The officer is reopening beyond three years and counting a disallowance of expenditure towards the fifty lakh figure in section 149(1)(b). Is a disallowance income 'represented in the form of an asset'?
No, not on the text of section 149(1)(b) as it stood from 1 April 2021. The Madras High Court quashed reassessment notices for assessment years 2014-15 and 2017-18 in which the officer proposed only disallowances - unrealised foreign exchange loss, bad debts written off, loss on sale of non-performing loans, a section 43B disallowance and a MAT adjustment. The Court found no mention of any asset anywhere in the impugned proceedings, and held that the law then required material indicating the existence of an asset from which escapement could be inferred. It added that the material relied on was already on record and had been through scrutiny.
Decided by the High Court (High Court of Madras - Dr. Anita Sumanth, J.) on 2023-09-15, reported as [2023] 459 ITR 169 (Madras); [2023] 155 taxmann.com 602 (Madras); (2024) 338 CTR 50 (Madras); W.P. Nos. 23284 and 22737 of 2022. It bears on section 149(1)(b), section 149, section 148 of the Income Tax Act 1961, in Reassessment & Reopening matters.
This is the judgment to reach for when the department pushes a reopening past the three-year mark by treating a disallowance, a wrong claim or suppressed income as an 'asset'. The Madras High Court refused to read the asset limb that way and tied the refusal to a date: the words that now bring 'expenditure in respect of a transaction' and 'an entry or entries in the books of account' inside section 149(1)(b) were inserted only by the Finance Act 2022 with effect from 1 April 2022, and the Court treated that as substantive and therefore prospective. So the argument turns entirely on which text governs your notice. The judgment also holds, separately and usefully, that material already on record and already scrutinised cannot be the 'information' that the Explanation to section 148 requires.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner bank filed returns for assessment years 2014-15 and 2017-18, and both years were taken up for scrutiny and assessed. Reassessment notices under section 148 followed. For 2014-15 the officer proposed to disallow about Rs 221.44 crore of unrealised foreign exchange loss and about Rs 51.11 crore of unamortised sale consideration on assets transferred to asset reconstruction companies. For 2017-18 he raised four issues - bad debts written off of about Rs 111.94 crore, a section 43B disallowance of about Rs 61.92 crore, loss of about Rs 1,233.73 crore on the sale of non-performing loans, and an adjustment in the MAT computation. The petitioner said the reopening was out of time: the ordinary period for 2014-15 had run out, and to get past three years the revenue had to bring itself within section 149(1)(b), which then spoke of escaped income represented in the form of an asset. The revenue relied on the extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 and on Ashish Agarwal.
The writ petitions were allowed and the reassessment notices and proceedings for both years were quashed. The Court rejected the revenue's case that a disallowance of expenditure or a wrongly computed deduction is itself an asset for section 149(1)(b). As the law stood on 1 April 2021, there had to be material indicating the existence of an asset from which the escapement of income was inferred, and there was no mention anywhere in the impugned proceedings of any such asset - all the revenue had were the books of account and material the petitioner had furnished at the original assessment. The Court also held that the assumption of jurisdiction failed on the information requirement: material already on record and already scrutinised cannot satisfy the statutory condition. The widening of section 149(1)(b) by the Finance Act 2022 could not be pressed into service for an earlier period.
The Court read section 149(1)(b) as it stood with effect from 1 April 2021 and took the phrase 'represented in the form of an asset' at its word. The command of the statute, as the Court put it, was that there be material indicating the existence of an asset that leads to the inference of escapement. That is a factual requirement about what the officer holds, and the record showed nothing of the kind: the impugned proceedings did not identify any asset, and the only material was the books and the documents already filed in the original assessment. A disallowance is a computational conclusion about a claim, not an asset, and the submission that suppressed income or a disallowed deduction answers the description did not persuade the Court. Separately, the Court read the Explanation to section 148, which ties 'information' to material flagged under the Board's risk management strategy or a final objection of the Comptroller and Auditor General, as requiring something that has newly come to the officer's notice; material that has already been through scrutiny is not that. Finally, the Court dealt with the Finance Act 2022, which brought expenditure in respect of a transaction and entries in the books of account within section 149(1)(b) from 1 April 2022. Because that amendment makes substantial inroads into an assessee's rights, the Court treated it as substantive and prospective and refused to apply it to an earlier reopening.
As on 01.04.2021 the command of the law is to the effect that there must be material indicating the existence of an 'asset' that leads to the inference of escapement of income.
