The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a reassessment andl found that the notice under Section 148 of the Income Tax Act was issued by an Income Tax Officer (ITO) even though, given the company’s returned income, jurisdiction lay with an Assistant or Deputy Commissioner (AC/DC).

The bench of Anubhav Sharma (Judicial Member) and Amitabh Shukla (Accountant Member) found a lack of a clear link between the material relied on and the alleged escapement of the company’s income.

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The appellant/assessee filed its return for assessment year 2019–20 on November 1, 2019, declaring income of ₹31,49,323. The tax department later received information alleging that the company had benefited from accommodation entries connected with persons associated with the Galaxy Group. A search in the related cases had been conducted on November 17, 2021.

On March 29, 2024, the ITO of Ward 23(3), New Delhi, issued a notice under Section 148 to reopen the company’s assessment. During the subsequent proceedings, the Assessing Officer examined loans received from five companies that the department alleged were controlled by one of the persons linked to the investigation and were not carrying on genuine business.

Relying on the Investigation Wing’s enquiries, the Assessing Officer added ₹8.10 crore under Section 68 as unexplained credits. A further ₹24.30 lakh, calculated at 3% of the loan amount, was added under Section 69C as alleged unexplained commission expenditure. The Commissioner of Income Tax (Appeals) upheld the additions, prompting the company to approach the ITAT.

Before contesting the additions on their merits, the company asked the Tribunal to decide whether the reassessment had been validly initiated. Its counsel argued that CBDT Instruction No. 1/2011 placed a case with its level of returned income within the jurisdiction of an AC/DC, rather than the ITO who issued the Section 148 notice.

The company also argued that the notice and the satisfaction recorded for reopening were vague and issued without adequate application of mind. According to its submissions, the department had not established a sufficient connection between the search material and income allegedly escaping assessment in the company’s hands. Counsel relied on decisions concerning both an officer’s pecuniary jurisdiction and the need for a clear link between seized material and a person whose assessment is reopened.

The departmental representative supported the orders of the lower authorities. The Tribunal recorded, however, that the representative could not distinguish the facts of this case from the judicial precedents placed before it by the company.

The Bench found that the issue of a Section 148 notice by an ITO rather than an AC/DC, together with the questions concerning deemed escapement and the lack of a clear link to the relied-upon material, was comparable to the precedents cited by the company. The Tribunal therefore quashed the Section 148 notice dated March 29, 2024, and the consequent reassessment order dated March 28, 2025.

The Tribunal left the company’s remaining objections open. Those included its challenges to the additions and its complaints about access to relied-upon material and the opportunity for cross-examination. The decision should therefore be read as a ruling on the validity of this reassessment, rather than a finding on the underlying loan transactions.

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