Reassessment void ab initio without sanction from competent authority under S.151(ii) after three-year limit; challenge maintainable in S.263 appeal.

आदेश/ORDER

PER MAKARAND VASANT MAHADEOKAR, AM:

This appeal has been filed by the assessee against the order passed by the Principal Commissioner of Income Tax, Mumbai–4 [hereinafter referred to as “PCIT”], dated 26.03.2025, under section 263 of the Income-tax Act, 1961[hereinafter referred to as “the Act”], whereby the assessment order dated 28.02.2023 passed by the Assessing Officer under section 147 read with section 144B of the Act for A.Y. 2017–18 was held to be erroneous and prejudicial to the interest of the Revenue and was set aside with directions.

Facts of the Case

2. The assessee is a private limited company. It filed its return of income for A.Y. 2017–18 on 23.03.2018 under section 139(4) declaring total income of Rs. 19,370/-. The return was processed under section 143(1) and thereafter a regular assessment was completed under section 143(3) on 22.10.2019 by Central Circle– 2(2), Mumbai, determining income at Rs. 19,370/-.

3. Subsequently, reassessment proceedings were initiated and notice under section 148 was issued on 29.07.2022. In response, the assessee filed return of income on 08.11.2022, again declaring income of Rs. 19,370/-. Notice under section 143(2) was issued on 23.11.2022.The reassessment proceedings were completed by the Assessing Officer vide order dated 28.02.2023, passed under section 147 read with section 143(3) and section 144B of the Act, assessing the total income at Rs. 19,370/-, i.e. the returned income. Interest under sections 234A, 234B and 234C was directed to be charged as applicable.

4. In the assessment order, the Assessing Officer recorded that the assessee company had earlier been assessed by Central Circle–2(2), Mumbai, pursuant to search proceedings, and it was held therein that the assessee was a conduit entity and that the real income arising from the activities of the assessee company was taxable in the hands of Shri Shirish C. Shah. The Assessing Officer further observed that the receipts reflected in the bank accounts of the assessee had already been taken into account in the assessment of Shri Shirish C. Shah, and therefore the findings recorded in the earlier assessment remained unaltered. On this basis, no addition was made in the hands of the assessee.

5. The PCIT, on examination of the assessment records, audit memo and proposal of the Assessing Officer, observed that information was available from search actions in third-party cases indicating that the assessee had allegedly dealt in bogus penny stock transactions.It was recorded by the PCIT thatsearch actions in the cases of Shri Jignesh Shah and Shri Sanjay Shah allegedly revealed bogus penny stock transactions aggregating to Rs. 38,15,945/-, andsearch action in the case of Shri Naresh Jain allegedly revealed that the assessee was a beneficiary of accommodation entries aggregating to Rs. 20,04,080/-.

6. According to the PCIT, the reassessment order dated 28.02.2023 did not reflect any enquiry conducted by the Assessing Officer into the tax implications of these alleged transactions.The PCIT formed a prima facie view that the assessment order passed under section 147 read with section 144B was erroneous and prejudicial to the interest of the Revenue due to lack of enquiry. Accordingly, notices under section 263 were issued on 04.12.2024 and 15.01.2025.

7. In response to the notices under section 263, the assesse