ITAT Mumbai Quashes Reassessment Under Section 147: Borrowed Satisfaction Cannot Confer Jurisdiction, Denial of Cross-Examination Violates Natural Justice

Case Overview

Case Name: Aakash Developers Vs ACIT (ITAT Mumbai)
Assessment Year: 2010-11
Order Date: 29/08/2025
Forum: Income Tax Appellate Tribunal, Mumbai Bench

The Income Tax Appellate Tribunal, Mumbai, delivered a significant ruling in favour of the assessee — a partnership firm engaged in the business of builders and developers — by quashing reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961. The Tribunal held that the reopening of assessment was fatally flawed on multiple counts: absence of independent application of mind by the Assessing Officer (AO), reliance on borrowed satisfaction drawn from Investigation Wing reports, failure to furnish seized material to the assessee, and denial of the right to cross-examine third parties whose statements were used adversely. As a direct consequence, the addition of ₹45 lakh on account of alleged unexplained cash investment in the form of on-money was also struck down.

Background and Facts of the Case

The assessee, a partnership firm operating in the construction and real estate sector, had originally filed its return of income on 22/09/2020, subsequently revised on 20/08/2011, declaring total income of ₹88,45,423/-.

Years later, the AO issued a notice under Section 148 dated 31/03/2017, seeking to reopen the completed assessment for AY 2010-11. The stated basis for this reopening was information furnished by the DDIT (Investigation), Unit 1(4), Mumbai, which allegedly revealed that the assessee had paid ₹45 lakh in cash as on-money to Cosmos Group in connection with the purchase of a flat.

This information was purportedly derived from search and seizure proceedings conducted at Cosmos Group's premises, during which certain material was recovered from email accounts relating to flat bookings, advances, and sales. Based on this data, the Investigation Wing prepared an Excel sheet that reflected the assessee's name against cash payments of ₹25 lakh on 18/03/2010 and ₹20 lakh on 26/06/2010, aggregating to ₹45 lakh.

Assessee's Response During Reassessment

After receiving a copy of the reasons recorded, the assessee filed objections on 18/09/2017 against the proposed reopening. Through subsequent letters dated 07/11/2017, 14/12/2017, and 18/12/2017, the assessee:

  • Challenged the validity of the notice under Section 148
  • Requested copies of all seized materials and documents forming the basis of the reopening
  • Sought copies of statements recorded from directors and promoters of Cosmos Group
  • Formally demanded an opportunity to cross-examine those persons whose statements were being used against the assessee

Despite these repeated requests, none of the seized material or statements were ever provided to the assessee — neither during assessment proceedings before the AO nor during the appellate proceedings before the Commissioner of Income Tax (Appeals) [CIT(A)].

The AO completed the reassessment on 28/12/2017, making an addition of ₹45 lakh as unexplained investment in cash on-money allegedly paid to Cosmos Group. The CIT(A) upheld both the reopening and the addition, following which the assessee approached the ITAT.

Grounds of Appeal Before ITAT

The assessee raised the following principal grounds before the Tribunal:

  1. The CIT(A) erred in sustaining the reopening under Section 147 via notice under Section 148 dated 31/03/2017, without appreciating that there was a complete absence of any valid or independent reason for the AO to believe that income chargeable to tax had escaped assessment, rendering the reassessment order passed under Section 143(3) read with Section 147 legally unsustainable.