K M V INDUSTRIES,DELHI V. INCOME TAX OFFICER, WARD 58(1), DELHI, DELHI

ITA 4594/DEL/2025

AI Insights

The case involves K M V Industries, which appealed against the reassessment order passed by the Income Tax Officer under sections 147 and 143(3) of the Income Tax Act, 1961. The reassessment was based on the allegation that the assessee had taken accommodation entries of purchases from M/s U.P. Steel, leading to an addition of Rs.3,08,75,500 to the income. The assessee contested the validity of the reassessment proceedings, arguing that the reopening was based on incorrect facts and lacked proper legal sanction. The Tribunal examined the reasons recorded for reopening the assessment and found discrepancies and a lack of application of mind by the Assessing Officer, leading to the quashing of the reassessment order.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839208 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 26-07-2025
• Other Referred Cases: Best Cybercity (India) Pvt. Ltd. Vs. ITO, RMP Holdings Pvt. Ltd. Vs. ITO, NDTV Ltd. Vs. DCIT, BPTP Ltd. vs. PCIT, Anand Developers, Haryana Acrylic Manufacturing Company vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: INDU BALA SAINI
• Assessee Lawyers: SURESH K GUPTA; SUBMITTING
• Keywords: Difference of opinion; Change of opinion; Reassessment proceedings; Unexplained expenditure; Accommodation entries; Competent authority; Reason to believe; Opportunity of cross examination; Tangible material
• Section: 147; 148; 143(3); 69C; 139

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.4594/Del/2025 (ASSESSMENT YEAR 2012-13) K M V Industries D-5/105, First Floor, Awadh Complex, Laxmi Nagar, Delhi-110092. PAN-AAJFK4576G Vs. Income Tax Officer, Ward-58(1), Delhi. (Appellant) (Respondent) Assessee by Shri Suresh K Gupta, CA Department by Ms. Indu Bala Saini, Sr. DR Date of Hearing 21/01/2026 Date of Pronouncement 18/02/2026 O R D E R PER MANISH AGARWAL, AM: The captioned appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeal), [“CIT(A)”, in short] National Faceless Appeal Centre (NFAC), Delhi passed u/s 250 of the Income Tax Act, 1961 (“the Act”) dt. 04.07.2025 arising out of the assessment order passed u/s 147 r.w.s. 143(3) of the Act, dt. 28.12.2019 for AY 2012-13. 2. Brief facts of the case are that the assessee filed its return of income, declaring total income on 31.03.2013 declaring income of Rs. 9,11,440/- and the assessment order was completed u/s 143(3) vide order dated 30.03.2015 at a total income of Rs Printed from counselvise.com 2 ITA No.4594/Del/2025 KMV Industries vs. ITO 10,07,610/-. Thereafter, reassessment proceedings u/s 147 were initiated by the Assessing Officer on the premise that assessee has taken accommodation entries of purchases from M/s U.P. Steel and, the reassessment order was passed u/s 147 r.w.s 143(3) of the Act dated 28.12.2019 wherein total addition of Rs.3,08,75,500/- was made to the income already assessed u/s 143(3) of the Act and finally total income of the assessee was re-assessed at 3,18,75,500/-. 3. Against the said the order, the assessee preferred the appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. Therefore, the assessee is in appeal before the Tribunal by taking following grounds of appeal: 1. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section 147/148/151 of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed. 2. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that reassessment proceedings-initiated u/s 147 of the IT Act ignoring the contention of appellant that the proceedings have been initiated by the AO without application of independent mind on the material, if any, provided by the Inv. Wing of the department. Therefore, such reassessment is void ab initio and liable to be quashed. 3. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that sanction u/s 151 of IT Act as provided with the copy of the reason recorded shows mechanical satisfaction by the approving authority. 4. The Ld. CIT(A) has erred both in law and circumstances of the case in upholding the reassessment proceedings u/s 147 of the IT Act which is not properly initiated and therefore need be quashed as the appellants case is covered by proviso to section 147 of the IT Act and that being the case the AO has not only failed to invoke first proviso but also failed to give a finding as which material facts the appellant failed to disclose fully and truly during original proceedings and in Printed from counselvise.com 3 ITA No.4594/Del/2025 KMV Industries vs. ITO the absence of any such finding, the initiation of reassessment proceedings and the impugned assessment order both are bad in law and also because such proceedings are as a result of change of mind by the successor incumbent on the same set of facts. 5. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.3,08,75,500/- u/s 69C of the IT Act holding the purchases made from M/s U.P, Steel as unexplained expenditure ignoring the fact that the purchases in question are duly accounted in books and said section has no applicability. 6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.3,08,75,500/- u/s 69C of the IT Act holding the purchases made from M/s U.P. Steel as unexplained expenditure ignoring the fact that the initial onus has been discharged by the assessee by submitting relevant documents and no adverse inference has been made on the documents submitted. 7. