ITAT Ahmedabad Confirms Reassessment Based on Seized Diaries Showing Unaccounted Cash Deals

Background of the Dispute

A search under Section 132 was carried out on 23.11.2021 in the case of “Ratnamani Group” and connected concerns. The residence of Prakash Misrimal Sanghvi was also covered. During this operation, the Investigation Wing seized a series of handwritten diaries and loose papers (marked Annexure A-1 to A-14 and other annexures), which recorded extensive cash dealings.

In his Section 132(4) statement, the assessee acknowledged that:

  • The diaries were written in his own handwriting.
  • They represented records of cash transactions undertaken by him.
  • These cash dealings were not found in the regular, disclosed books of account.

On scrutiny of these materials, the Assessing Officer (AO) concluded that:

  • The assessee was involved in land trading, ancestral sarafi/interest business, share transactions and other trading activities.
  • Substantial income had escaped assessment, well above the statutory threshold of ₹50 lakh, and was represented in the form of assets/loans and advances reflected in the seized material.

Accordingly, the AO:

  • Issued notices under Section 148 for Assessment Years (AYs) 2013-14 to 2020-21 after recording reasons.
  • Completed reassessments under Section 143(3) r.w.s. 147 for AYs 2013-14 to 2020-21.
  • Completed regular assessment under Section 143(3) for AY 2021-22.
  • Made additions on account of:
    • Interest income as per “Shree Vyaaj Khaate / Vyaaj Khaate”
    • Profits from land trading (“Jamin Trading”)
    • Profits from share trading
    • Trading recorded in “Shree Maal Khaate” / “Maal Khaate”
    • Peak credits and other unaccounted transactions
    • Disallowance of various claimed expenses and bad debts

The assessee approached the Commissioner of Income Tax (Appeals) [CIT(A)], who partly reduced the additions but largely upheld the foundation of the reassessment. Both assessee and Revenue filed cross-appeals before the ITAT Ahmedabad for AYs 2013-14 to 2021-22.

Since the issues were common, the Tribunal passed a consolidated order, treating AY 2013-14 as the lead year.

Objections Raised by the Assessee

For AY 2013-14 (and similarly for adjacent years), the assessee attacked the validity of the reassessment mainly on three planks:

  1. Improper approval under Section 151

    • For AYs 2013-14 to 2017-18, sanction for issue of Section 148 notices was obtained from the Director General of Income Tax (Investigation) [DGIT(Inv.)], Ahmedabad.
    • The assessee argued that since a Principal Chief Commissioner of Income Tax (PCCIT) was functioning at Ahmedabad, only the PCCIT could have been the competent “specified authority” under Section 151(ii).
    • On this basis, it was contended that the approvals were invalid and therefore the reassessments were void.

  2. Limitation under Section 149 read with old Section 153A

    • For AYs 2013-14 to 2015-16, the assessee contended that reassessment was barred because, per the first proviso to Section 149(1), no notice could be issued if, under the pre-Finance Act 2021 regime, a notice under Section 148, Section 153A or Section 153C would have been time-barred.
    • With reference to the 4th proviso to Section 153A, the assessee argued:
      • For the “relevant assessment years” (7th to 10th year prior to the year of search), reopening was permissible only where escaped income of at least ₹50 lakh was “represented in the form of an asset”.
      • In this case, no specific asset was seized or added in those earlier years.
      • Hence, under the old Section 153A, those years could not have been reopened; consequently, after Finance Act 2021, Section 149 also barred reopening.

  3. Jurisdiction – JAO vs Faceless AO under Section 151A

    • The assessee argued that assessments should have been initiated and completed by a Faceless Assessing Officer (FAO) under the faceless regime, instead of by the jurisdictional AO (JAO).
    • However, the assessee acknowledged that the Gujarat High Court in Talati & Talati LLP (167 taxmann.com 371) had already decided this issue in favour of the Revenue.

Revenue’s Response on Reopening Issues

The Revenue, through the CIT-DR, defended the reassessment on all counts:

  • On Section 151 approval:

    • Under Section 151(ii), where more than three years have elapsed from the end of the relevant AY, sanction must be given by:
      • Principal Chief Commissioner / Principal Director General, or
      • Where there is no such officer, then the Chief Commissioner / Director General.
    • There was no Principal Director General in Ahmedabad.
    • DGIT(Inv.), Ahmedabad had jurisdiction over Central Charge cases pursuant to CBDT Notification No. 70/2014 [F. No. 187/37/2014 (ITA-I)] / S.O. 2915(E) dated 13.11.2014.
    • PCCIT, Ahmedabad did not have administrative or functional control over the DGIT(Inv.) or the Central circles. PCCIT’s jurisdiction was confined to Chief Commissioner charges in Gujarat, as per CBDT Notification S.O. 2753(E) dated 22.10.2014.
    • Therefore, PCCIT was not the authority having jurisdiction over this Central case; hence, only the DGIT(Inv.) was competent to grant approval.

  • On limitation and the “asset” condition:

    • The CIT(A) had already examined the interplay of Section 149 and the 4th proviso to Section 153A, and upheld reopening.
    • The AO’s recorded reasons clearly showed that unaccounted income above ₹50 lakh, represented in the form of assets such as loans and advances, was evidenced by seized diaries.

  • On JAO vs FAO:

    • Being a Central search assessment, the case fell outside the faceless assessment scheme.
    • CBDT clarification in F. No. 370153/7/2023–TPL dated 20.02.2023 had clarified that JAOs retained jurisdiction in such categories.
    • The Gujarat High Court decision in Talati & Talati LLP squarely covered the issue against the assessee.

Tribunal’s Findings on Reopening and Jurisdiction

1. Validity of Approval under Section 151

The Tribunal analysed the statutory text of Section 151 and the CBDT notifications governing jurisdiction:

  • Section 151(ii) permits sanction by:

    • Principal Chief Commissioner / Principal Director General, or
    • If such posts do not exist, then Chief Commissioner / Director General.

  • On facts:

    • There was no Principal Director General at Ahmedabad.
    • DGIT(Inv.), Ahmedabad had been conferred jurisdiction over Principal Commissioner/Commissioner of Income Tax (Central), Ahmedabad by Notification No. 70/2014.
    • PCCIT, Ahmedabad, per Notification S.O. 2753(E), had jurisdiction only over territorial Chief Commissioner charges in Gujarat, and not over DGIT(Inv.) or Central Charge.

The Tribunal emphasised that jurisdiction is fundamental:

Only the specified authority who actually has jurisdiction over the case can grant valid sanction under Section 151. Mere physical presence of a senior authority (like PCCIT) in the same city is irrelevant unless that authority has jurisdiction over the concerned AO.

Since PCCIT had no jurisdiction over Central Charge cases, he could not have granted sanction. DGIT(Inv.), as the competent authority for Central Charge, was correctly approached.