ITAT Mumbai: Reassessment Void for Faceless Violation – ₹1.64 Cr Addition Collapses

ITO Vs Geeta Kirit Muchhala (ITAT Mumbai)

ITAT Mumbai: Reassessment Void for Faceless Violation – ₹1.64 Cr Addition Collapses

In this case, the ITAT Mumbai upheld the CIT(A)’s order quashing reassessment proceedings involving ₹1.64 crore addition u/s 68 arising from alleged accommodation entries in illiquid stock transactions.

The Tribunal noted that the entire reassessment was fundamentally flawed, as the notice u/s 148 and subsequent proceedings were not issued through the faceless mechanism mandated under Section 151A. The Hon’ble Bombay High Court, in the assessee’s own case, had already held such action to be without jurisdiction, rendering the entire proceedings invalid.

The ITAT held that:

• Once jurisdictional defect is established, the entire assessment collapses
• Non-compliance with faceless scheme is not a procedural lapse but a fatal illegality
• CIT(A) rightly followed binding High Court judgment and quashed the assessment

Additionally, the Tribunal observed that even on limitation:

• Notice u/s 148 (dated 25.07.2022) was beyond permissible time as per Supreme Court ruling in Rajeev Bansal
• TOLA cannot revive expired limitation

Since the foundation itself failed, the ITAT did not examine merits relating to Section 68 addition, Section 115BBE, or loss set-off.

Final Outcome:

• Reassessment proceedings – Quashed
• ₹1.64 crore addition – Does not survive
• Revenue appeal – Dismissed

This ruling delivers a strong message:

Faceless procedure is mandatory, not optional

Jurisdictional defect = complete collapse of assessment

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal filed by the revenue arises out of the order dated 22/12/2025 passed by the NFAC, Delhi [hereinafter the “Ld.CIT(A)”] for A.Y. 2015-16 on following grounds of appeal:-

1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the facts of the case thereby deleting the addition of Rs.1,61,94,390/- made by the AO u/s 68 of the Income Tax Act, 1961, without appreciating that the assessee failed to discharge the onus of proving the genuineness of transactions and source of funds with supporting evidence, despite repeated opportunities.”

2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessment order was invalid due to procedural non-compliance under Section 151A, without appreciating that the reassessment was based on substantive findings and the alleged procedural lapses did not vitiate the merits of the assessment.”

3. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing set-off of brought forward losses without verifying the speculative nature of such losses and ignoring the limitation prescribed under section 73(1), which restricts carry-forward beyond four assessment years.”

4. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disregarding the finding of the AO that the assessee had engaged in premeditated trading through shell entities and illiquid scrips, thereby ignoring the deeming provisions under section 115BBE applicable to such unexplained income.”

5. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that reopening of assessment for A.Y. 2015-16 was squarely within time as per TOLA Notification No. 20/2021 & 38/2021 and CBDT Instruction No. 01/2022, where the requirement of fresh sanction u/s 151 (post-Finance Act 2021) does not apply to ‘deemed notices’.”

6. “Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in ignoring the principle that each assessment year is separate and distinct and relying the decision of the Hon’ble High Court decision in Hexaware Technologies Ltd. v. ACIT [(2024) 162 com 225 (Bom.)] and has quashed the assessment order, even though that ruling is subject to review by the Hon’ble Supreme Court?”

7. “The CIT(A) has erred the direct and circumstantial evidences in this case in view of the decision of Durga Prasad More (1971)82 ITR 540(SC) and Sumati Dayal [1995] 80 Taxmann. 89(SC) [1995] 2014 ITR 801(SC)/1995] 125 CTR 124(SC), rendered by the Supreme Court, where it was held that Hon’ble Court and Tribunal have to judge the evidence before it by applying the test of probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer.”

