disclosed sources, the reassessment notice issued beyond the ordinary three-year period was held barred by limitation.

Facts of the Case

A search under Section 132 of the Income Tax Act, 1961, was conducted on the MAMA Group, Alwar, and connected entities on 27 July 2022.

During the search, digital data was seized from the premises of the group’s main accountant. Its examination revealed entries concerning the assessee’s participation in a construction project undertaken by MNR Infratech Pvt. Ltd.

According to the Revenue, the material reflected cash advances of ₹62,47,395 and interest of ₹3,31,226 attributable to the assessee.

The Assessing Officer issued a notice under Section 148 on 30 March 2024 for Assessment Year 2013-14. During reassessment, the assessee explained the source of the cash investment. The Assessing Officer accepted that explanation and made no addition towards the principal investment.

However, an addition of ₹3,31,226 was made towards alleged interest income. The CIT(A) upheld the reassessment and addition, prompting the assessee’s appeal.

Assessee’s Contentions

The assessee challenged the jurisdiction to reopen the assessment, contending that the income allegedly escaping assessment was below ₹50 lakh.

He argued that the mere recording of cash advances in a seized document did not establish that the investment represented undisclosed income. The entries could equally relate to transactions funded from accounted and disclosed sources.

Further, no statement concerning the document had been recorded from the MAMA Group directors during search to establish that the amounts represented undisclosed investments. The source was examined only during reassessment and was accepted.

On merits, the assessee maintained that the interest calculation was merely notional, prepared to ascertain the project’s per-square-foot cost, and that no interest had actually been paid.

Revenue’s Contentions

The Revenue argued that the limitation requirement had to be examined with reference to the material available when reopening was initiated, rather than merely the addition ultimately sustained in reassessment.

It submitted that the seized document showed cash investment exceeding ₹50 lakh. Therefore, the extended limitation under Section 149(1)(b) applied, notwithstanding the subsequent acceptance of the assessee’s explanation regarding the investment.

The Revenue relied on the CIT(A)’s finding that the cash introduction of ₹62,47,395 justified invoking the extended period.

Tribunal’s Findings

Transaction Amount Is Not Automatically Escaped Income

The Tribunal identified the central question as whether the seized material established income escaping assessment of the requisite amount.

It held that a document recording cash advances and alleged interest could not, by itself, establish that the entire amount represented undisclosed income.

Recorded transactions may represent either accounted or unaccounted funds. Their monetary value cannot automatically be treated as income escaping assessment without examining their character.

Suspicion Cannot Substitute the Required Belief

The Tribunal noted that the Revenue possessed no other information at the time of issuing the notice establishing whether the entries represented disclosed or undisclosed amounts.

The document could, at best, generate suspicion warranting inquiry. It could not support the requisite belief that the entire amount recorded constituted escaped income.

The absence of corroborating evidence or inquiry was particularly relevant because subsequent verification established that the investment came from disclosed sources.

Extended Limitation Was Unavailable

The Tribunal accepted that only the alleged interest of ₹3,31,226 could, at best, be regarded as income escaping assessment on the facts.

Since this amount was below ₹50 lakh, it held that reopening had to fall within the three-year limitation under Section 149(1)(a) as applied in its reasoning.

For Assessment Year 2013-14, that period expired on 31 March 2017. Consequently, the notice dated 30 March 2024 was held time-barred.

Decision and Key Takeaway

The Tribunal held that the Assessing Officer’s assumption of jurisdiction was invalid and directed that the consequential reassessment order be quashed.

The assessee’s legal ground succeeded. Since the assessment itself was annulled, the Tribunal treated the challenge to the interest addition as academic and did not decide its merits.

The ruling underscores that the ₹50 lakh threshold concerns escaped taxable income, rather than the gross value of transactions appearing in seized records. On these facts, unsupported cash entries could not justify extended limitation merely because their face value exceeded the statutory threshold.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax Appeal, Jaipur 04 (hereinafter referred to as “Ld. CIT(A)”), dated 15.07.2025 under Section 250of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2. The grounds raised by the assessee read as under:-

1. The Ld. CIT(A) has erred on facts and in law in upholding the validity of notice issued u/s 148 and consequent order passed u/s 147 of IT Act, 1961. He has further erred in not appreciating that when the addition made by AO is less than Rs.50 lakhs, no reopening can be made u/s 149(1)(b) of the Act.

2. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs.3,31,226/- on account of notional interest earned on amount advanced to M/s MNR Infratech Pvt. Ltd. on the basis of excel sheet found in search of Mama Group by not accepting the contention of assessee that the interest calculation was only a notional calculation to ascertain the per square feet cost of the project and no interest is actually paid by M/s MNR Infratech Pvt. Ltd.

3. The appellant craves to alter, amend and modify any ground of appeal.

4. Necessary cost be awarded to the assessee.

3. We shall be first taking up ground No.1 which is a legal ground challenging the validity of the assessment framed in the present case.

4. In the facts of the present case a search and seizure action u/s 132 of the Act was carried out on the members of the MAMA Group, Alwar, which included the assessee also. Accordingly as per the provisions of the Act, the case of the assessee was taken up for scrutiny assessment by issuing notice u/s 148 of the Act and assessment framed making addition to the income of the assessee of Rs.3,31,226/- on account of alleged interest earned on amounts advanced to an entity of the MAMA Group, Alwar.

5. The contention of the ld. Counsel for the assessee before us challenging the validity of the assessment framed was that the jurisdictional notice issued by the AO u/s 148 of the Act was beyond limitation prescribed in law. He contended that section 149 of the Act prescribed limitation for issuance of notice u/s 148 of the Act, and as per the said section the notice u/s 148 of the Act in the present case ought to have been issued within three years from the end of the relevant assessment year since the income escaping assessment of the assessee did not exceed Rs.50 lakhs. That however the said notice was issued beyond three years period, the assessment year impugned being A.Y 2013-14, the three year period expiring on 31-03-2017 and the notice u/s 148 of the Act being issued on 30.03.2024.

6. Our attention as drawn to the provisions of Section 149 of the Act applicable for the impugned year as under:-

…… 77[Time limit for notices under sections 148 and 148A.

149. (1) No notice under section 148 shall be issued for the relevant assessment year,—

(a) if three years and three months have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b) if three years and three months, but not more than five years and three months, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more.

(2) No notice to show cause under section 148A shall be issued for the relevant assessment year,—

(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b) if three years, but not more than five years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is likely to amount to fifty lakh rupees or more.] …….

7. With regards to the income escaping assessment, he contended that the addition made in the hands of the assessee on account of alleged incriminating material found during search on the Mama Group amounted only to Rs.3,31,226/- which was below Rs.50 lakhs.

8. Ld. DR however, contended that the income escaping assessment in the case of the assessee could not have been gauged from the addition made to the income of the assessee in the assessment framed u/s 147 of the Act alone. That the same had to be gauged from the contents of the documents which were found during search on the Mama Group on the basis of which reopening was resorted to in the case of the assessee which showed income escaping assessment to the tune of Rs.62,47,395/- ,being the amount of cash invested in the development project undertaken by the MNR Group. That though no addition was made on account of cash so introduced, the AO being satisfied with the explanation of the assessee, however, the fact remains that it was on the basis of this document revealing cash to have been introduced by the assessee in the construction project undertaken in MNR Infratech Pvt. Ltd. to the tune of Rs.62 lakhs ,which was the basis for reopening the case of the assessee and the same being in excess of Rs.50 lakhs, the reopening beyond three years but within the period of 10 years from the end of the relevant assessment year was within the limitation prescribed u/s 149(1)(b) of the Act and was in accordance with law. He referred to the findings of the Ld. CIT(A) in this regard at page 19 of the order as under:-

…. I have gone through the facts of the case and observations of the Id. AO in assessment order. As per facts of the case, the appellant has introduced an amount of Rs. 62,47,395/- in cash in the project. Therefore, the income which escaped assessment considered for reopening u/s 147 is Rs. 62,47,395/- i.e. more than Rs.50 lacs and the same clearly falls under clause 149(b) of the Income Tax Act. ……

