Section 148 Notice Beyond Three Years Quashed on ₹50-Lakh Threshold: Bangalore ITAT

Allamlprabhu Credit Co-operative Society Vs ITO (ITAT Bangalore)

Summary: The assessee, a credit co-operative society, challenged the order passed by the CIT(A) under section 250 of the Income Tax Act, 1961 for Assessment Year 2015-16. The appeal was initially delayed by 25 days. The Tribunal condoned the delay after considering the assessee’s explanation that the delay resulted from change of professional assistance, renewal of the authorised signatory’s digital signature certificate and technical difficulty in electronically filing Form No. 36. The Tribunal admitted the appeal for adjudication on merits.

The assessee also raised an additional legal ground challenging the validity of the notice issued under section 148. The Tribunal admitted the additional ground after finding that it was a legal issue arising from facts already available on record and did not require fresh investigation. In doing so, it followed the principle laid down by the Supreme Court in National Thermal Power Co. Ltd. v. CIT, reported in 229 ITR 383 (SC), concerning admission of a legal ground at the appellate stage.

On the reassessment issue, the initial proceedings arose from information that the assessee had deposited Rs. 1,33,33,000/- in cash in three bank accounts. A notice under section 148A(b) was issued on 15.03.2022. The assessee explained that the deposits represented regular business receipts, including loan recoveries from members, pigmy collections, savings account receipts and other daily business transactions. It also furnished date-wise cash deposit details and cash book extracts.

The Assessing Officer nevertheless passed an order under section 148A(d), but the basis for reopening shifted from the alleged unexplained cash deposits to the denial of deduction under section 80P on account of non-filing of the return. The notice under section 148 was issued on 30.03.2022. The reassessment ultimately assessed income at Rs. 24,45,022/- by disallowing deduction under section 80P(2)(a)(i), without making an addition for the alleged Rs. 1.33 crore cash deposits.

The assessee argued that the notice was issued beyond three years from the end of the relevant assessment year and that the extended limitation under section 149(1)(b) was unavailable since the income ultimately alleged to have escaped assessment was below Rs. 50 lakh. The Revenue contended that the initial information concerned cash deposits exceeding Rs. 50 lakh and therefore satisfied the threshold for the extended period.

The Tribunal rejected the Revenue’s contention. It held that the initial allegation concerning the Rs. 1.33 crore cash deposits did not survive in the order under section 148A(d) or the final reassessment order. The surviving basis was the denial of section 80P deduction involving Rs. 24,45,022/-, which was below the Rs. 50 lakh threshold.

The Tribunal further held that the disallowance of deduction under section 80P was a legal disallowance and was not escapement represented in the form of an asset, expenditure or entry in the books of account. Accordingly, the condition prescribed under section 149(1)(b) was not satisfied. The section 148 notice dated 30.03.2022 was held barred by limitation and invalid in law, and the consequential reassessment order under section 147 was quashed. The remaining grounds on merits were not adjudicated as they became academic.

Condonation of 25-Day Delay

The appeal before the Tribunal was filed 25 days beyond the prescribed period. The assessee filed an application for condonation of delay together with an affidavit sworn by the President of the society, Shri Kushalrao Patil.

The assessee explained that, after receiving the CIT(A)’s order dated 20.11.2025, it approached its Chartered Accountant for advice. The Chartered Accountant advised filing an appeal before the Tribunal but was unable to file it and directed the assessee to the present counsel. The necessary documents were thereafter furnished in January 2026.

The assessee further explained that the appeal was required to be filed using a digital signature. The authorised signatory was unavailable during the first week of February 2026 and the DSC had expired. The DSC was renewed and made available on 19.02.2026. Thereafter, technical difficulty was encountered while uploading Form No. 36 because the file size exceeded the prescribed limit. The appeal was ultimately filed on 25.02.2026.

The Departmental Representative did not seriously object to condonation of the delay. The Tribunal found the reasons to be bona fide and held that there was nothing on record suggesting negligence or deliberate delay. It therefore condoned the 25-day delay and admitted the appeal.

Admission of Additional Legal Ground

The assessee had raised an additional ground challenging the validity of the notice issued under section 148, along with other legal grounds concerning the reassessment.

The assessee submitted that the additional ground was purely legal in nature and could be decided on the basis of facts already available on record. The Departmental Representative opposed its admission.

The Tribunal found that the relevant dates concerning the notices issued under sections 148A and 148 were already available in the assessment records. It therefore concluded that adjudication of the additional ground required examination of the legal implications arising from admitted facts and did not require fresh investigation.

Following the principle stated by the Supreme Court in National Thermal Power Co. Ltd. v. CIT, reported in 229 ITR 383 (SC), the Tribunal admitted the additional ground for adjudication on merits.

