Pranav B Prem

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that a mere disallowance of expenditure does not qualify as “income represented in the form of an asset” for the purposes of reopening assessments under Section 149(1)(b) of the Income Tax Act. As a result, the Tribunal quashed a reassessment notice issued beyond the permissible three-year period.

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The Bench comprising Sudhir Kumar (Judicial Member) and M. Balaganesh (Accountant Member) was considering an appeal in the case of JKM Infra Projects Ltd., where the Assessing Officer (AO) had reopened the assessment on 23 April 2021 on the allegation that the assessee had made non-genuine purchases worth ₹99.99 lakh from Bansal Traders. This information had been uploaded on the Insight Portal by the Investigation Wing in March 2021, prompting the AO to initiate reassessment proceedings under Section 147.

JKM Infra had filed its original return on 30 September 2013. Since the reopening notice was issued after more than seven years, the AO was required to satisfy the stricter conditions applicable from 1 April 2021, after the amendment to Section 149(1). Under the amended provision, reopening of assessment beyond three years and up to ten years is possible only if the AO possesses material showing that income of at least ₹50 lakh has escaped assessment and that such escaped income is represented in the form of an asset. The statute further limits the meaning of “asset” to immovable property, shares, securities, loans, advances, and bank deposits.

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The Tribunal found that the AO had merely disallowed the purchases by treating them as bogus. However, a disallowance of expenditure did not result in any asset being created or owned by the assessee. Therefore, the condition that escaped income must be “represented in the form of an asset” was not satisfied. Since the reopening notice was issued on 23 April 2021—well beyond the initial three-year window—the ITAT held that the notice was barred by limitation.

In arriving at this conclusion, the bench relied heavily on the Delhi High Court’s authoritative ruling in Smart Chip Pvt. Ltd. v. ACIT (476 ITR 389), which held that the extended 10-year reopening period introduced by the Finance Act, 2021 cannot be invoked unless the escaped income is asset-based. The High Court clarified that mere disallowances or disputed expenses do not amount to income in the form of an asset, and thus cannot justify reopening beyond three years.

The Tribunal examined the reasons recorded by the AO and noted that there was no allegation that the alleged bogus purchases led to the creation of any asset. The AO’s information merely suggested that Bansal Traders’ proprietor could not be traced and the purchases may be accommodation entries. This was insufficient to invoke the extended limitation period under Section 149(1)(b).

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Accordingly, the Tribunal allowed the assessee’s legal ground and quashed the reassessment proceedings in their entirety. Other grounds raised by the assessee and the revenue were rendered academic and left open. The ruling reinforces the post-2021 legal position that reopening beyond three years is an exceptional mechanism and can be invoked only where concrete evidence shows escaped income represented as an “asset” exceeding ₹50 lakh.

Appearance

Counsel For  Petitioner: Ved Jain, Adv

Counsel For Respondent: Om Prakash, Sr. DR

Cause Title: ACIT Versus JKM Infra Projects Ltd

Case No: ITA No. 3031/Del/2025

Coram: Sudhir Kumar (Judicial Member), M. Balaganesh (Accountant Member)