9. To this ld. Counsel for the assessee countered by stating that Section 149 sub-clause (b) of the Act talks of where the AO being in possession of evidence showing that income chargeable to tax which has escaped assessment amounts toor is likely to amount to Rs.50 lakhs or more, to extend the period of limitation from three years to 10 years for issuance of notice u/s 148 of the Act. He emphasized that the word used in the sub clause (b)is income escaping assessment or likely to escape assessment exceeding Rs.50 lakhs. In the facts of the present case, he contended that the document found during search on the basis of which reopening was resorted to reflected cash introduced by the assessee in the construction project undertaken in MNR Infratech Pvt. Ltd. of the Mama Group. There is no dispute with regard to the said fact, he stated, but he contended that mere cash transaction noted in the document could not led to the belief of escapement of income or income likely to have escaped assessment without any other material leading to such belief. He contended that there is no case of the Revenue that such document was confronted to the members of the Mama Group during search conducted and any statement recorded of the said persons stating to the effect that the amount recorded in the document represented undisclosed investments. He contended that query with regard to the said document was only raised during assessment proceedings initiated in the case of the assessee when the assessee was asked to explain the source of cash investment recorded in the document and after considering the reply of the assessee the AO was satisfied that the investment was made from disclosed sources. That therefore he made no addition on account of the said transaction noted in the document. This fact he pointed out is clearly recorded in the order of the AO, wherein at para 12 to 12.1.6 of the order, the issue regarding cash introduction is discussed, the reply of the assessee regarding the source of the cash is noted and the satisfaction of the AO, of the introduction of the cash noted in the document found during search being from disclosed sources, recorded. He contended therefore that on the basis of document found during search there could not have been any belief of escapement of income or likely escapement of income to the tune of cash entries recorded therein amounting to Rs.62 lakhs, and the likelihood of escapement of income therefore is only to the extent of Rs.3 lakhs odd, being the interest allegedly earned by the assessee on the cash advanced, which was added to the income of the assessee.

10. Ld. DR per contra relied on the findings of the Ld. CIT(A).

11. We have heard both the parties. The case of the assessee is that the notice issued in the present case u/s 148 of the Act is barred by limitation for the reason:-

• That the income escaping assessment was less than Rs.50 lakhs.
• The limitation for issuance of notice u/s 148 of the Act therefore, was governed by sub clause (a) of section 149(1) of the Act accordingly to which the notice ought to have been issued within 3 years from the end of the relevant assessment year.
• The impugned assessment year being AY 2013-14, the three year period expiring on 31-03-2017 and the notice u/s148 of the Act being issued on 30.03.2024, the notice was clearly issued beyond the limitation prescribed by the law.

12. The case of the Revenue however is that the income escaping assessment was more than Rs.50 lakhs and the limitation prescribed as per sub clause (b) to section 149(1) of the Act was applicable, as per which the case of the assessee could be reopened upto 10 years from the end of the relevant assessment year ,which was complied with in the facts of the present case.

13. There is no dispute with regards to the law applicable relating to limitation for issuance of notice as per section 149 of the Act, that for all amounts of income escaping assessment reopening can be resorted to within a period of three years from the end of the relevant assessment year as per Section 149(1)(a) of the Act, which limitation is extended to 10 years only for incomes escaping assessment amounting to more than Rs.50 lakhs.

14. Having noted so, therefore the solitary dispute before us to be resolved is with regard to the quantum of income escaping assessment in the present case, with the assessee contending that the income escaping assessment was less than Rs.50 lakhs and the Department contending that the income escaping assessment was more than Rs.50 lakhs.

