ITAT Chandigarh Invalidates Section 147 Reassessment Proceedings Based on Uncorroborated Third-Party Excel Sheet and Jurisdictional Irregularities

Introduction

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, has delivered a significant judgment in the matter of Vimal Alloys Private Limited Vs DCIT, setting aside reassessment proceedings initiated under Section 147 read with Section 148 of the Income Tax Act, 1961. The Tribunal held that the reopening of assessment for Assessment Year 2016-17 was fundamentally flawed, being based on borrowed satisfaction derived from an unsigned, unverified Excel spreadsheet recovered from third-party premises without independent corroboration. The consequential addition of Rs. 55.02 lakh made under Section 69A was consequently deleted.

This ruling addresses critical aspects of reassessment law, including the necessity of independent application of mind, the inadmissibility of uncorroborated third-party evidence, mandatory procedural compliance under faceless assessment schemes, and the requirement to demonstrate failure to disclose material facts when reopening assessments beyond four years.

Factual Background of the Case

Original Assessment and Business Operations

Vimal Alloys Private Limited is a private limited company primarily engaged in manufacturing and trading of iron and steel products. For the Assessment Year 2016-17, the assessee filed its return of income declaring total income of Rs. 16,90,550 against a turnover of Rs. 67,57,30,991. The return was originally processed under Section 143(1) of the Income Tax Act, 1961.

Subsequently, the case was selected for complete scrutiny under Section 143(3), and an assessment order was passed on 30th October 2018 making an addition of Rs. 2,72,365, which was later deleted by the CIT(A) vide order dated 9th May 2019.

Initiation of Reassessment Proceedings

The reassessment machinery was set in motion based on information received from the Investigation Wing (CIRU/VRU) concerning search and survey operations conducted under Section 132 and Section 133A of the Act on 5th June 2018 in the case of World Window Group (WWG) and related entities.

During these search proceedings at the premises of M/s Futuristic Metal Trading Pvt. Ltd. (FMTPL), a constituent of the WWG, the department allegedly found an Excel spreadsheet titled "Cash & CH Report 14.11.17". Based on entries in this spreadsheet, the department alleged that the assessee had engaged in unrecorded cash transactions amounting to Rs. 55,02,640 with FMTPL.

Show Cause Notice and Objections

A show cause notice under Section 148A(b) was issued to the assessee on 22nd March 2023. The assessee filed detailed objections dated 28th March 2023, raising substantive challenges including:

Reopening based on borrowed satisfaction without independent inquiry
Reliance on third-party evidence without corroboration
Absence of satisfaction recorded by the searched party's Assessing Officer
Challenge to the Excel sheet as a "dumb document" without evidentiary value
Non-disclosure of material facts failure not established for reopening beyond four years

The assessee also submitted voluminous documentary evidence including VAT returns, purchase invoices, banking records, audited financial statements, and quantitative stock registers to establish the genuineness of all transactions with FMTPL.

Assessment Order and Addition

Despite the detailed objections and documentary evidence, the Assessing Officer proceeded to pass an order under Section 148A(d) and subsequently issued notice under Section 148. The assessment was completed making an addition of Rs. 55,02,640 under Section 69A of the Act, treating the alleged cash payments as unexplained money.

CIT(A) Proceedings

The Commissioner of Income Tax (Appeals), NFAC, Delhi, vide order dated 22nd May 2025, confirmed the addition made by the Assessing Officer. The CIT(A) held that:

The Excel sheet constituted incriminating material found during search proceedings
The assessee failed to rebut the findings with cogent evidence
The reopening was validly initiated based on tangible material received from the Investigation Wing
The Assessing Officer had valid jurisdiction over the assessee

Aggrieved by this order, the assessee preferred an appeal before the ITAT Chandigarh.

Grounds of Appeal Before ITAT

The assessee raised multiple comprehensive grounds challenging both the validity of reassessment proceedings and the merits of the addition:

Jurisdictional Grounds

Ground 1: The notice under Section 148 was issued by the Jurisdictional Assessing Officer (JAO) instead of the National Faceless Assessment Centre (NFAC), contrary to the faceless assessment scheme mandated under Section 151A and the judgment of the Punjab & Haryana High Court in Jasjit Singh v. Union of India dated 29th July 2024.

Legal Grounds Challenging Reopening

Ground 2: The reopening was based on borrowed satisfaction without independent application of mind by the Assessing Officer, with no independent inquiry conducted before issuing the notice under Section 148.

Ground 3: The information relied upon in the form of the Excel sheet and the approval granted for reopening were not shared with the assessee, vitiating the assessment proceedings in light of the judgment in M/s Sabh Infrastructure Ltd. v. ACIT [(2017) 398 ITR 198 (Del)]. The approval under Section 151 appeared mechanical.

Ground 4: The assessment order was based solely on third-party information recovered from premises of a third party in the form of Excel sheets during survey proceedings. Such uncorroborated third-party information cannot constitute valid evidence without corroborating material, as held in DCIT vs. Shri Amarjit Singh in ITA No. 774/CHD/2023 (06.03.2025).

Natural Justice Violations

Ground 5: No opportunity for cross-examination of M/s Futuristic Metal Trading Pvt. Ltd. or any third party whose statements or data were relied upon was provided, violating principles of natural justice and rendering the assessment proceedings invalid.

Merits-Based Grounds

Ground 6: The addition of Rs. 55,27,640 was made by incorrectly invoking Section 69A, as the assessee was not found to be the owner of any money, bullion, jewellery or other valuable article. The provisions of Section 69A are not applicable to alleged cash purchases.

Ground 7: The assessee maintained complete day-to-day stock records for material purchased from M/s Futuristic Metal Trading Pvt. Ltd. and other parties. All payments for purchases from FMTPL were made through banking channels, precluding any possibility of cash receipts as alleged.

Ground 8: The CIT(A) erred in confirming the addition without properly appreciating the submissions and rejecting the explanation provided by the assessee, which is illegal and against principles of natural justice as per Sahara India (Firm) v. CIT [(2008) 300 ITR 403 (SC)].

Detailed Submissions Before the Tribunal

Assessee's Submissions

The Learned Authorized Representative for the assessee made elaborate submissions attacking the reassessment proceedings on multiple fronts:

Challenge to Excel Sheet as Evidence

The AR contended that the entire addition rested solely on an Excel sheet allegedly found at the premises of a third party, which neither belonged to the assessee nor was found from its possession or control. No effort was made by the Assessing Officer to establish that the entries in the Excel sheet actually pertained to the assessee.

The Excel sheet was characterized as an uncorroborated digital document whose author remained unknown. No statement from the third party owning or maintaining the spreadsheet was recorded to link the assessee with the alleged transactions. In the absence of such corroboration, the addition was legally unsustainable.

Non-Compliance with Evidence Act Requirements

It was argued that for electronic records to be admissible as evidence, compliance with Section 65B of the Indian Evidence Act, 1872 is mandatory. No certificate under Section 65B(4) was produced by the department, rendering the electronic record inadmissible.

Violation of Natural Justice

The AR submitted that the Assessing Officer failed to provide the complete Excel sheet and other underlying material relied upon for reopening and assessment. No opportunity for cross-examination of the third party was afforded to the assessee, constituting a gross violation of natural justice principles.

Reliance was placed on Supreme Court judgments including Principal Commissioner of Income-tax v. Kishore Kumar Mohapatra and Principal commissioner of Income-tax v. Hadoti Punj Vikas Ltd, which held that statements recorded behind the back of an assessee without opportunity for cross-examination cannot be used for making additions.

Borrowed Satisfaction Without Independent Inquiry

It was contended that the reopening was based on borrowed satisfaction, as the Assessing Officer merely acted on information received from the Investigation Wing without any independent application of mind. The reasons recorded did not demonstrate any live nexus between the alleged material and escapement of income in the hands of the assessee.

Reference was made to the recent ITAT Chandigarh decision in Akbar Ali v. ACIT, ITA No. 868/Chd/2025, which held that mere information from the Investigation Wing without concrete evidence cannot be a valid reason for reopening.

Jurisdictional Defect - Notice by JAO Instead of NFAC

A specific legal objection was raised regarding jurisdiction. Under the Faceless Assessment Scheme introduced by Section 151A and operationalized through CBDT Notification No. 18/2022 dated 29th March 2022, the power to issue notice under Section 148 vested exclusively with the Faceless Assessing Officer at NFAC, not with the Jurisdictional Assessing Officer.

In the present case, the notice under Section 148 was issued by Circle-46(1), New Delhi (the JAO), whereas the assessment was required to be completed by the National Faceless Assessment Centre. This constituted a fundamental jurisdictional defect rendering the entire proceedings void ab initio.

Reliance was placed on judgments of the Punjab & Haryana High Court in Jasjit Singh v. Union of India [2024] 165 taxmann.com 114 and Jatinder Singh Bhangu v. Union of India [2024] 165 taxmann.com 115, as well as ITAT Chandigarh decisions in Seth Industrial Corporation vs. DCIT in ITA No. 1044/Chd/2024 and Vikas Jain vs. DCIT in CO No. 28/Chd/2025.

Reopening Beyond Four Years - No Failure to Disclose

It was submitted that the assessment was sought to be reopened after four years from the end of the relevant assessment year. The proviso to Section 147 mandates that where an assessment under Section 143(3) has been completed, no action can be taken after expiry of four years unless income has escaped assessment "by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment."

In the reasons recorded, there was no whisper of any failure on the part of the assessee to disclose material facts. The original assessment under Section 143(3) dated 30th October 2018 was completed after due scrutiny. The reopening was based entirely on information received subsequently, not on any non-disclosure by the assessee.

Reliance was placed on numerous Supreme Court decisions including:

Assistant Commissioner of Income-tax v. Virbac Animal Health India (P.) Ltd. [2023] 151 taxmann.com 411 (SC)
Commissioner of Income-tax v. Canara Bank [2023] 155 taxmann.com 290 (SC)

These judgments consistently held that reopening beyond four years without allegation of failure to disclose material facts is bad in law.

Change of Opinion

It was argued that the original assessment was completed under Section 143(3) after examining the books of account. The same information was available during the original assessment proceedings. Reopening based on the same information amounted to impermissible change of opinion.

Reference was made to the Punjab & Haryana High Court decision in Supertech Forgings (India) Pvt. Ltd vs. Pr. Commissioner of Income Tax-1, Jalandhar in ITA-101-2022, which held that where original assessment was completed after examining books, the Assessing Officer cannot change opinion based on the same information.

Non-Disposal of Objections

The AR pointed out that detailed objections consisting of five pages dated 28th March 2023 were filed challenging the reopening. However, no specific disposal of these objections was made by way of a speaking order under Section 148A(d). This violated the mandate established by the Bombay High Court in M/s. Browntape Technologies Pvt Ltd vs. ACIT in Writ Petition No. 627 of 2022 and Gujarat High Court in Amarpadma Credits (P.) Ltd. vs. Income-tax Officer [2025] 179 taxmann.com 144.

Defective Notice Under Section 143(2)

An additional ground was raised challenging the notice under Section 143(2) for not specifying the category of scrutiny (limited, manual, or complete) as mandated by CBDT Instruction Circular F No. 225/157/2017/ITA-II dated 23rd June 2017. Reliance was placed on ITAT Kolkata decisions in Srimanta Kumar Shit vs. A.C.I.T. and M/s. Hind Ceramics Pvt. Ltd vs. DCIT where assessments were quashed for this technical defect.

Merits of Transactions

On merits, the AR submitted extensive documentary evidence establishing:

Maintained Regular Books: The assessee maintained audited books of account subjected to tax audit. Complete quantitative stock registers were maintained as declared in the tax audit report.

Banking Channel Transactions: All purchases from M/s Futuristic Metal Trading Pvt. Ltd. were made through banking channels. Copies of ledger accounts, sale agreements dated 6th November 2015, sample invoices with VAT certificates, and complete stock registers for "Ferro Silico Manganese" and "M.S. Scrap" were filed.

ITAT Chandigarh Invalidates Section 147 Reassessment Proceedings Based on Uncorroborated Third-Party Excel Sheet and Jurisdictional Irregularities in Vimal Alloys Case