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Handle my notice → Ask a CA on WhatsAppNo, not on the text of section 149(1)(b) as it stood from 1 April 2021. The Madras High Court quashed reassessment notices for assessment years 2014-15 and 2017-18 in which the officer proposed only disallowances - unrealised foreign exchange loss, bad debts written off, loss on sale of non-performing loans, a section 43B disallowance and a MAT adjustment. The Court found no mention of any asset anywhere in the impugned proceedings, and held that the law then required material indicating the existence of an asset from which escapement could be inferred. It added that the material relied on was already on record and had been through scrutiny. This was decided by the High Court (High Court of Madras - Dr. Anita Sumanth, J.) and bears on section 149(1)(b), section 149, section 148 of the Income Tax Act 1961. It is reported as [2023] 459 ITR 169 (Madras); [2023] 155 taxmann.com 602 (Madras); (2024) 338 CTR 50 (Madras); W.P. Nos. 23284 and 22737 of 2022. This is the judgment to reach for when the department pushes a reopening past the three-year mark by treating a disallowance, a wrong claim or suppressed income as an 'asset'. The Madras High Court refused to read the asset limb that way and tied the refusal to a date: the words that now bring 'expenditure in respect of a transaction' and 'an entry or entries in the books of account' inside section 149(1)(b) were inserted only by the Finance Act 2022 with effect from 1 April 2022, and the Court treated that as substantive and therefore prospective. So the argument turns entirely on which text governs your notice. The judgment also holds, separately and usefully, that material already on record and already scrutinised cannot be the 'information' that the Explanation to section 148 requires. If it applies to you, the first step is this: Fix the date of the section 148 notice first and work out which text of section 149(1)(b) applies to it - the argument here is only available for the period from 1 April 2021 to 31 March 2022.
The petitioner bank filed returns for assessment years 2014-15 and 2017-18, and both years were taken up for scrutiny and assessed. Reassessment notices under section 148 followed. For 2014-15 the officer proposed to disallow about Rs 221.44 crore of unrealised foreign exchange loss and about Rs 51.11 crore of unamortised sale consideration on assets transferred to asset reconstruction companies. For 2017-18 he raised four issues - bad debts written off of about Rs 111.94 crore, a section 43B disallowance of about Rs 61.92 crore, loss of about Rs 1,233.73 crore on the sale of non-performing loans, and an adjustment in the MAT computation. The petitioner said the reopening was out of time: the ordinary period for 2014-15 had run out, and to get past three years the revenue had to bring itself within section 149(1)(b), which then spoke of escaped income represented in the form of an asset. The revenue relied on the extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 and on Ashish Agarwal. The matter was decided on 2023-09-15 by the High Court (High Court of Madras - Dr. Anita Sumanth, J.). On those facts the High Court held as follows. The writ petitions were allowed and the reassessment notices and proceedings for both years were quashed. The Court rejected the revenue's case that a disallowance of expenditure or a wrongly computed deduction is itself an asset for section 149(1)(b). As the law stood on 1 April 2021, there had to be material indicating the existence of an asset from which the escapement of income was inferred, and there was no mention anywhere in the impugned proceedings of any such asset - all the revenue had were the books of account and material the petitioner had furnished at the original assessment. The Court also held that the assumption of jurisdiction failed on the information requirement: material already on record and already scrutinised cannot satisfy the statutory condition. The widening of section 149(1)(b) by the Finance Act 2022 could not be pressed into service for an earlier period.
The Court read section 149(1)(b) as it stood with effect from 1 April 2021 and took the phrase 'represented in the form of an asset' at its word. The command of the statute, as the Court put it, was that there be material indicating the existence of an asset that leads to the inference of escapement. That is a factual requirement about what the officer holds, and the record showed nothing of the kind: the impugned proceedings did not identify any asset, and the only material was the books and the documents already filed in the original assessment. A disallowance is a computational conclusion about a claim, not an asset, and the submission that suppressed income or a disallowed deduction answers the description did not persuade the Court. Separately, the Court read the Explanation to section 148, which ties 'information' to material flagged under the Board's risk management strategy or a final objection of the Comptroller and Auditor General, as requiring something that has newly come to the officer's notice; material that has already been through scrutiny is not that. Finally, the Court dealt with the Finance Act 2022, which brought expenditure in respect of a transaction and entries in the books of account within section 149(1)(b) from 1 April 2022. Because that amendment makes substantial inroads into an assessee's rights, the Court treated it as substantive and prospective and refused to apply it to an earlier reopening. In the words reproduced by the source cited on this page: "As on 01.04.2021 the command of the law is to the effect that there must be material indicating the existence of an 'asset' that leads to the inference of escapement of income."
