The Income Tax Appellate Tribunal Delhi has delivered a decisive ruling reinforcing that reassessment proceedings under the Income Tax Act cannot pivot to entirely new grounds after the notice stage. This judgment upholds the foundational principle that taxpayers must be given fair notice of the allegations against them, and any subsequent addition must flow from the same factual basis disclosed at the outset.
Background & Facts
The Dispute
The assessee, LDM Agro Foods Pvt. Ltd., filed its income tax return for Assessment Year 2018-19 declaring an income of Rs. 16,40,510. The Income Tax Department received information from its investigation wing suggesting the assessee had availed bogus accommodation entries from two entities: M/s Madan Lal Madho Prasad and M/s Kalki Trading Company. Based on this, the Assessing Officer issued a notice under Section 148A(b) of the Income Tax Act, 1961, seeking explanation regarding purchases totaling Rs. 1,20,25,868 from these two parties.
Procedural History
- March 2022: Notice under Section 148A(b) issued, citing only Madan Lal Madho Prasad and Kalki Trading Company as sources of bogus purchases.
- No response received: The assessee did not reply to the notice, leading the Assessing Officer to pass an order under Section 148A(d) concluding that income had escaped assessment.
- March 2023: Final assessment order passed under Section 147 read with Section 144B, making an addition of Rs. 1,24,89,146 on account of non-genuine purchases from a completely different entity - M/s Om Trading Co.
- June 2025: Commissioner of Income Tax (Appeals) upheld the addition, rejecting the assessee’s claim of procedural violation.
- January 2026: Appeal filed before ITAT Delhi.
Relief Sought
The assessee sought quashing of the reassessment order on grounds of violation of natural justice, lack of jurisdiction, and material discrepancy between the notice and the final addition.
The Legal Issue
The central question was whether an Assessing Officer can lawfully make an addition under Section 147 based on a party or transaction not disclosed in the notice issued under Section 148A(b), thereby depriving the assessee of a meaningful opportunity to defend against the actual grounds of reassessment.
Arguments Presented
For the Petitioner
The assessee’s counsel argued that the notice under Section 148A(b) specifically named only two entities as sources of bogus purchases. The final addition, however, targeted purchases from M/s Om Trading Co., a party never mentioned in the notice or the Section 148A(d) order. This constituted a fundamental breach of natural justice and violated the settled principle that reassessment must be confined to the grounds disclosed at the notice stage. Reliance was placed on CIT v. Smt. Sushila Devi and CIT v. M/s. Surya Roshni Ltd., which hold that reopening on new grounds without notice is ultra vires.
For the Respondent
The Revenue contended that the information received from the investigation wing was broad and pertained to a pattern of bogus entries, and that the addition against M/s Om Trading Co. was merely a refinement of the same underlying suspicion. It argued that the assessee had ample opportunity to respond and that technical discrepancies should not defeat the revenue’s right to recover escaped income.
The Court's Analysis
The Tribunal examined the procedural sequence with strict adherence to statutory mandates under Section 148A. It noted that Section 148A(b) requires the Assessing Officer to disclose the information forming the basis of belief that income has escaped assessment. The notice must be specific enough to enable the assessee to prepare a meaningful defense.
"The ground on which the assessment was reopened and the ground on which the addition was finally made are entirely different. The notice under Section 148A(b) referred to two entities; the addition was made on a third entity not mentioned anywhere in the notice or the 148A(d) order."
The Tribunal emphasized that Section 148A is a procedural safeguard, not a tool for fishing expeditions. The Assessing Officer cannot, after issuing a notice on one set of facts, later rely on a different set of facts to justify an addition. Such a practice renders the notice meaningless and violates the doctrine of audi alteram partem.
The Tribunal further held that the Revenue’s reliance on "broad information" from the investigation wing does not justify a shift in the factual basis of reassessment. The law requires concrete, specific disclosure - not vague suspicions. The addition of Rs. 1,24,89,146 against M/s Om Trading Co. was therefore without jurisdiction.
The Verdict
The assessee won. The ITAT Delhi held that reassessment proceedings under Section 147 cannot be based on grounds different from those disclosed in the notice under Section 148A(b). The assessment order was quashed as violative of natural justice and ultra vires the statutory framework.
What This Means For Similar Cases
Notice Must Precisely Match Final Addition
- Practitioners must challenge any reassessment where the entity, transaction, or nature of income in the final order differs from the notice under Section 148A(b).
- A mere reference to "bogus entries" or "unexplained credits" without naming specific parties is insufficient to satisfy procedural fairness.
- If the notice cites Entity A, the addition cannot be made against Entity B - even if both are part of the same investigation.
Documentary Evidence Trumps Allegations
- The Tribunal implicitly affirmed that where the assessee has maintained audited books and filed GST returns, the burden shifts to the Revenue to prove fraud or fabrication.
- Mere suspicion or uncorroborated statements from third parties (e.g., statements recorded "at the back of the assessee’s file") cannot sustain disallowance.
- Practitioners should insist on cross-examination of witnesses whose statements are relied upon.
Procedural Compliance Is Non-Negotiable
- Section 148A is not a formality - it is a statutory right. Non-compliance invalidates the entire reassessment.
- Any order passed under Section 148A(d) without proper service or opportunity to be heard is void ab initio.
- Appeals against reassessment must be framed around procedural defects first, even before contesting the merits of the addition.
