The Income Tax Appellate Tribunal in Kolkata dismissed the revenue’s addition of Rs 20.04 crore as unexplained cash credit and held that a Section 148 notice issued on 23 March 2023 was barred by the limitation prescribed in Section 149(1)(b) of the Income-Tax Act.
Background & Facts
The Dispute
The appellant, Rooprekha Vyapaar Pvt. Ltd., a company incorporated on 17 January 2008, raised share capital and share premium of Rs 20,04,00,000 by issuing equity shares to 18 subscriber companies. The revenue treated this amount as unexplained cash credit and added it to the assessee’s income for Assessment Year (AY) 2008-09. A similar assessment was made for AY 2015-16 based on a notice under Section 148 dated 23 March 2023.
Key Facts
- 17 Jan 2008: Incorporation of Rooprekha Vyapaar Pvt. Ltd.
- 22 Aug 2008: Return of income filed, declaring a loss of Rs 39,080.
- 30 Jun 2010: Assessment framed u/s 147/143(3) assessing income of Rs 26,010.
- 07 Mar 2013: PCIT order u/s 263 directing fresh enquiry into the share capital.
- 26 Mar 2014: AO added Rs 20,04,00,000 as income u/s 143(3) treating it as unexplained cash credit.
- 15 Dec 2022: Coordinating Bench of ITAT restored the matter to the AO’s file for fresh adjudication.
- 16 Feb 2023: AO issued notice u/s 142(1) with questionnaire.
- 20 Mar 2024: Show-cause notice issued u/s 148 demanding proof of identity, creditworthiness and genuineness of the 18 share subscribers.
- 28 Mar 2024: Assessee replied to the notice with documents, ITRs, audited accounts and shareholder details.
- 30 Mar 2024: AO added the share capital/premium as unexplained cash credit u/s 143(3)/263.
- 16 Jun 2023 and 06 Jan 2024: Further notices u/s 142(1) issued; replies filed on 06 Mar 2024.
- 23 Mar 2023: Revenue issued notice u/s 148 for AY 2015-16 (later quashed).
- 29 Apr 2024: Assessment under Section 148A(d) for AY 2015-16 passed.
- 08 Jun 2026: Hearing of the present appeals.
- 04 Aug 2026: Judgment pronounced.
Procedural History
- 12 Jun 2019: Original appeal filed before the Commissioner of Income-Tax (Appeals) Kolkata (ITA No. 895/2026) against the addition of Rs 20,04,00,000 for AY 2008-09.
- 15 Nov 2020: CIT(A) dismissed the appeal, upholding the addition.
- 15 Dec 2022: Coordinating Bench of ITAT (ITA No. 300/KOL/2021) restored the matter to the AO for fresh adjudication.
- 13 May 2025: Assessee filed additional grounds of appeal challenging the jurisdiction of the AO under Section 148 and Section 147.
- 04 Aug 2026: ITAT allowed both appeals, set aside the addition and quashed the Section 148 notice.
Relief Sought
- Deletion of the addition of Rs 20,04,00,000 to income for AY 2008-09.
- Quashing of the notice issued under Section 148 dated 23 Mar 2023 and the consequent assessment for AY 2015-16.
- Restoration of the matter to the Assessing Officer for fresh adjudication on merit.
The Legal Issue
The central questions were: (1) Whether the Assessing Officer could validly add the share capital/share premium of Rs 20,04,00,000 as unexplained cash credit without complying with the PCIT’s direction to issue summons u/s 131 and conduct a proper enquiry; and (2) Whether the notice issued under Section 148 on 23 March 2023 for AY 2015-16 was barred by the limitation prescribed in Section 149(1)(b) of the Income-Tax Act, given the prospective operation of the Finance Act 2021 amendments.
Arguments Presented
For the Appellant
- The AO failed to issue summons u/s 131 as expressly directed by the PCIT, thereby violating the procedural mandate.
- The addition was based solely on the non-response to notices u/s 133(6); the assessee had already furnished all documents, including shareholder PANs, bank statements and audited accounts.
- The Section 148 notice was issued after the expiry of the six-year limitation period applicable to AY 2015-16 under the pre-amendment provision of Section 149(1)(b), and the Finance Act 2021 amendment is prospective.
