Case Law Details
Geora Agriculture Co-Operative Service Society Limited Vs ITO (ITAT Chandigarh)
In this case, the assessee, a co-operative society engaged in Public Distribution System (PDS) activities, sale of fertilizers, and providing loans to members, challenged the reassessment proceedings initiated under Sections 147 and 148 of the Income Tax Act for AY 2015–16. The reassessment was based on information from the Insight Portal alleging cash deposits and time deposits in bank accounts. The Assessing Officer treated cash deposits of Rs. 3.25 crore and time deposits of Rs. 3.85 crore as unexplained money under Section 69A and made an addition of Rs. 7.10 crore.
The CIT(A) partly accepted the assessee’s contention by holding that the Assessing Officer had double counted cash deposits and restricted the addition to Rs. 1.93 crore, while sustaining an addition of Rs. 75 lakh relating to FDRs.
Before the Tribunal, the assessee argued that the notice under Section 148 was barred by limitation and had been issued on an incorrect and obsolete PAN despite the department being informed of the correct PAN during proceedings under Section 148A(b). The assessee also submitted that the deposits represented regular business receipts duly recorded in books of account and that the accounts were audited under the Co-operative Societies Act.
The ITAT Chandigarh held that reassessment proceedings initiated on the basis of an incorrect PAN constituted a jurisdictional defect and reflected non-application of mind by the Assessing Officer. The Tribunal observed that the statutory requirement under Section 148A to consider the assessee’s reply had not been complied with. Relying on the Bombay High Court judgment in Bhavna Steel v. Income-tax Officer, the Tribunal held that reassessment proceedings initiated under an incorrect PAN were unsustainable in law.
The Tribunal further held that jurisdiction under Section 147 can only be assumed against the correct assessee and PAN. It observed that continuation of proceedings under the old PAN would lead to impermissible double taxation. On merits, the Tribunal found that the Revenue had failed to rebut the assessee’s explanation that the cash deposits represented business receipts. It also held that rejection of books merely because they were not audited under Section 44AB was unjustified since the turnover did not exceed the prescribed limit and the accounts were audited under the Co-operative Societies Act.
Regarding the addition of Rs. 75 lakh towards FDRs, the Tribunal accepted the assessee’s explanation that the deposits were sourced from earlier FDR renewals and explained business receipts. It further held that the same funds could not be taxed twice as unexplained cash deposits and again as investments in FDRs.
Accordingly, the Tribunal held that the reassessment proceedings were invalid as they were barred by limitation and vitiated due to issuance of notice under an incorrect PAN. The additions sustained by the CIT(A) were deleted and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This appeal by the assessee is directed against the order dated 18.03.2025 passed by the Ld. CIT(A), NFAC, Delhi, arising out of the assessment framed under section 147 read with section 144B of the Income Tax Act, 1961 for the assessment year 2015–16.
2. In the present appeal Assessee has raised the following grounds:
1. That the CIT(A) has erred in facts and in law in confirming the addition made by the AO at Rs. 19375600 /- on account of cash deposited in bank and Rs. 7500000/-on account of investment in FDRs during the year under consideration.
2. That the CIT(A), while confirming the addition made by the Assessing Officer, has grossly erred both in law and on facts in ignoring the fact that the notice issued under section 148 dated 01.04.2022 is barred by limitation, as per the 1st proviso to section 149 of the Income Tax Act, 1961.
3. That the CIT(A) has erred in law and on facts in upholding the addition made by the Assessing Officer, without appreciating that the notice under section 148 was erroneously and deliberately issued on PAN AABTT9927E, instead of the correct PAN AAEAT6478N. The CIT(A) further failed to consider that the assessee had duly submitted a reply dated 25.03.2022, categorically informing the department that all the cash deposits and Fixed Deposit Receipts (FDRs) pertain to the correct PAN AAEAT6478N, and not to the PAN on which the notice was issued.
4. That the CIT(A) erred in sustaining the addition of Rs.1,93,75,600 towards cash deposits, primarily on the basis that the balance sheet submitted was not duly audited under a statutory audit and lacked the signature of a chartered accountant. This conclusion overlooks the fact that an internal audit was duly conducted under The Cooperative Societies Act 1860, by an Inspector of the Registrar of Cooperative Societies, appointed by the Assistant Registrar of Societies, who operates under the supervisory jurisdiction of the RCS. Furthermore, the CIT(A) failed to acknowledge that the provisions of Section 44AB of the Income-tax Act, 1961, were inapplicable to the assessee, as the turnover for the relevant assessment year did not exceed the threshold limit of Rs.1 crore.
5. That the CIT(A) erred in confirming the addition of Rs.75,00,000/- made by the AO in respect of FDRs, without appreciating the fact that the assessee society is engaged in money lending business and also accepts recurring, fixed and savings deposits for its members and nonmembers. The CIT(A) further failed to consider that the increase in member deposit and FDR deposits as reflected in liability side of the balance sheet constituted the source of the FDRs for which addition has been erroneously sustained.
6. That the CIT(A) erred in confirming the addition made by the AO without appreciating that the notice under section 148(b) was issued solely on the basis of incorrect facts reflected on the Insight Portal, in violation of Instruction No. 299/10/2022-Dir(Inv. III)/647dated 22.08.2022, which mandates that prior to issuance of a notice under section 148, there must be a proper verification of facts from the concerned bank, and not merely reliance on internal or portal based data.
7. That the addition made by the AO and confirmed by the CIT(A) is wholly unwarranted, particularly considering that the approval granted by the Principal Chief Commissioner of Income Tax (PCCIT) dt. 01/04/2022 was mechanical in nature and granted without proper verification of the information on which the proceedings were initiated.”
3. Brief facts of the case are that the assessee is a co-operative society engaged in the activities of Public Distribution System (PDS), sale of fertilizers and providing loans to its members. The assessment was reopened on the basis of information received through the Insight Portal alleging that the assessee had made cash deposits and time deposits in bank accounts. The Assessing Officer, during the course of assessment proceedings, observed that the assessee had deposited cash aggregating to Rs. 3,25,39,600/- and further made time deposits of Rs. 3,85,09,604/-and, in the absence of satisfactory explanation, treated the entire amount of Rs. 7,10,49,204/- as unexplained money under section 69A of the Act and added the same to the income of the assessee.
4. Aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A), who partly accepted the contention of the assessee by holding that the Assessing Officer had erroneously double counted the cash deposits and restricted the addition to Rs. 1,93,75,600/-. However, the Ld. CIT(A) sustained the addition to that extent and further confirmed the addition of Rs. 75,00,000/- on account of FDRs.
5. The assessee is now in appeal before the Tribunal and has challenged both the validity of reopening as well as the additions sustained on merits.
6. The Ld. AR, drawing our attention to the detailed written submissions placed on record , submitted that the entire reassessment proceedings are bad in law on multiple jurisdictional defects. It was contended that the notice issued under section 148 dated 01.04.2022 is barred by limitation in terms of the first proviso to section 149, as the period of six years for the assessment year 2015–16 expired on 31.03.2022 and, therefore, the notice issued thereafter is void ab initio. It was further submitted that the first proviso to section 149 operates as an absolute bar and cannot be overridden by the extended time limits or procedural provisions introduced by the Finance Act, 2021.
7. The Ld. AR further submitted that the notice under section 148 has been issued on an incorrect PAN, i.e., AABTT9927E, whereas the assessee had already obtained a new PAN AAEAT6478N under the correct status of AOP and had duly filed its return of income therein disclosing all transactions. It was contended that the assessee had specifically informed the Assessing Officer of the correct PAN during the proceedings under section 148A(b); however, the Assessing Officer failed to take cognizance of the same and proceeded under the incorrect PAN, thereby vitiating the entire proceedings for want of jurisdiction.
8. It was further submitted that the Assessing Officer failed to comply with the mandatory procedure under section 148A inasmuch as the detailed reply filed by the assessee along with supporting evidences was not duly considered before passing the order under section 148A(d).
9. On merits, the Ld. AR submitted that the cash deposits represent regular business receipts arising from activities such as PDS sales, fertilizer sales, member deposits, loan recoveries and other sources, which are duly recorded in the books of account. It was contended that the rejection of books merely on the ground that the same were not audited under section 44AB is unjustified, particularly when the turnover does not exceed the prescribed limit and the accounts are subjected to audit under the Co-operative Societies Act. With regard to the addition on account of FDRs, it was submitted that the same are sourced from explained funds, including maturity of earlier FDRs and business receipts, and that sustaining such addition results in double taxation.
10. Per contra, the Ld. DR relied upon the orders of the lower authorities.
11. We have heard the rival submissions and perused the material available on record, including the detailed submissions placed by the assessee. At the outset, we deem it appropriate to address the foundational issue relating to the validity of proceedings initiated on the basis of an incorrect PAN. The record reveals that the notice under section 148 of the Act was issued against an incorrect and obsolete PAN, notwithstanding the undisputed fact that the assessee had already obtained a fresh PAN under the correct status and had duly filed its return of income therein. It is further borne out from the record that this crucial fact was specifically brought to the notice of the Assessing Officer in the course of proceedings under section 148A(b). Despite being duly apprised of the correct factual position, the Assessing Officer chose to proceed under the old and redundant PAN. In our considered opinion, such an action is not a mere procedural lapse but a jurisdictional defect which strikes at the very root of the validity of the reassessment proceedings. Under the scheme of reassessment as revamped by the legislature, section 148A embodies a substantive safeguard, mandating a prior inquiry, consideration of the assessee’s reply, and formation of a reasoned satisfaction before issuance of notice under section 148. The provisions of section 148A(b) and 148A(c) cast a clear statutory obligation upon the Assessing Officer to consider the reply furnished by the assessee and to objectively evaluate the material on record before arriving at a conclusion that it is a fit case for issuance of notice under section 148.
12. In the present case, the material on record clearly demonstrates that the assessee had categorically submitted that all transactions stood duly disclosed under the correct PAN allotted to the AOP, and had also furnished complete details of such PAN to the Assessing Officer. However, the Assessing Officer, without adverting to or dealing with the said reply, proceeded in a mechanical manner to issue notice under section 148 on the basis of an incorrect and non-operative PAN. Such an approach reflects a patent non-application of mind and a failure to discharge the statutory mandate enshrined under section 148A(c) of the Act.
13. We are unable to countenance such action, as it is contrary to both the letter and the spirit of the reassessment provisions. The requirement to consider the assessee’s reply and to record a reasoned satisfaction is not an empty formality but a jurisdictional pre-condition. Failure to adhere to the same vitiates the entire proceedings. Accordingly, the initiation of reassessment proceedings in the present case, having been undertaken on the basis of an incorrect PAN and without due consideration of the assessee’s reply, cannot be sustained in the eyes of law.
14. At this stage, it is pertinent to refer to the judgment of the Hon’ble Bombay High Court in the case of Bhavna Steel v. Income-tax Officer, wherein it has been held that where the assessee has filed its return under the correct PAN and disclosed all transactions, initiation of reassessment proceedings under an incorrect PAN is unsustainable in law and renders the proceedings void. Applying the ratio of the said judgment, we hold that once the Revenue was aware that the transactions in question were disclosed under the correct PAN, it could not have initiated parallel proceedings under another PAN.
15. The legal position that emerges is that jurisdiction under section 147 can be assumed only against the correct assessee and on the correct PAN under which income has been assessed. Any action taken contrary thereto results in lack of jurisdiction. In the present case, the continuation of proceedings under the old PAN not only suffers from jurisdictional defect but also leads to impermissible double taxation of the same income, which is contrary to settled principles of law. Accordingly, the reassessment proceedings are liable to be quashed on this ground alone.
16. Even otherwise, on merits, we find that the additions made by the Assessing Officer and partly sustained by the Ld. CIT(A) are not sustainable. The Ld. CIT(A) himself has recorded a finding that the Assessing Officer had proceeded on incorrect facts by double counting the cash deposits. The assessee has furnished detailed explanation supported by books of account demonstrating that the deposits represent business receipts. The Revenue has failed to bring any material on record to rebut these explanations.
17. The rejection of books of account merely on the ground that they were not audited under section 44AB is also not justified, particularly when the turnover of the assessee does not exceed the prescribed limit and the accounts are otherwise maintained and subjected to statutory audit under the Co-operative Societies Act.
18. With regard to the addition of Rs. 75,00,000/- on account of FDRs, we find that the explanation of the assessee regarding the source of funds has not been controverted. The material on record demonstrates that a part of the FDRs represents renewal of earlier deposits and the balance has been made out of explained business receipts. Once the source stands explained, no addition can be sustained under section 69A.
19. Further, we find merit in the contention of the assessee that the same funds cannot be taxed twice. If the cash deposits are treated as unexplained, the corresponding investments in FDRs cannot again be taxed separately, as it would amount to double addition of the same income.
20. In view of the foregoing discussion, we hold that the reassessment proceedings initiated under section 147 are invalid being barred by limitation and further vitiated on account of issuance of notice under an incorrect PAN. Even on merits, the additions sustained by the Ld. CIT(A) are unsustainable. Accordingly, the impugned order is set aside and the additions are deleted.
21. Accordingly, the impugned order of the Ld. CIT(A) is set aside and the additions sustained are hereby deleted.
22. In the result, the appeal of the assessee is allowed.
Order pronounced on 11/05/2026
Author Bio