The principle concerning admission of legal grounds arising from facts already on record has also been discussed in National Thermal Power Co. Ltd. Vs. CIT.

Background to Reassessment Proceedings

Cash Deposit Information and Section 148A Notice

The assessee was a co-operative society carrying on banking business with its members by accepting deposits from members and providing credit facilities to them. For Assessment Year 2015-16, it had not filed a return of income.

The Assessing Officer had information that the assessee had deposited cash of Rs. 1,33,33,000/- in three different bank accounts. On that basis, notice under section 148A(b) was issued on 15.03.2022, requiring the assessee to explain why a notice under section 148 should not be issued treating the cash deposit as unexplained.

Assessee’s Explanation of Cash Deposits

In its reply dated 21.03.2022, the assessee objected to the proposed reopening. It stated that it was a credit co-operative society registered under the Karnataka Co-operative Societies Act and was engaged in providing credit facilities to its members.

The assessee contended that its income was eligible for deduction under section 80P(2)(a)(i). It explained that the bank deposits of Rs. 1,33,33,000/- were not unexplained cash credits but arose from regular business receipts, including recovery of loans from members, pigmy collections, savings account receipts from members and other daily business transactions.

The assessee stated that it maintained regular books of account and furnished date-wise details of cash deposits and extracts of the cash book to demonstrate that the deposits were made out of available cash balances.

It also submitted that the amendment concerning filing of a return for claiming deduction under section 80P was not applicable for Assessment Year 2015-16 and that its deduction could not be denied on that ground.

The assessee further stated that its fixed deposits were made only with other co-operative societies and that interest earned thereon was eligible for deduction under section 80P(2)(d). It stated that the deposits were made as part of statutory and business requirements under the Karnataka Co-operative Societies Act, including maintenance of reserve funds, SLR and CRR.

Change in Basis of Reopening

The Assessing Officer rejected the assessee’s explanation and passed an order under section 148A(d). The order recorded that, since the assessee had not filed its return, deduction could not be allowed in view of section 80A(5).

Accordingly, notice under section 148 was issued on 30.03.2022. The reassessment under section 147 was subsequently completed by order dated 27.03.2023, assessing income at Rs. 24,45,022/- after disallowing the deduction claimed under section 80P(2)(a)(i).

The Tribunal noted that no addition was ultimately made on account of the alleged unexplained cash deposits of Rs. 1.33 crore. Instead, the reassessment proceeded on the basis of denial of the section 80P deduction.

Arguments on Limitation Under Section 149

Assessee’s Submissions

The assessee submitted that the notice under section 148 was time-barred under section 149. It contended that the notice was issued beyond three years from the end of the relevant assessment year.

According to the assessee, the extended limitation under section 149(1)(b) could apply only where the income alleged to have escaped assessment was Rs. 50 lakh or more and was represented in the form of an asset, expenditure or entry in the books of account.

The assessee argued that the income ultimately assessed was only Rs. 24,45,022/-, below the Rs. 50 lakh threshold. It therefore contended that the extended limitation was unavailable and that the notice under section 148 was without jurisdiction and liable to be quashed.

Revenue’s Submissions

The Departmental Representative submitted that the notice was not barred by limitation. The Revenue relied on the specific information available to the Department regarding cash deposits of Rs. 1.33 crore during the relevant previous year.

According to the Revenue, because the information initiating the proceedings concerned cash deposits exceeding Rs. 50 lakh, the extended limitation under section 149(1)(b) was attracted.

The Revenue further submitted that the procedure under section 148A had been followed and that the assessee had been given an opportunity to explain the source and nature of the cash deposits.

It was also contended that the fact that the final assessment dealt with denial of deduction under section 80P involving an amount below Rs. 50 lakh did not make the original notice time-barred.

ITAT’s Findings on Section 149(1)(b)

Surviving Basis of Reassessment

The Tribunal held that the distinction between the initial information and the basis that ultimately survived in the reassessment proceedings was material.

The initial notice under section 148A(b) was based on alleged unexplained cash deposits of Rs. 1.33 crore. However, after the assessee explained the nature and source of those deposits, the Assessing Officer did not proceed in the order under section 148A(d) on the basis that the cash deposits remained unexplained.

Instead, the basis shifted to the alleged non-eligibility of deduction under section 80P because the assessee had not filed its return.

The Tribunal observed that the final reassessment order also supported this position, as the Assessing Officer assessed income at Rs. 24,45,022/- by disallowing the deduction under section 80P(2)(a)(i), with no addition being made for the alleged Rs. 1.33 crore cash deposits.