It was decided by the High Court on 2023-09-15 and is reported as [2023] 459 ITR 169 (Madras); [2023] 155 taxmann.com 602 (Madras); (2024) 338 CTR 50 (Madras); W.P. Nos. 23284 and 22737 of 2022. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 149(1)(b), section 149, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petitions were allowed and the reassessment notices and proceedings for both years were quashed. The Court rejected the revenue's case that a disallowance of expenditure or a wrongly computed deduction is itself an asset for section 149(1)(b). As the law stood on 1 April 2021, there had to be material indicating the existence of an asset from which the escapement of income was inferred, and there was no mention anywhere in the impugned proceedings of any such asset - all the revenue had were the books of account and material the petitioner had furnished at the original assessment. The Court also held that the assumption of jurisdiction failed on the information requirement: material already on record and already scrutinised cannot satisfy the statutory condition. The widening of section 149(1)(b) by the Finance Act 2022 could not be pressed into service for an earlier period. It arises in Reassessment & Reopening matters, on section 149(1)(b), section 149, section 148 of the Income Tax Act 1961, and was decided by High Court of Madras - Dr. Anita Sumanth, J.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the department to proof of the asset: ask, in your reply to the section 148A notice, which asset is said to represent the escaped income and where it is identified in the material supplied. Take the separate point that books and material already filed and scrutinised in the original assessment are not fresh 'information' within the Explanation to section 148. Do not run this argument on a notice governed by the post-Finance Act 2022 text without dealing with the added words about expenditure and book entries.
Still good law. No appellate reversal of this judgment has been traced: no Supreme Court or Division Bench decision setting it aside is on record here, and nothing doubting or confining it has been found. That said, no exhaustive survey of later treatment has been made, and whether a special leave petition was filed has not been established, so the absence of contrary authority in this entry is not a finding that none exists. The reach of the decision is fixed by its own reasoning rather than by its later history, and that is the point to watch. The Court construed section 149(1)(b) in the text in force between 1 April 2021 and 31 March 2022, under which the escaped income had to be 'represented in the form of an asset', and it held that the words that now bring expenditure in respect of a transaction and entries in the books of account inside the clause were inserted only by the Finance Act 2022 with effect from 1 April 2022 and, being substantive, operate prospectively. So the judgment answers a notice governed by the 2021-22 text and does not answer one governed by the amended text; the first question in any reassessment where it is cited is which version of section 149(1)(b) applies to that notice, and section 149 has been worked on again since. Two things survive the amendment. The second holding — that material already on record and already scrutinised cannot be the 'information' the Explanation to section 148 requires — does not depend on the asset limb at all and is available whatever the text. And the Court's approach to the 2022 widening, treating an enlargement of the reopening power as substantive and therefore prospective, is an argument of general application whenever a later amendment is pressed against an earlier notice. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Madras High Court's own copy of the judgment is not used here, so the pagination and the exact cause title as printed by the Court are not confirmed. Whether a special leave petition was filed against this judgment has not been established. The judgment decides the position under the 2021-22 text only, and section 149 has been amended since - check the text that governs your own notice. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petitions were allowed and the reassessment notices and proceedings for both years were quashed. The Court rejected the revenue's case that a disallowance of expenditure or a wrongly computed deduction is itself an asset for section 149(1)(b). As the law stood on 1 April 2021, there had to be material indicating the existence of an asset from which the escapement of income was inferred, and there was no mention anywhere in the impugned proceedings of any such asset - all the revenue had were the books of account and material the petitioner had furnished at the original assessment. The Court also held that the assumption of jurisdiction failed on the information requirement: material already on record and already scrutinised cannot satisfy the statutory condition. The widening of section 149(1)(b) by the Finance Act 2022 could not be pressed into service for an earlier period.
TaxSphere, “IDFC Ltd v Dy CIT”, https://taxnotice.vittsphere.com/caselaw/case/idfc-v-dcit-149-asset-limb-disallowance-not-an-asset/ (validity last checked 2026-09-01)
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My client was searched in May 2024 and has a section 148 notice for assessment year 2015-16. Which limitation applies, and is the notice good?
They reopened AY 2016-17 in 2022 for under Rs 50 lakh. Is the notice time-barred?
My reassessment for an old year was restarted in 2022 on the strength of a Board instruction rather than a fresh notice. What does that instruction actually say, and how much of it is the Supreme Court's?
I got a section 148 notice for 2016-17 where the alleged escaped income is under Rs 50 lakh. Is three years the limit, or can they use ten?
