ITAT Mumbai invalidates reassessment where no new material existed beyond earlier scrutiny

Background of the dispute

The case of Mohammed Iqbal Khan Vs ACIT came before the ITAT Mumbai in appeal against an order passed by NFAC, Delhi (Ld. CIT(A)) under Section 250 of the Income Tax Act 1961 for Assessment Year 2012-13. The impugned appellate order dated 26.06.2025 arose from a reassessment framed by the Ld. AO under Section 143(3) read with Section 147 vide order dated 30.12.2019.

The assessee had originally filed his return of income on 29.09.2012, declaring a total income of Rs. 20,14,970/-. The return was first processed under Section 143(1), and later the case was taken up for scrutiny under CASS.

Original scrutiny assessment proceedings

Notices and compliance

During the original scrutiny:

• The Ld. AO issued a notice under Section 142(1) dated 01.09.2014.
• At point no. 9 of this notice, the Ld. AO expressly required the assessee to furnish copies of bank statements for verification.

In response, the assessee submitted a detailed set of documents through a letter dated 09.01.2015, which included:

1. ITR acknowledgement for the relevant year
2. Computation of total income
3. ITR-4
4. Audited financial statements and Tax Audit Report
5. Bank statement from 01.04.2011 to 31.03.2012
6. Details of loans and advances
7. Details of sundry creditors
8. Ledger account of credit card expenses

Among these documents, the assessee enclosed the complete bank statement of the current account bearing No. 0382050133104 maintained with United Bank of India, Hotel Oberoi Tower Branch, in the name of the proprietary concern M/s. Universal Trading Corporation.

The scrutiny culminated in an assessment under Section 143(3) on 20.03.2015, after the Ld. AO examined the material on record, including the very bank account and transactions later used as the basis for reopening.

Reopening under Sections 147/148

Notice under Section 148 and recorded reasons

Subsequently, the Ld. AO issued a notice under Section 148 dated 28.03.2019 to reopen the concluded assessment. The reasons recorded for reopening, as extracted in the reassessment order, were based on information received from the Investigation Wing:

• The DDIT (Inv), Unit-2(4), Mumbai, had conducted enquiries into the case of the assessee’s proprietary concern, M/s. Universal Trading Corporation (PAN ACDPK8308C).
• It was reported that the concern operated Current Account No. 0382050133104 with United Bank of India, Hotel Oberoi Tower Branch.
• According to the Investigation Wing, this account:
  • Received large RTGS and NEFT credits on a regular basis
  • Showed immediate onward transfers primarily to:
    • Current Deposit Account No. 382050133258 of Sharda Marketing, a partnership firm
    • Occasionally to Savings Bank Account No. 0382010074861 of the proprietor
    • Sometimes through RTGS to other parties
  • Reflected minimal normal business operations
• It was noted that:
  • The account exhibited substantial credit turnover of Rs. 3982 lakhs and debit transactions of Rs. 3981 lakhs during the period 01.08.2011 to 28.10.2011
  • The average balance in the account was low and not commensurate with such high turnover

On scrutiny of the said bank account for the specified period, the Ld. AO observed that most transactions involved Sharda Marketing. As per the recorded reasons, the Ld. AO noted that:

From perusal of the transactions, the assessee had dealings aggregating to Rs. 36.32 Crores with M/s Sharda during the relevant year, while the assessee’s returned income for AY 2012-13 was only Rs. 20,14,970/-. The nature and source of these transactions required further examination and verification.

On this basis, the Ld. AO formed a belief that income had escaped assessment and proceeded with the reassessment.