Rs. 50 Lakh Threshold

The Tribunal held that the surviving alleged escapement was Rs. 24,45,022/-, which was below Rs. 50 lakh. Since the notice under section 148 was issued on 30.03.2022, beyond three years from the end of the relevant assessment year, the Revenue was required to satisfy the conditions of section 149(1)(b).

The Tribunal noted that section 149(1)(b) permits notice beyond three years only where the Assessing Officer has books of account or other documents or evidence revealing that income chargeable to tax represented in the form of an asset, expenditure or entry in the books of account has escaped assessment and such income amounts to or is likely to amount to Rs. 50 lakh or more.

According to the Tribunal, the income involved in the surviving basis of reassessment was only Rs. 24,45,022/-. It further held that the disallowance of deduction under section 80P was not escapement represented in the form of an asset, expenditure or entry in the books of account, but was a legal disallowance of deduction.

Consequently, the mandatory condition under section 149(1)(b) was not satisfied.

Initial Cash Deposit Figure Could Not Sustain Extended Limitation

The Tribunal rejected the Revenue’s contention that limitation should be tested only by reference to the initial information regarding cash deposits of Rs. 1.33 crore.

It observed that the scheme of section 148A requires the Assessing Officer to provide an opportunity to the assessee, consider its reply and thereafter decide whether the case is fit for issuance of notice under section 148. The Tribunal treated the order under section 148A(d) as the final jurisdictional satisfaction before issuance of the notice under section 148.

The Tribunal held that, once the assessee had explained the cash deposits and the Assessing Officer did not carry forward the allegation of unexplained cash deposits into the order under section 148A(d), the Revenue could not rely upon the same deposits merely to cross the Rs. 50 lakh threshold under section 149(1)(b).

It concluded that the jurisdiction to reopen had to stand or fall on the basis surviving in the order under section 148A(d). In the present case, that surviving basis was denial of deduction under section 80P involving Rs. 24,45,022/-.

Judicial Precedents Relied Upon by the Tribunal

National Thermal Power Co. Ltd. v. CIT

The Tribunal relied upon National Thermal Power Co. Ltd. v. CIT, reported in 229 ITR 383 (SC), while admitting the assessee’s additional legal ground. The Tribunal stated that a question of law arising from facts already found by the authorities below and having a bearing on tax liability can be raised before the Tribunal even if it was not raised before the lower authorities.

Anand Kumar Someshekarayya Lonarmath vs. ITO, Ward-1

The Tribunal referred to the judgment of the Hon’ble Jurisdictional High Court of Karnataka in Anand Kumar Someshekarayya Lonarmath vs. ITO, Ward-1, W.P. No. 201029 of 2024.

As recorded in the supplied order, that case concerned a notice under section 148A(b) alleging cash deposits exceeding Rs. 50 lakh for Assessment Year 2015-16. The High Court considered the threshold under section 149(1)(b) and held, on the facts recorded there, that where the income alleged to have escaped assessment was below Rs. 50 lakh, a notice issued beyond three years could not be sustained.

Bijendra Singh vs. ITO

The Tribunal also relied upon Bijendra Singh vs. ITO, reported in 159 taxmann.com 306, decided by the Rajasthan High Court.

As recorded in the supplied order, the case concerned a notice issued by invoking the extended period of limitation on the basis of cash transactions stated to be Rs. 59,75,000/-. The amount ultimately found was Rs. 33,62,000/-, below Rs. 50 lakh. The Rajasthan High Court held, on the facts recorded there, that once the amount was found to be below the threshold, the limitation under section 149(1)(a) applied and jurisdiction was lost.

Quashing of Reassessment Proceedings

Applying the principles discussed above, the Tribunal held that the initial allegation of unexplained cash deposits of Rs. 1.33 crore did not survive in the order under section 148A(d). The basis of reopening had shifted to denial of deduction under section 80P, involving income of Rs. 24,45,022/-.

Since the notice under section 148 was issued beyond three years and the amount involved was below Rs. 50 lakh, the Tribunal held that the condition prescribed under section 149(1)(b) was not satisfied.

The Tribunal therefore held that the notice issued under section 148 dated 30.03.2022 was barred by limitation and invalid in law. Consequently, the order passed under section 147 was also liable to be quashed.

The Tribunal allowed the assessee’s legal ground, quashed the notice issued under section 148 and the consequential reassessment order, and did not adjudicate the remaining grounds on merits as they had become academic.

Final Decision

The appeal was partly allowed.

The Tribunal condoned the 25-day delay in filing the appeal, admitted the additional legal ground, and ultimately held that the notice under section 148 dated 30.03.2022 was barred by limitation under section 149.

The notice under section 148 and the consequential reassessment order were quashed. The other grounds raised by the assessee on merits were not adjudicated.

The order was pronounced in court on 20th day of July, 2026.