15. To adjudicate the same, certain facts need to be recorded regarding the document found during search on the MAMA group on the basis of which notice u/s 148 of the Act was issued to the assessee. This document was found during search conducted on the Mama Group Alwar and the connected entities on 27.07.2022. The orders of the authorities below reveal that the document was by way of digital data seized from the premises of Sh. Jitender Kumar Vijay (main accountant of the Mama Group) which was analyzed during post-search proceedings and it was found that it contained some entries relating to the Directors of MNR Infratech Pvt. Ltd. . On perusal of the entries, it was found that the assessee before us, Sh. Manish Bhatia, was actively participating in the construction work of flats under MNR Infratech Pvt. Ltd. and he had introduced substantial amount in the company in cash and received interest thereon. The extract of the digital data relating to the assessee was submitted by the AO in his factual report before us is under:-

16. It was contended this digital data /document revealed, the assessee Sh. Manish Bhatia, to have advanced cash amounting to Rs.62,47,395/- in the year under consideration in the company of MAMA group and received interest of Rs.3,31,226/-. Therefore, the document revealed entries of cash invested by the assessee in MNR Infratech Pvt. Ltd. and interest earned thereon amounting in all to Rs.65,53,514/-.

17. The ld. Counsel for the assessee stated that no statement vis-à-vis the document so found was recorded of the Directors of the Mama Group during the search proceedings conducted.

18. Ld. DR has not controverted this fact.

19. Further, it is fact on record that queries with regard to this document was raised by the AO during assessment proceedings asking the assessee to explain the source of the same and the AO was satisfied with the explanation of the assessee and made no addition thereto. The only addition which the AO made was with respect to the alleged interest earned by the assessee amounting to Rs.3,31,226/-.

20. What is to be seen, in the backdrop of the above facts is that, is whether the said document found during search could have led to the belief of escapement of income of Rs.65 lakhs as recorded therein so as to empower the AO to issue notice to the assessee for reopening the case of the assessee beyond three years. As pointed out by the ld. Counsel for the assessee the words used in Section 149 of the Act recording escapement of income is that whether documents or evidence found in the possession of the AO showed that income chargeable to tax which has escaped assessment amounts to or is likely to amount of Rs.50 lakhs.

21. We find that this is not the case. As rightly pointed out by the ld. Counsel for the assessee, the document containing record of cash advanced by the assessee and allegedly earned interest thereon, alone could not have laid to belief of income escaping assessment to the extent of amount recorded therein i.e. Rs.65 lakhs. The amounts recorded therein could represent both accounted and unaccounted income of the assessee. There being admittedly no other information in the possession of the Revenue/AO at the time of issuance of notice u/s 148 of the Act, regarding the character of the entries, whether disclosed or undisclosed, the AO could not have formed a belief of the amounts representing undisclosed income/ escaped income of the assessee. The information with the AO at the time of reopening the case of the assessee could at best have led to suspicion of entries recorded therein representing undisclosed income of the assessee. But by no stretch a belief of escapement of income could have been formed. More particularly when subsequent investigation and inquiry conducted during assessment revealed the amounts recorded therein to be investment of the assessee from disclosed sources.

22. We therefore completely agree with the ld. Counsel for the assessee that the document found during search, in the absence of any other evidence or inquiry conducted by the Department on the same , alone could not have led to the formation of belief of escapement of income to the extent of amounts recorded therein of 65 lacs odd. It is only the amount of Rs.3 lakhs , which was added to the income of the assessee in the assessment framed, which at best could be said to be the amount escaping assessment in the case of the assessee and the same being below Rs.50 lakhs, the reopening in the present case therefore was to be done within three years as prescribed u/s 149(1)(a) of the Act. The notice in the present case, u/s 148 of the Act having been issued beyond three years, we have no hesitation therefore in holding that the notice issued was barred by limitation. The jurisdiction assumed by the AO to reopen the case of the assessee was therefore invalid. Assessment order passed as a consequence is held to be without jurisdiction and is accordingly directed to be quashed.

23. Ground of Appeal No.1 of the assessee is allowed.

24. Since we have quashed the assessment order, ground of appeal No.2 raised by the assessee on merits, being mere academic in nature are not being dealt with by us.

25. In effect, appeal of the assessee is allowed in above terms.

Order pronounced in the Open Court on 06.11.2026