- Relied on CIT vs STL Extrusion (P) Ltd. (2011) and Rohini Builders (supra) that an addition cannot be made merely for non-compliance of notices when the assessee has supplied all required evidence.
For the Respondent
- The AO possessed discretionary power to treat the share capital as unexplained cash credit in the absence of satisfactory proof of the subscribers’ creditworthiness.
- Non-compliance with notices u/s 133(6) by the shareholders indicated that the transactions were suspect and justified the addition.
- The amendment to Section 149(1)(b) by Finance Act 2021 was retrospective, allowing the revenue to reopen assessments beyond the six-year period.
- Cited CIT vs Mansa Ram & Sons and CIT vs Multimetals Ltd. to support the AO’s limited powers in set-aside proceedings.
The Court's Analysis
The Tribunal examined the statutory framework governing reassessments and the procedural safeguards mandated by the PCIT. It noted that the PCIT’s order u/s 263 specifically required the AO to issue summons u/s 131 to the directors of both the assessee and the subscribing companies. The AO, however, issued only notices u/s 142(1) and u/s 133(6) and did not pursue the compulsory appearance of the directors. The Tribunal held that the AO’s failure to comply with the PCIT’s explicit direction rendered the addition of Rs 20,04,00,000 untenable.
"In the interest of justice, we deem it proper to set aside both the impugned orders and restore this issue to the file of the Assessing Officer for adjudication afresh on merits."
Regarding the Section 148 notice, the Tribunal parsed the language of Section 149(1)(b) before and after the Finance Act 2021 amendment. It affirmed the Supreme Court’s pronouncement in Union of India vs Ashish Agarwal that the amendment operates prospectively. Consequently, for AY 2015-16 the pre-amendment six-year limitation applied, which expired on 31 March 2022. The notice dated 23 March 2023 therefore fell outside the permissible period and was barred. The Tribunal also rejected the revenue’s contention that the amendment was retrospective, citing Union of India vs Rajeev Bansal (2024) and Manju Somani v. ITO (2024) which reiterated the prospective nature of the amendment.
The Tribunal further emphasized that an addition cannot be predicated merely on the non-response to notices u/s 133(6) when the assessee has already supplied comprehensive documentary evidence. It relied on CIT vs STL Extrusion and Rohini Builders to underscore that the revenue bears the burden of proving that the share subscriptions are fictitious or that the funds constitute unaccounted money.
The Verdict
The appeal for AY 2008-09 is allowed; the addition of Rs 20,04,00,000 to income is deleted. The appeal for AY 2015-16 is also allowed; the notice issued under Section 148 dated 23 March 2023 and the subsequent assessment under Section 148A(d) dated 29 April 2024 are quashed as barred by the limitation in Section 149(1)(b). The matter is restored to the Assessing Officer for fresh adjudication on merit, with a direction to provide the assessee an adequate opportunity of hearing.
What This Means For Similar Cases
Compliance with PCIT Directions Is Mandatory
- Assessing Officers must strictly follow PCIT orders, especially the requirement to issue summons u/s 131 for compulsory appearance of directors.
- Failure to do so renders any addition on the basis of unexplained cash credit vulnerable to reversal.
Limitation Under Section 149(1)(b) Is Prospective
- The six-year limitation for pre-2021 assessment years continues to apply unless the Finance Act 2021 expressly provides otherwise.
- Notices issued after the expiry of the pre-amendment limitation period are per se invalid, irrespective of the revenue’s argument of retrospective effect.
Unexplained Cash Credit Cannot Rest Solely on Non-Response to Notices
- Providing all documentary evidence (shareholder PANs, bank statements, audited accounts) defeats a revenue claim based merely on the lack of response to notices u/s 133(6).
- The burden of proof lies with the revenue to demonstrate that the funds are fictitious or unaccounted.
Practical Takeaways for Practitioners
- Ensure that any reassessment notice is examined against the applicable limitation period before filing a response.
- In disputes involving share capital, compel the AO to issue summons u/s 131 as directed by the PCIT; otherwise, file a writ petition for non-compliance.
- Prepare comprehensive documentary packages for share subscriptions to pre-empt revenue reliance on non-response to notices.