Cases Discussed

• National Thermal Power Co. Ltd. v. CIT — 229 ITR 383 (SC) — Supreme Court of India.
• Anand Kumar Someshekarayya Lonarmath vs ITO Ward-1 — W.P. No. 201029 of 2024 — Karnataka High Court.
• Bijendra Singh vs ITO — 159 taxmann.com 306 — Rajasthan High Court.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal filed by the assessee against the order passed by the Ld. CIT(A) u/s 250 of the Act vide order dated 20/11/2025 for the asst. year 2015-16.

2. At the outset, we note that the appeal is barred by limitation by 25 days. The assessee has filed an application for condonation of delay along with an affidavit sworn by the President of the assessee society, Shri Kushalrao Patil. In the application, it has been submitted that the order of the Ld. CIT(A) was passed on 20.11.2025 and the appeal was required to be filed on or before 31.01.2026. However, the appeal came to be filed on 25.02.2026, resulting in a delay of 25 days.

2.1 It is stated that after receipt of the order passed u/s 250 of the Act, the assessee approached its Chartered Accountant for further advice. The Chartered Accountant advised filing of appeal before the Tribunal but expressed inability to file the appeal and advised the assessee to approach the present counsel. Thereafter, the assessee contacted the present counsel and furnished necessary documents in January 2026. It is further stated that the appeal was required to be filed by affixing digital signature. However, the authorized signatory was not available in town during the first week of February 2026 and the DSC had also expired. The assessee got the DSC renewed and the same was made available on 19.02.2026. Thereafter, there was also technical difficulty in uploading Form No. 36, as the file size exceeded the prescribed limit. Ultimately, the appeal was filed on 25.02.2026. The said facts have also been affirmed in the affidavit filed by the President of the assessee society. In view of the above, the Id. AR prayed to condone the delay and adjudicate the issue on merit of the case.

3. Per contra, the Id. DR considering the length of delay, did not raise the serious objection on the condonation of delay in filing the appeal by the assessee.

4. We have considered the application for condonation of delay and the affidavit filed in support thereof. The delay is only of 25 days. The reasons stated by the assessee show that the delay occurred due to bona fide reasons, namely, change of professional assistance, renewal of DSC of the authorized signatory and technical difficulty in filing the appeal electronically. There is nothing on record to suggest that the assessee acted negligently or deliberately delayed the filing of appeal. It is also settled law that while considering an application for condonation of delay, a liberal view has to be taken where sufficient cause is shown and where refusal to condone the delay would result in denial of substantial justice. In the present case, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed time. Therefore, in the interest of justice and fair play, the delay of 25 days in filing the appeal before the Tribunal is condoned. The appeal is admitted for adjudication on merits.

4.1 The assessee in the memo of appeal has raised as many as 3 grounds which are numbered as Ground Nos. 1, 2 and 3(a) to 3(d). Besides above the assessee also raised additional ground of appeal raising legal grounds in relation to the validity of notice issued under section 148 of the Act as well as grounds on merit.

4.2 The learned AR submitted that the additional ground raised by the assessee is legal in nature and all the relevant facts necessary for adjudication of the issue are already available on record and, therefore, no fresh investigation of facts is required. The learned AR contended that a legal ground going to the root of the tax liability can be raised at any stage of appellate proceedings. Accordingly, it was prayed that the additional ground may kindly be admitted and adjudicated on merits.

4.3 On the contrary, the learned DR opposed the admissibility of the additional ground of appeal raised by the assessee.

4.4 We have carefully considered the application filed by the assessee seeking admission of the additional grounds of appeal and have also heard the rival submissions on the issue. The additional ground raised by the assessee challenges the validity of the notice issued u/s 148 of the Act as well as other grounds on merit on legal issue are arising from the facts already available on record. No fresh investigation of facts is required for adjudication of the issue. The relevant dates relating to issuance of notices u/s 148A and 148 are already part of the assessment records. Therefore, determination of the validity of the same only requires examination of the legal implications arising from the admitted facts already on record.

4.5 It is well settled by a catena of judicial precedents that additional ground involving a question of law and not requiring further investigation into new facts can be raised at any stage of appellate proceedings. The Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT reported in 229 ITR 383 (SC) has held that the Tribunal has jurisdiction to examine a question of law arising from the facts as found by the authorities below and having a bearing on the tax liability of the assessee, even though such question was not raised before the lower authorities. In the present case, the ground raised goes to the root of the assessment proceedings and correctness of the computation of the tax liability of the assessee. Since all material facts necessary for adjudication of the issue are already available on record, no prejudice would be caused to the Revenue by admission of the additional ground. Considering the totality of facts and circumstances of the case and respectfully following the principles laid down by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), we admit the additional ground raised by the assessee for adjudication on merits.