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.3,08,75,500/- u/s 69C of the IT Act holding the purchases made from M/s U.P. Steel as unexplained expenditure ignoring the fact that the addition has been made without conducting any enquiry on supplier and solely relying on information passed from the investigation wing and also without providing opportunity of cross examination therefore such additions are not valid and tenable in law. 8. The appellant craves leave to add, DLEETE, modify / amend the above grounds of appeal with the permission of the Hon’ble appellate authority.” 4. Before us, in support to the legal Ground of appeal Nos.1 to 4 taken, ld.AR for the assessee submits that in the instant case, re-opening was done by recording the reasons u/s 147 of the Act which are available at page 1 to 3 of the PB wherein in reasons recorded it is stated that no assessment was made in this case u/s 143(3) of 147, thus the first proviso of section 147 is not applicable. In this regard, ld. AR drew our attention to copy of reasons recorded which is available at page 3 of the paper book. The Ld. AR submits that in the instant case, assessment was already completed u/s 143(3) on 30.03.2015, placed at pages 176 of the paper book, however, in the reasons recorded it is observed that no assessment was carried out. Ld. AR submits that the satisfaction was recorded for reopening the assessment is Printed from counselvise.com 4 ITA No.4594/Del/2025 KMV Industries vs. ITO defective and lack of application of mind. The Ld. AR thus submits that reassessment proceedings concluded based on such invalid reasons deserves to be hold bad in law. He placed reliance on the judgment of the hon’ble jurisdictional high court in the case of Best Cybercity (India) Pvt. Ltd. Vs. ITO reported in 2019 (5) TMI 1447(Delhi) and further on the judgement of Co-ordinate Bench of ITAT Delhi bench in case of RMP Holdings Pvt. Ltd. Vs. ITO reported in 2020 (11) TMI 402 (ITAT, Delhi) wherein the Co-ordinate Bench under identical circumstances has quashed the assessment order passed holding the reasons for reopening as invalid. He prayed accordingly. 5. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has not objected this defect in the reason recorded before the Assessing Officer and, therefore, the assessee cannot raise this ground now before the Tribunal in view of the provisions of section 292BB of the Act. He therefore, prayed that the order passed deserves to be upheld being based on the valid reasons. 6. Heard the contentions of both the parties at length and perused the materials available on record. In the instant case, the reasons recorded for initiating the proceedings u/s 148 are reproduced as under: Printed from counselvise.com 5 ITA No.4594/Del/2025 KMV Industries vs. ITO Printed from counselvise.com 6 ITA No.4594/Del/2025 KMV Industries vs. ITO Printed from counselvise.com 7 ITA No.4594/Del/2025 KMV Industries vs. ITO Printed from counselvise.com 8 ITA No.4594/Del/2025 KMV Industries vs. ITO 7. From the perusal of the reasons as reproduced above, it is observed that the AO in the reasons recorded the satisfaction of escapement of income after observing that the assessment has not been done in the case of the assessee u/s 143(3) or 147 of the Act and the first proviso to section 147 is not applicable to the case. However, in the reassessment order under appeal at page No.1, the AO himself observed that “Thereafter assessment u/s 143(3) was completed in this case on 30.03.2015 wherein income of assessee was assessed at Rs. 10,07,610/”. Further while computing the income, the AO has separately made addition which was made already made in the order u/s 143(3) and, thereafter, proceeded to make further addition as per the impugned order u/s 147 of the Act. It clearly shows that while recording the reasons for reopening the assessment and seeking the approval from the competent authority, the AO was very much aware that assessment in the case of assessee has already been completed u/s 143(3) vide order dated 30.03.2015, however, wrong facts were stated in the reasons recorded before reopening. This clearly shows that in the reasons recorded, the AO has not recorded his satisfaction about the failure on the part of the assessee to fully and truly disclosed all the material facts necessary for the completion of assessment. Under identical circumstances the coordinate bench of ITAT Delhi in the case of RMP Holdings (supra) has held the reassessment order passed u/s 147 as illegal, invalid and without jurisdiction. The relevant observations of the Co-ordinate Bench are as under: “38. A perusal of the above vis-à-vis the reasons recorded and form of approval shows that although the original assessment was completed u/s 143(3) on 10th March, 2014, the AO, in the form for obtaining approval at clause 8 has categorically mentioned that the assessment is proposed to be made for the first time and in the background of reasons also has mentioned that the case was processed u/s 143(1) of the Act and no scrutiny assessment was made. A perusal of the reasons recorded nowhere shows any allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Since, in the instant case, the original assessment was completed u/s 143(3) on 10th March, 2014 for the A.Y. Printed from counselvise.com 9 ITA No.4594/Del/2025 KMV Industries vs. ITO 2011-12 41 and the notice u/s 148 was issued on 26th March, 2018, therefore, the first proviso ITA No.7243/Del/2019 of section 147 is applicable to the facts of the present case. The Hon’ble Supreme Court in the case of NDTV Ltd. Vs. DCIT vide Civil Appeal No. 1008 of 2020 dated 3rd April, 2020, has quashed the reassessment proceedings for not mentioning the first proviso neither in the reason recorded nor in the notice issued u/s 148. The Hon’ble Delhi High Court in the case of BPTP