8. “As the quashing of assessment by the Ld.CIT(A) is based on the decision of the Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd, against which the revenue has filed an appeal before the Hon’ble Supreme Court as well as SLP has been filed in assessee’s case too, as the similar issue involved in this case, as per section 158AB of the I.T Act, 1961, a letter has been served to the assessee on 28.11.2025 for his consent for keeping the matter in abeyance. The assessee has objected to this proposal vide letter dated 1.12.2025. Originally the date for filing 2nd appeal before Hon’ble ITAT in this case was 31st of October, 2025, however, the appeal could not be filed before due date, in view of the above mentioned facts. Therefore, the appeal in this case is being filed by delay of 47 days. The appellant prays that the delay in filing of appeal due to technicalities involved, which may kindly be condoned.”

9. “The tax effect involved in this case is Rs. 56,41,679/-, which is below the prescribed limit mentioned in the CBDT’s Circular F.No.279/Misc.142/2007-ITJ(Pt) amended vide No. 09/2024 dated 17.09.2024. However, the appeal is being filed before the Hon’ble ITAT, as this case also falls under one of the exceptions specified in paragraph 3.1(h) of the of the CBDT’s Circular No. 05/2024 Dated. 15.03.2024. Hence further appeal is recommended in this case.”

10. “The appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal.”

2. Brief facts of the case are as under:-

Assessee is an individual and had originally filed return of income on 12/11/2015 declaring total income of Rs.22,29,480/-. Subsequently, based on information received by the department alleging that the assessee had entered into accommodation transactions in connivance with certain entities including SPS Share Brokers, the case was reopened. The Ld.AO observed that the assessee undertook transactions in illiquid scrips/derivatives, wherein all trades resulted in profits to the assessee and corresponding losses to counterparties, which according to the Ld.AO indicated premeditated and arranged trading. Further, relying on investigation findings indicating routing of funds through shell entities and layering of transactions, the Ld.AO held that, the assessee failed to establish the genuineness of such transactions.

2.1. Accordingly, addition of Rs.1,64,94,390/- was made u/s 68 of the Act treating the same as unexplained income and taxed u/s 115BBE of the Act. The Ld.AO disallowed the set-off of brought forward losses holding the same to be speculative in nature and beyond the permissible period prescribed u/s 73 of the Act.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A).

3. Before Ld.CIT(A), it was submitted that the reassessment proceedings were invalid in law as the notice issued u/s 148 and the order passed u/s 148A(d) were not in conformity with the faceless assessment scheme prescribed u/s 151A of the Act. The assessee relied upon the judgment of the Hon’ble Bombay High Court in its own case, wherein the notice issued by the Jurisdictional Assessing Officer was held to be without jurisdiction and contrary to the statutory scheme mandating issuance through Faceless Assessing Officer.

3.1. The Ld. CIT(A), after considering the submissions and the binding decision of the Hon’ble jurisdictional High Court, held that the initiation of reassessment proceedings itself was bad in law and without jurisdiction. Consequently, the assessment order passed pursuant thereto was held to be infructuous and liable to be quashed. The Ld. CIT(A), therefore, allowed the appeal of the assessee without adjudicating the issues on merits.

Aggrieved by the order of Ld.CIT(A), the revenue is in appeal before this Tribunal.

4. The Ld. DR vehemently relied upon the assessment order and submitted that the Ld. CIT(A) erred in quashing the assessment on technical grounds without appreciating the substantive findings recorded by the Assessing Officer. It was submitted that the assessee had failed to discharge the onus cast upon it u/s 68 of the Act to prove the genuineness of transactions and source of funds. The Ld. DR submitted that the Assessing Officer had brought on record detailed findings demonstrating that the assessee had engaged in premeditated trading in illiquid scrips through shell entities, and the entire transactions were arranged to generate artificial profits. It was further submitted that the Ld. CIT(A) erred in ignoring the principle laid down by the Hon’ble Supreme Court in the case of Durga Prasad More reported in (1971) 82 ITR 540 (SC) and Sumati Dayal reported in (1995) 214 ITR 801 (SC), wherein it has been held that surrounding circumstances and test of human probabilities must be applied.