4.6 First, we proceed to adjudicate the issue raised by the assessee through additional grounds of appeal No. 1(d) contending that the notice issued under section 148 of the Act is time barred.

4.7 The relevant facts are that the assessee is a cooperative society and carrying on banking business with its members viz accepting deposits from the members and providing credit facilities to its members. For the A.Y. 2015-16, the assessee has not filed return of income. An information was available with the AO that the assessee during the A.Y. 2015-16 made cash deposit of Rs. 1,33,33,000/- in 3 different bank accounts. Accordingly notice under section 148A(b) of the Act of the Act was issued as on 15th March 2022 to the assessee requiring the assessee to explain why the notice under section 148 of the Act should not be issued treating the cash deposit as unexplained.

4.8 The assessee in response to the notice issued under section 148A(b) of the Act, submitted its reply dated 21st March 2022. The assessee strongly objected to the proposed reopening u/s 147 of the Act and issue of notice u/s 148 of the Act. It submitted that assessee is a credit co-operative society registered under the Karnataka Co-operative Societies Act. It is engaged in providing credit facilities to its members. Therefore, its income is eligible for deduction u/s 80P(2)(a)(i) of the Act. The bank deposits of Rs. 1,33,33,000/- are not unexplained cash credits. These deposits were made out of regular business receipts of the society, such as recovery of loans from members, pigmy collections, savings account receipts from members and other daily business transactions. Whenever cash balance exceeded the business requirement, the same was deposited in the regular bank accounts of the society.

4.9 The assessee has maintained regular books of accounts. The date- wise details of cash deposits and extracts of cash book for the relevant dates are also furnished to show that the deposits were made out of available cash balance. Therefore, the deposits are duly explained and there is no escapement of income.

4.10 The assessee further submitted that for A.Y. 2015-16, the amendment requiring filing of return for claiming deduction u/s 80P of the Act was not applicable. Hence, deduction u/s 80P of the Act cannot be denied on this ground.

4.11 It is also submitted that the fixed deposits of the assessee were made only with other co-operative societies. Interest earned thereon is eligible for deduction u/s 80P(2)(d) of the Act. The said deposits were made as part of the statutory and business requirement under the Karnataka Co-operative Societies Act, including maintenance of reserve funds, SLR and CRR. The assessee has not made such deposits with nationalized banks or private banks.

In view of the above facts, the bank deposits are fully explained and were made in the normal course of business of the assessee society. Therefore, there is no income escaping assessment. The proceedings proposed u/s 147 of the Act may kindly be dropped and no notice u/s 148 of the Act may be issued.

4.12 However, the AO rejected the assessee’s explanation and passed order under section 148A(d) of the Act proposing issuance of notice under section 148 of the Act by observing as under:

5. The assessee reply is considered. However, as per 80A(5) of IT Act, where the assessee fails to make a claim in his ROI for any deduction under provisions of chapter VIA under the heading tv, no deduction shall be allowed. As the assessee has not filed its ROI, the case may be recommended for approval of issue of notice u/s 148.

4.13 Accordingly, notice under section 148 of the Act was issued on 30th March 2022 to initiate the proceedings for income escaping assessment u/s 147 of the Act. Finally, the assessment under section 147 of the Act came to be completed vide order dated 27th March 2023, wherein income was assessed at Rs. 24,45,022/- by disallowing the deduction claimed under section 80P(2)(a)(i) of the Act. The addition or disallowance made by the AO subsequently came to be confirmed by the learned CIT(A) vide order dated 20th November 2025.

5. Being aggrieved by the order of Id. CIT-A, the assessee is in appeal before us.

6. The learned AR before us filed a paper book running from pages 1 to 17. The learned AR before us contended that the notice issued under section 148 of the Act is time barred as per the provisions of section 149 of the Act. As per the amended provision of section 149(1)(a) of the Act, a notice u/s 148 of the Act can be issued within three years from the end of the relevant assessment year. In the present case, the notice has been issued beyond the period of three years. Therefore, the Revenue was required to satisfy the conditions prescribed u/s 149(1)(b) of the Act.

6.1 The Ld. AR submitted that u/s 149(1)(b) of the Act, notice beyond three years can be issued only where the income alleged to have escaped assessment is Rs. 50 lakh or more and is represented in the form of asset, expenditure or entry in the books of account. In the present case, it is clear from the order under section 148A(d) of the Act that the amount alleged in the reasons as income escaping assessment is less than Rs. 50 lakhs. Even the income finally assessed by the AO is also less than Rs. 50 lakhs. Therefore, the mandatory condition of section 149(1)(b) of the Act is not satisfied.

