Reassessment Quashed by Mumbai ITAT: Non-Supply of Recorded Reasons Invalidates Entire Reopening Under Section 147

Case Overview

Case: M. Abbas & Co. Vs ACIT
Forum: Income Tax Appellate Tribunal, Mumbai
Assessment Year: 2009-10
Order Date: 21-04-2026
Assessment Order Reference: Section 143(3) r.w.s Section 147 of the Income Tax Act, 1961

The Mumbai Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of M. Abbas & Co. Vs ACIT, wherein reassessment proceedings were quashed entirely on the ground that the Assessing Officer had failed to supply the actual recorded reasons for reopening the assessment. The Tribunal held that merely furnishing a gist or textual summary of the reasons does not satisfy the legal mandate established by the Hon'ble Supreme Court, and such a procedural failure is fatal to the validity of the entire reassessment.

Background and Facts of the Case

The assessee in this matter is a firm engaged in civil contracting activities. The return of income for Assessment Year 2009-10 was filed on 31st March, 2011 — notably after the due date of 30th September, 2009 prescribed under Section 139(1) of the Income Tax Act, 1961. The Assessing Officer noted that the assessee had not filed its return within the prescribed time despite having taxable income.

A survey operation under Section 133A was conducted on 29th January, 2010 at the assessee's business premises. During the course of this survey, the assessee disclosed additional income of Rs. 5 crores over and above the income already declared, spread across two assessment years:

• AY 2009-10: Additional income disclosed — Rs. 1.5 crores
• AY 2010-11: Additional income disclosed — Rs. 3.5 crores

Since the assessee had not filed a return under Section 139(1) despite possessing income above the threshold limit, the Assessing Officer concluded that income had escaped assessment within the meaning of Section 147 of the Act. Accordingly, reassessment proceedings were initiated by issuing notice under Section 148.

The assessment under Section 143(3) r.w.s Section 147 was completed on 28th February, 2014, with an addition of Rs. 1.5 crores on account of the additional income admitted during the survey proceedings.

Proceedings Before CIT(A)

The assessee challenged the assessment order before the Commissioner of Income Tax (Appeals), Mumbai-36. The CIT(A) dismissed the appeal, recording the following observations:

"In the instant case, the statement recorded with the time of survey u/s 133A makes it clear that the appellant had incurred certain amount of expenses till the date and was unable to substantiate the sources for the expenditure incurred. Accordingly the said expenditure clearly fell under the purview of section 69C and was deemed to be income for that year. Deemed income cannot be imbued with the nature of business income unless proved to be so. The amount disclosed was offered as addition Income by the partner in the statement recorded in the survey proceedings and in the same, it was admitted that the source, from which, the expenditure was met, could not be substantiated. In the absence of any evidence to show that unaccounted receipts, from which, expenses were met were from business, the disclosed income cannot be taken to be 'business income.' That being the case, the appellant cannot subsequently seek to set-off expenses related to business, whether on account of administrative charges or partner salary, against the deemed income. Accordingly the assessment of total income by the AO at Rs.1.50 crores is upheld and the grounds raised by the appellant are dismissed."

Dissatisfied with this outcome, the assessee preferred an appeal before the ITAT Mumbai.

Grounds of Appeal Before the Tribunal

Original Grounds

The assessee raised the following primary grounds before the Tribunal: