ITAT Quashes Two Reassessments: Time-Barred Assessment and Second Section 148 Notice During Pendency of Earlier Reassessment Held Invalid

Smt. Kumarasamy Karthiyayini Vs ITO (ITAT Bangalore)

ITAT Quashes Two Reassessments: Time-Barred Assessment and Second Section 148 Notice During Pendency of Earlier Reassessment Held Invalid

Section 148 Notice Before Approval and Fresh Reopening During Pending Reassessment Prove Fatal; Bangalore ITAT Quashes Both Assessments

The Bangalore ITAT quashed two separate reassessment orders against the assessee, holding that the first reassessment was barred by limitation and the second reassessment was invalid because a fresh section 148 notice was issued while the earlier reassessment proceedings were still pending.

The assessee, engaged in the business of mobile recharge coupons, had cash deposits in her bank account. Based on a notice under section 148 dated 17.08.2017, the Assessing Officer completed a reassessment on 25.03.2022 and made an addition under section 69. The Tribunal observed that the Revenue failed to explain why a notice dated 17.08.2017 was allegedly served only on 17.02.2021. In the absence of convincing evidence, the date mentioned on the notice itself had to be treated as the date of issue. Consequently, under section 153(2), the reassessment should have been completed by 31.12.2018, rendering the order passed on 25.03.2022 hopelessly time-barred.

The Tribunal further noted another serious defect. The approval under section 151 for issuance of the section 148 notice was granted by the Joint Commissioner on 18.08.2017, whereas the notice itself bore the date 17.08.2017. Thus, the Assessing Officer had issued the notice before obtaining the mandatory sanction, making the reassessment vulnerable on this ground as well.

As regards the second reassessment, the Tribunal found that another notice under section 148 was issued on 31.03.2021, even though the earlier reassessment proceedings initiated through the 2017 notice were still pending and were eventually completed only on 25.03.2022. Relying on the decisions of the Supreme Court in K. Adinarayanamoorthi (65 ITR 607) and the Kerala High Court in Smt. Nilofer Hameed (235 ITR 161), the Tribunal held that a fresh reassessment notice cannot be issued when earlier assessment or reassessment proceedings are pending. Therefore, the second reassessment order dated 29.03.2022 was also held to be invalid.

Accordingly, both reassessment orders were quashed and the assessee’s appeals were allowed.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These are the appeals filed by the assessee challenging the separate orders of the NFAC, Delhi both dated 31/01/2025 in respect of the A.Y. 2014-15.

2. The brief facts of the case are that the assessee was doing the business of sale of mobile recharge coupons. During the assessment year, the assessee had made cash deposits in her bank account. In spite of the said fact, the assessee had not filed her return of income and therefore to ascertain the source for the said cash deposits, a notice u/s. 148 was issued on 17/08/2017. Subsequently, a notice u/s. 148 was again issued on 31/03/2021. Thereafter notice u/s. 142(1) was issued after treating the return filed by the assessee as invalid. The assessee filed her objections and submitted that she had cash deposits obtained from regular business of retail mobile recharge coupons and submitted that the said income was also reported in the return of income. Because of the mischief committed by the suppliers, she suffered a loss and therefore closed the business. The AO had accepted the reply in partial and concluded that the difference of Rs. 25,82,760/- as against the cash deposits of Rs. 2,02,40,987/- was not explained with supporting evidence and therefore confirmed the said difference as unexplained cash credit u/s. 69 of the Act by passing an order u/s. 147 r.w.s. 144 of the Act on 25/03/2022.

3. In the meanwhile, based on another notice issued u/s. 148 on 31/03/2021, the AO had concluded that the assessee had failed to explain the cash deposits and fund transfer of Rs. 2,02,40,987/- and therefore the AO had added the said as unexplained money u/s. 69A of the Act by passing an another order u/s. 147 on 29/03/2022. The AO had also imposed penalty u/s. 271(1)(c) of the Act and also imposed penalty u/s. 271F of the Act.

4. As against the said orders, the assessee filed appeals before the Ld.CIT(A). The Ld.CIT(A) had set aside the assessments to the AO with a direction to produce the supporting documents.

5. As against the said order, the assessee is in appeal before this Tribunal.

6. At the time of hearing, the Ld.AR submitted that the first assessment order u/s. 147 dated 25/03/2022 is beyond the limitation period as prescribed u/s. 153 of the Act and therefore the assessment is not sustainable. The Ld.AR further submitted that the AO had mentioned in the assessment order that the notice u/s. 148 was issued and served to the assessee on 17/02/2021 whereas the notice u/s. 148 was issued on 17/08/2017 and also filed the copy of the said notice. The Ld.AR had submitted that the AO in order to save the assessment order dated 25/03/2022 from the limitation had conveniently stated in the order that the notice was served on the assessee on 17/02/2021 without explaining the reason for such long delay. The Ld.AR relying on the said notice, had submitted that the date noted in the said notice is 17/08/2017 and therefore it should be taken as issued on the said date when there are no other evidences to show that the notice was not served on 17/08/2017 but served on 17/02/2021 and therefore submitted that the assessment order dated 25/03/2022 is barred by limitation.

7. The Ld.AR insofar as the assessment proceedings dated 29/03/2022, had submitted that the second 148 notice issued on 31/03/2021 is bad in law since the assessment proceedings pursuant to the earlier 148 notice dated 17/08/2017 was pending for adjudication and the assessment u/s. 147 was made on 25/03/2022 and therefore the second notice issued u/s. 148 on 31/03/2021 and the consequential second assessment order dated 29/03/2022 is not sustainable.

8. The Ld.AR further submitted that in the earlier assessment order, the AO had accepted the explanation in part and confirmed the balance as unexplained cash credit whereas in the second assessment order, the AO had treated the entire cash deposits as unexplained money u/s. 69A of the Act and therefore the orders of the AO is not based on the materials and liable to be set aside. The Ld.AR also filed a paper book enclosing the two notices as well as the assessment orders and also the approval granted u/s. 151 of the Act. The Ld.AR also filed a synopsis and an application to admit the additional grounds of appeal in which the approval granted u/s. 151 was challenged by the assessee. The assessee also filed a rejoinder to the Ld.DR’s written submissions and submitted that the records would indicate that the orders are not in accordance with the provisions of the Act and prayed to allow the appeals.

9. The Ld.DR submitted that the notice u/s. 148 was served on 17/02/2021 by physical mode and also furnished the copy of the acknowledgement given by the assessee and therefore submitted that the assessments are made in accordance with the provisions of the Act. The Ld.DR also filed a report from the AO explaining the various factors and also furnished the various details in support of their claim.

10. We have heard the arguments of both sides and perused the materials available on record.

11. First we will take up the appeal in ITA No. 576/Bang/2025. In the present case, we found that the 148 notice was dated 17/08/2017 whereas the assessment order has been passed on 25/03/2022. The date mentioned in the 148 notice has to be taken as the date of issue of the said notice unless contrary evidences are placed by the revenue. No such evidence was placed by the revenue to show that why the notice dated 17/08/2017 was served on 17/02/2021 after a period of 3 years. There is no plausible explanation offered by the revenue for such long delay except the acknowledgement for having served the notice on 17/02/2021. We do not find any reasons for the said delay in communicating the said notice. When there is no evidence to show that the said notice was not served on 17/08/2017, it should be presumed that the contention raised by the assessee is a valid one. Therefore, if we took the date of the notice as 17/08/2017, as per section 153(2) of the Act, the assessment u/s. 147 has to be made before the expiry of 9 months from the end of the financial year in which the notice u/s. 148 was served. As per the date mentioned in the notice, the order has to be passed on or before 31/12/2018 as prescribed u/s. 153(2) of the Act. But unfortunately, the assessment was made on 25/03/2022 u/s. 147 of the Act which is not permissible under the provisions of the Act. Therefore, we are accepting the legal plea raised by the assessee and held that the assessment order dated 25/03/2022 is barred by limitation and therefore we set aside the assessment order dated 25/03/2022 as not sustainable.

12. The Ld.AR also filed a screenshot of the ITBA portal of the assessee in which it was reflected that the 148 notice was issued on 23/12/2018. Even assuming that the notice was issued on 23/12/2018, the assessment order has to be passed on or before 31/12/2019 but in the present case, the first assessment order was passed on 25/03/2022 well beyond the period prescribed under the Statute. In any event, the assessment order dated 25/03/2022 is barred by limitation as per section 153(2) of the Act and therefore the assessment order has to be necessarily set aside.

13. Insofar as the appeal in ITA No. 577/Bang/2025 is concerned, the main grievance of the assessee is that the second notice was issued on 31/03/2021 on which date the first assessment proceedings were pending for adjudication based on the earlier notice issued by the AO on 17/08/2017. The assessment has been completed only on 25/03/2022. When the said assessment was pending, the issuing of second notice u/s. 148 of the Act is not valid. Therefore, the consequential second order passed u/s. 147 of the Act dated 29/03/2022 is also bad in law and liable to be set aside.

14. We have also considered the judgment of the Hon’ble Kerala High Court reported in 235 ITR 161 in the case of Smt. Nilofer Hameed & Anr. Vs. ITO wherein it was held that, if an assessment is pending either by way of original assessment or by way of reassessment proceedings, the assessing officer cannot issue notice u/s. 148 of the Act. The Hon’ble Kerala High Court had relied on the judgment of the Hon’ble Supreme Court reported in 65 ITR 607 (SC) in the case of CIT vs. K. Adinarayanamoorthi. Relying on the said judgements, we are of the view that the second notice issued u/s. 148 on 31/03/2021 when the earlier assessment proceedings are pending for consideration is not sustainable and therefore the consequential assessment order made u/s. 147 of the Act on 29/03/2022 is not sustainable.

15. We have also considered the another legal submission made by the assessee that the approval granted u/s. 151 of the Act is bad in law. We have also perused the approval granted by the Joint Commissioner of Income Tax, Non-Corporate Range – 1, Coimbatore in which the AO had forwarded the reasons for treating the income as escaped from assessment on 16/08/2017. Thereafter the Ld. JCIT had approved the said proposal and permitted the AO to issue a notice u/s. 148 of the Act on 18/08/2017. That being the case, the AO can not issue the 148 notice on 17/08/2017, that is before the Joint Commissioner had approved the issuance of the notice. Therefore, even on this score, the AO had no authority to issue the notice u/s. 148 on 17/08/2017 and on that score also, the assessment order dated 25/03/2022 could not be sustained.

16. Even though the assessee had raised several grounds and additional ground, we are satisfied ourself that the orders are not sustainable in view of the limitation insofar as the assessment order dated 25/03/2022 is concerned and therefore we are not adjudicating the other grounds raised by the assessee. Similarly, we have set aside the assessment order dated 29/03/2022 which was issued based on the 148 notice dated 31/03/2021 since the second notice u/s. 148 could not be issued when the earlier proceedings are pending for adjudication. Therefore we are not adjudicating the other grounds raised in the second appeal also.

17. In the result, both the appeals filed by the assessee are allowed.

Order pronounced in the open court on 16^thJune, 2026.