6.2 Accordingly, once the alleged escaped income is less than Rs. 50 lakhs, the extended limitation beyond three years is not available to the Revenue. Hence, the notice issued u/s 148 of the Act is without jurisdiction, time-barred and liable to be quashed. The learned AR, in contending so, placed reliance on the judgment of the Hon’ble Jurisdictional High Court of Karnataka in WP No. 201029 of 2024 between Anand Kumar Someshekarayya Lonarmath vs ITO Ward-1 as well as on the decision of the Honble Rajasthan High Court in the case of Bijendra Singh vs ITO reported in 159 taxmann.com 306.

7. The learned DR, on the other hand, submitted that the notice issued u/s 148 of the Act is not barred by limitation. The proceedings were initiated on the basis of specific information that the assessee had made cash deposits of Rs. 1.33 crores in its bank account during the relevant previous year. Since the information available with the Department clearly showed cash deposits exceeding Rs. 50 lakhs, the case squarely falls within the extended time limit prescribed u/s 149(1)(b) of the Act.

7.1 The Ld. DR further submitted that before issuing notice u/s 148 of the Act, the AO had duly issued notice u/s 148A(b) of the Act and provided the assessee with a proper opportunity to explain the source and nature of the cash deposits. Therefore, the statutory procedure was duly followed.

7.2 It was also submitted that merely because the final order u/s 148A(d) of the Act and the assessment order u/s 147 of the Act ultimately dealt with the issue of non-eligibility of deduction u/s 80P of the Act wherein the amount involved is less than 50 lakhs, the same would not render the notice issued under section 148 of the Act time barred. For deciding limitation u/s 149(1)(b) of the Act, what is relevant is the information on the basis of which the proceedings were initiated, and notice was issued. In the present case, the information was with respect to cash deposits of Rs. 1.33 crores, which is more than Rs. 50 lakhs. Accordingly, the Ld. DR submitted that the condition prescribed u/s 149(1)(b) of the Act stood satisfied. Therefore, the notice u/s 148 of the Act, having been issued within six years from the end of the relevant assessment year, cannot be treated as time barred. Hence, the legal ground raised by the assessee deserves to be rejected.

8. We have heard the rival contentions of both the parties and perused the materials available on record. The legal issue raised by the assessee goes to the root of the validity of the reassessment proceedings. The assessee has challenged the notice issued u/s 148 of the Act on the ground that the same is barred by limitation prescribed u/s 149(1)(a) of the Act. The relevant facts are not in dispute. The assessee is a credit co­operative society. For A.Y. 2015-16, the assessee had not filed the return of income. The Ld. AO issued notice dated 15.03.2022 u/s 148A(b) of the Act on the basis of information that the assessee had deposited cash of Rs. 1,33,33,000/- in its bank accounts. Thus, the initial basis for proposing reopening was the alleged unexplained cash deposits of Rs. 1.33 crores. In response to the said notice, the assessee filed a detailed reply dated 21.03.2022. The assessee explained that it was engaged in providing credit facilities to its members and the cash deposits were made in the ordinary course of its business. It was submitted that the deposits represented regular business receipts, such as loan recoveries from members, pigmy collections, savings account receipts from members, and other daily business transactions. It was also submitted that whenever the cash balance exceeded the business requirement, it was deposited into the society’s regular bank accounts. The assessee also submitted date-wise details of cash deposits and cash book extracts to demonstrate the availability of cash on the respective dates.

8.1 Thus, the assessee had specifically explained the nature and source of the cash deposits. After considering the said reply, the Ld. AO did not proceed in the order u/s 148A(d) of the Act on the basis that cash deposits of Rs. 1.33 crore represented unexplained income. Instead, the Ld. AO changed the basis of reopening and observed that since the assessee had not filed return of income, the deduction u/s 80P of the Act was not allowable in view of section 80A(5) of the Act. On this basis, the Ld. AO passed an order u/s 148A(d) of the Act and thereafter issued a notice u/s 148 of the Act dated 30.03.2022.

8.2  This fact is very material. The notice u/s 148A(b) of the Act was initially based on alleged unexplained cash deposits of Rs. 1.33 crores. However, after the assessee explained the nature and source of the cash deposits with reference to its business activity and cash book, the Ld. AO did not record any adverse finding in the order u/s 148A(d) of the Act that the cash deposits remained unexplained. The basis of reopening was shifted to the issue of non-eligibility of deduction u/s 80P of the Act on account of non-filing of return of income.

8.3 The final assessment order also supports the assessee’s case. The Ld. AO completed the reassessment by assessing income of Rs. 24,45,022/- by disallowing the deduction claimed u/s 80P(2)(a)(i) of the Act. No addition was made on account of alleged unexplained cash deposits of Rs. 1.33 crores. Therefore, the alleged escapement which ultimately survived was only Rs. 24,45,022/- only. Hence, in our considered view the case falls under clause (a) of section 149(1) of the Act, which mandates that no notice under section 148 of the Act can be issued if 3 years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) of the Act.