Ltd. vs. PCIT, vide Writ Petition No.13803/2018, order dated 28.11.2019 has held that if the AO has failed to perform his statutory duty, he cannot review his decision and reopen on a change of opinion. It has been held that reopening is not an empty formality. There has to be relevant tangible material for the AO to come to the conclusion that there is escapement of income and there must be a live link with such material for the formation of the belief. Merely using the expression ‘failure on the part of the assessee to disclose fully and truly all material facts’ is not enough. The reason must specify as to what is the nature of default or failure on the part of the assessee. The Hon’ble Bombay High Court in the case of Anand Developers, vide Writ Petition No.17/2020, order dated 18th February, 2020, has held that a mere bald observation by the AO that the assessee has not disclosed fully and truly all the material facts is not sufficient. The AO has to give details as to which fact or the material was not disclosed by the assessee leading to its income escaping assessment. Otherwise reopening is not valid. The Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Company vs. CIT, 308 ITR 38, order dated 1st July, 2020, has held as under: “19. Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied: (a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee: (i) to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148; or (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found Printed from counselvise.com 10 ITA No.4594/Del/2025 KMV Industries vs. ITO that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts. 20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade (P.) Ltd.’s we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully 43 ITA No.7243/Del/2019 and truly all material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our viewpoint, we hold that the notice dated 29-3-2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 2-3-2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.” 39. The various other decisions relied on by the ld. Counsel also support his case to the proposition that where there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment u/s 147 of the Act, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in a case where original assessment has been framed u/s 143(3) of the Act is illegal and invalid since proceedings are without jurisdiction. 40. Since, in the instant case, the original assessment was framed u/s 143(3) on 10th March, 2014 determining the income at Rs.20,06,714/- as against the returned loss of Rs.20,53,019/- and wherein the issue of unsecured loan creditors was duly considered and accepted on the basis of various supporting documents filed Printed from counselvise.com 11 ITA No.4594/Del/2025 KMV Industries vs. ITO at the time of original assessment and since there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, therefore, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in the instant case is illegal and invalid being without jurisdiction. Further, as mentioned earlier, the AO has proceeded to reopen the assessment on the basis of 44 ITA No.7243/Del/2019 wrong appreciation of facts by mentioning that the assessment is proposed to be made for the first time whereas the facts stood otherwise, i.e., the assessment was, in fact, completed u/s 143(3) of the Act, therefore, there is complete non application of mind by the AO as well as by both the superior authorities. Thus, the approval has been given in a mechanical manner without appreciating the facts properly and there is complete non-application of mind by the superior authorities. Therefore, on this score also, the reassessment proceedings have to be quashed and the decision relied on by the ld. DR in the case of Sonia Gandhi (supra) is not at all applicable to the facts of the present case in view of the glaring mistake and omission that has been committed by the AO which was not looked into by the superior authorities. In view of the above, we quash the reassessment proceedings initiated u/s 147/148. The various other legal grounds raised by the ld. Counsel challenging the validity of the reassessment proceedings become academic in nature in view of the above discussion. Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit also become academic in nature and, therefore, are not being adjudicated.” 7. Similar view is expressed by the hon’ble Delhi High court in the case of Best Cybercity (India) Pvt. Ltd. (supra). 8. In the light of above discussion and considering the fact that the Assessing Officer has not recorded the reasons based on the true facts and further failed to record his satisfaction with regard to failure on the part of the assessee to disclosed fully and truly all materials facts necessary for completion of the assessment. Thus, by respectfully following the judgement of the hon’ble Delhi high court and of the coordinate bench of ITAT, the reassessment proceedings initiated are invalid and consequent reassessment order passed for Assessment Year 2012-13 is hereby quashed. Accordingly, the grounds of appeal Nos. 1 to 4 raised by the assessee are allowed. Printed from counselvise.com 12 ITA No.4594/Del/2025 KMV Industries vs. ITO 9. Since we have already allowed the legal grounds of appeal taken by the assessee, the other grounds of appeal taken on merits of the additions are not adjudicated. 10. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 18.02. 2026. Sd/- Sd/- Sd/- Sd/- (ANUBHAV SHARMA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18.02.2026 *Amit Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "