ITAT Mumbai Quashes Reassessment: Bogus Purchases Cannot Qualify as "Asset" Under Section 149(1)(b) — Section 148 Notice Struck Down

Case Overview

Case: Shairul Impex Vs ITO (ITAT Mumbai)
Assessment Year: 2014–15
Assessment Order Date: 11.05.2023 (passed under Section 147 read with Section 144 of the Income Tax Act, 1961)
CIT(A) Order Date: 22.08.2025
ITAT Order Pronounced: 06.03.2026

In a significant ruling with wide-ranging implications for reassessment proceedings, the Income Tax Appellate Tribunal, Mumbai Bench, allowed the appeal filed by Shairul Impex — a partnership firm — and quashed a reassessment order for Assessment Year 2014–15. The Tribunal held that the notice issued under Section 148 was legally invalid because the alleged bogus purchases, being revenue items, did not constitute an "asset" as mandated under Section 149(1)(b) of the Income Tax Act, 1961, as it stood prior to its amendment by the Finance (No. 2) Act, 2024.

Background and Facts of the Case

Shairul Impex, a partnership firm, had filed its return of income for AY 2014–15 on 25.09.2014, declaring a total income of Rs. 12,69,240/-. The case came under the revenue's radar following search and seizure operations conducted on the Rajendra Jain Group, during which information emerged suggesting that the assessee had obtained accommodation entries in the form of bogus purchases from two entities — M/s Narayan Gems and M/s Nazar Impex Pvt. Ltd. — aggregating to Rs. 3,02,93,611/- during the relevant financial year.

On the basis of this information, the Assessing Officer formed a belief that income chargeable to tax had escaped assessment. Accordingly, a notice under Section 148 was issued on 19.04.2021, after recording reasons and obtaining prior sanction from the competent authority.

The reassessment proceedings were subsequently conducted in accordance with the amended regime, following the Supreme Court's decision in Union of India vs. Ashish Agarwal [2022] 138 taxmann.com 64 (SC). A fresh notice under Section 148 dated 27.03.2022 was served upon the assessee. Statutory notices under Section 143(2) and Section 142(1) of the Act were also issued along with a detailed questionnaire, to which the assessee duly responded.

Despite the assessee's explanations, the Assessing Officer remained unconvinced and proceeded to add the entire amount of Rs. 3,02,93,611/- as bogus purchases to the assessee's income. The matter was carried before the CIT(A), who confirmed the addition and dismissed the assessee's appeal on both legal and factual grounds, resulting in the present appeal before the ITAT.

Grounds of Appeal

The assessee raised the following grounds before the Tribunal:

Ground 1.1: The NFAC erred in upholding reassessment proceedings when the notice under Section 148 was issued in violation of Section 151A of the Income Tax Act, 1961.

Ground 1.2: The NFAC erred in upholding the reassessment as the Section 148 notice lacked a DIN Number, in violation of CBDT Circular No. 19 of 2019.

Ground 1.3: The NFAC erred in upholding reassessment proceedings even though the income escaping assessment was not represented in the form of an asset.

Ground 1.4: The NFAC erred in upholding reassessment when the information and statements relied upon by the Assessing Officer were not shared with the assessee despite specific requests.

Note: At the outset of the hearing, the assessee's counsel specifically chose not to press Grounds 1.1 and 1.2 (concerning alleged violations of Section 151A and CBDT Circular No. 19 of 2019). Similar contentions raised through additional grounds dated January 05, 2026 were also treated as dismissed, being not pressed.

Grounds Challenging the Addition of Rs. 3,02,93,611/-