8.4 In the instant case for A.Y. 2015-16, the notice u/s 148 of the Act was issued on 30.03.2022, which is beyond the three-year period from the end of the relevant assessment year. Therefore, the Revenue was required to satisfy the conditions prescribed u/s 149(1)(b) of the Act. As per the said provision, notice beyond three years can be issued only where the AO has in his possession books of account or other documents or evidence which reveal that income chargeable to tax, represented in the form of asset, expenditure or entry in the books of account, has escaped assessment and such income amounts to or is likely to amount to Rs. 50 lakh or more.

8.5 In the present case, the income alleged to have escaped assessment, as per the order u/s 148A(d) of the Act and the final reassessment order, is only Rs. 24,45,022/- only. The same is admittedly below Rs. 50 lakhs. Further, the disallowance of deduction u/s 80P of the Act is not an escapement represented in the form of asset, expenditure or entry in the books of account. It is only a legal disallowance of deduction. Therefore, the mandatory condition prescribed u/s 149(1)(b) of the Act is not satisfied.

8.6 We are unable to accept the contention of the Ld. DR that the limitation has to be tested only with reference to the initial information of cash deposits of Rs. 1.33 crores mentioned in the notice u/s 148A(b) of the Act. The scheme of section 148A of the Act requires the AO to provide an opportunity to the assessee, consider the reply and thereafter decide whether it is a fit case for issuing a notice u/s 148 of the Act. Therefore, the order u/s 148A(d) of the Act is not an empty formality. It is the final jurisdictional satisfaction before issuing notice u/s 148 of the Act.

8.7 Once the assessee furnished an explanation regarding the cash deposits and the Ld. AO did not carry forward the allegation of unexplained cash deposits in the order u/s 148A(d) of the Act, the Revenue cannot rely upon the very same cash deposits only for the limited purpose of crossing the threshold of Rs. 50 lakh u/s 149(1)(b) of the Act. The jurisdiction to reopen must stand or fall on the basis which survives in the order u/s 148A(d) of the Act. In the present case, the surviving basis is only the denial of deduction u/s 80P of the Act, involving income of Rs. 24,45,022/- only.

8.8 If the contention of the Revenue is accepted, then the safeguard provided u/s 148A of the Act would become meaningless. In every case, the Department may mention a higher figure in the notice u/s 148A(b) of the Act, and even after accepting or not disputing the assessee’s explanation on such a higher figure, still rely upon that figure to invoke extended limitation. Such an interpretation cannot be accepted. The extended limitation u/s 149(1)(b) of the Act is an exception to the normal period of three years and, therefore, the conditions prescribed therein must be strictly satisfied.

8.9 At this stage, it is relevant to refer to the decision of the Hon’ble Jurisdictional High Court of Karnataka in the case of Anand Kumar Someshekarayya Lonarmath vs. ITO, Ward-1 in W.P. No. 201029 of 2024. In the said case, a notice under section 148A(b) of the Act dated 20th March 2022 was issued alleging that a cash deposit exceeding Rs. 50 Lakh was made by the assessee during A.Y. 2015-16, which escaped assessment. The assessee, in response, submitted that he operates only one bank account in which an amount aggregating to Rs. 27,45,000/- was deposited during the year. Thereafter, an order under section 148A(d) of the Act was passed, and a notice under section 148 of the Act was issued on 7th April 2022. Finally, the assessment was finalized considering only the bank deposits as stated by the assessee, and the total income was assessed after making an addition of Rs. 27,45,000/- on account of cash deposit. In the given facts, the Hon’ble High Court considered the scope of section 149(1)(b) of the Act and held that where the income alleged to have escaped assessment is below Rs. 50 lakhs, notice issued beyond three years cannot be sustained. The relevant portion of the said decision is reproduced as under:

“9. In terms of clause (a) of sub-Section (1) of Section 149 a period of three years has been fixed from the end of the relevant assessment year for initiating proceedings under Section 148. However, an exception has been carved out under clause (b) of sub-Section (1) of Section 149 extending the 1 said period by up to ten years, if there is a document or evidence which reveals escaped assessment as detailed under sub-Clause (i), (ii) and (iii) of clause (b) of sub Section (1) of Section 149.

10. In the present case, though it can be said that the entry in this statement of bank account, is a document which would satisfy Clause (b) of Sub-section 1 of Section 149. The powers which can be excised in a said clause are injuncted and restricted by imposing a minimum threshold limit of Rs.50 lakhs of rupees.