4.1. The Ld. DR further submitted that the Ld. CIT(A) was not justified in holding the reassessment proceedings to be invalid on account of alleged procedural lapses u/s 151A of the Act, as such lapses, if any, do not vitiate the assessment when substantive material exists on record. It was also contended that the reopening was within limitation in view of TOLA Notifications and CBDT Instructions, and therefore, the finding of the Ld. CIT(A) is erroneous. It was further submitted that the reliance placed by the Ld. CIT(A) on the decision of the Hon’ble Bombay High Court in Hexaware Technologies Ltd. reported in (2024) 162 taxmann.com 225 (Bom.) is misplaced as the said decision is subject to challenge before the Hon’ble Supreme Court. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.

4.2. The Ld. AR, on the other hand, strongly supported the order of the Ld. CIT(A) and submitted that the issue involved is squarely covered by the decision of Hon’ble Bombay High Court in assessee’s own case vide order dated 26/08/2024. Referring to the material placed on record and as noted in the impugned order, the Ld. AR submitted that the Hon’ble Bombay High Court, has categorically quashed the notice issued u/s 148 as well as the assessment order passed u/s 147 r.w.s. 144 dated 14/05/2023 on the ground that the same were issued by Non-Jurisdictional Assessing Officer in violation of Section 151A of the Act and the faceless assessment scheme.

4.2.1. It was submitted that once the very foundation of reassessment proceedings was held to be invalid and without jurisdiction by the Hon’ble High Court, the consequent assessment order cannot survive. The Ld. AR submitted that the Ld. CIT(A) has rightly followed the binding precedent of the Hon’ble jurisdictional High Court and held the assessment to be infructuous.

4. The Ld. AR further submitted, as noted from the written submissions, that even otherwise the reassessment is barred by limitation in view of the decision of the Hon’ble Supreme Court in the case of Rajeev Bansal (468 ITR 46), wherein it has been held that TOLA provisions would not extend limitation in cases falling under clause (b) of Section 149, and for A.Y. 2015-16, the last date for issuance of notice u/s 148 was 31/03/2022, whereas in the present case notice was issued on 25/07/2022, rendering the reassessment invalid on this ground as well.

It was thus submitted that the order of the Ld. CIT(A) does not call for any interference and the appeal of the Revenue deserves to be dismissed.

We have perused the submissions advanced by both sides in light of the records placed before this Tribunal.

5. It is admitted position that the reassessment proceedings in the present case was reopened by issuance of notice u/s 148 dated 25/07/2022 that culminated in the assessment order passed u/s 147 r.w.s. 144 dated 14/05/2023.

5.1. We note that the Hon’ble jurisdictional High Court in assessee’s own case for the year under consideration has categorically held that the notice issued u/s 148 and the consequent proceedings are invalid in law for non-compliance with the provisions of Section 151A of the Act, as the same were not issued through the faceless mechanism as mandated under the statutory scheme. The Hon’ble High Court has accordingly quashed not only the notice issued u/s 148 but also the assessment order passed pursuant thereto.

5.2. Respectfully following the binding judgment of the Hon’ble jurisdictional High Court, we find no infirmity in the action of the Ld. CIT(A) in holding that the assessment order has become infructuous and liable to be quashed. Once the very foundation of the reassessment proceedings is held to be invalid by Hon’ble High Court in assessee’s own cases, all consequential proceedings including the assessment order cannot survive.

6. Further, we find merit in the contention of the Ld. AR that even on the aspect of limitation, the issue stands covered by the decision of the Hon’ble Supreme Court in the case of Rajeev Bansal (supra), wherein it has been held that the benefit of TOLA would not extend to cases falling beyond the prescribed limitation under the amended provisions. In the present case, the notice u/s 148 having been issued beyond the permissible period, the reassessment is independently liable to be held as time barred.

6.1. In view of the above, since the reassessment proceedings themselves are invalid in law, we do not deem it necessary to adjudicate the grounds raised by the Revenue on merits of addition u/s 68, applicability of Section 115BBE, or disallowance of brought forward losses.

Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.

In the result, appeal filed by the revenue stands dismissed. Order pronounced in the open court on 20/04/2026