11. Admittedly, the assessment order has been passed for a sum of Rs.30,23,623/- which is much less than the threshold limit of Rs.50 lakhs. The revenue would not have any authority or jurisdiction to issue a notice under Section 148 if the threshold limit of Rs.50 lakhs is not shown to have escaped assessment beyond 3 years of the assessment. The assessment order in the present case showing the escaped assessment to be Rs.30,23,623/- being within the threshold limits as held supra. No powers under Section 148 could be exercised.”

8.10 We also find support from the decision of the Hon’ble Rajasthan High Court in the case of Bijendra Singh vs. ITO reported in 159 taxmann.com 306, wherein it was held that where notice was issued by invoking the extended period u/s 149(1)(b) of the Act, but the amount actually found was below Rs. 50 lakhs, the AO lost jurisdiction to continue the proceedings as the case would fall within the normal limitation period of three years. The relevant portion of the said decision is reproduced as under:

14. We have considered the submissions made by learned counsel for the parties and perused the material available on record.

15. The facts are not in dispute, wherein, the notice under section 148A of the Act of 1961 for assessment year 2015-16 was issued on 17-3-2022 i.e. by revoking the extended period of limitation purportedly on the ground that the cash transactions were amounting to Rs. 59,75,000/-.

16. The petitioner promptly responded to the said notice by specifically indicating that the sum of cash transactions was Rs. 33,62,000/- only Le. less than Rs. 50,00,000/- and as the notice was issued alter three years from the assessment year, the same was barred by limitation.

17. The order under section 148A(d) of the Act of 1961, on the said aspect reads as under:

“As per the specific information assessee deposited cash of Rs. 26,13,000/- and 33,62,000/- in Punjab National Bank. As per specific information assessee is cash deposit of Rs. 26,13,000/- in Punjab National Bank above information uploaded by TAN(JPR02089D) and assessee is also cash deposit of Rs. 33,62,000/- in Punjab National Bank above information uploaded by TAN(DELP09943D) As per reply filed by assessee and material available on record assessee total amount deposited in cash or Rs. 59,75,000 during the financial year 2014-15. Therefore, total income of Rs. 59,75,000 left from escape the assessment for assessment year 2015-16. Thus it is logical to conclude that the assessee has no proper explanation with respect to the above mentioned escapement of income in his case for AY 2015-16.”

18. A perusal of the above would reveal that the authority despite the specific indications made by the petitioner, without application of mind and in a wholly mechanical manner came to the conclusion that the amount deposited in cash was Rs. 59,75,000/- and consequently, found it a fit case under section 148 of the Act of 1961.

19. During the pendency of assessment proceedings pursuant to notice under section 148 of the Act of 1961, a show cause notice dated 6-3-2023 (Annexure-4A) was issued to the petitioner inter alia observing as under•

“Thus in the light of the above reasons, you are show caused as to why the cash deposited to the tune of Rs. 33,62,000 in the Bank shouldn’t be treated as unexplained money of the assessee under section 69A rws 115BBE of the IT Act and taxed accordingly as assessee has failed to disclose with documentary evidence the source of the cash deposited in the bank account 261800010002577 in PNB.”

(Emphasis^. Supplied)

20. It would seem that the assessing authority accepted the plea of the petitioner regarding the cash deposits of Rs. 33,62,000/-only. However, choose to issue a show cause notice purportedly under section 69A read with section 115BBE of the Act of 1961 to the petitioner, to which the petitioner filed response and raised objections about the jurisdiction to proceed further in the matter/issue show cause notice during pendency of the proceedings under section 148 of the Act of 1961.

21. However, the assessment order dated 27-3-2023 (Annexure-4C) was issued, wherein, the authority on the law cited by the petitioner in the case of Abdul Majeed (supra) observed that he had no jurisdiction to come to a conclusion based on the said judgement and determined the total income as Rs. 15,18,900/-

22. From the above it is apparent that though the notice was issued on the assumption that the cash deposits were Rs. 59,75,000/- by invoking extended period of limitation, as a fact, it was found that the same was Rs. 33,62,000/-only and once, the said aspect was dear to the authority, the authority lost its jurisdiction to further continue with the proceedings as the limitation under section 149(1)(a) of the Act of 1961 of three years would trigger and the authority would lose the jurisdiction on account of limitation, as the amount was less than Rs. 50,00,000/-.

23. However, the authority while passing the order under section 148A(d) of the Act of 1961, in a wholly mechanical manner rejected the plea and proceeded to issue notice under section 148 of the Act of 1961. Whereafter, proceedings were sought to be converted into notice under section 69A read with Section 115 BBE of the Act of 1961, which action also is wholly impermissible. Once the notice under section 148A of the Act of 1961 is found to be barred by limitation, no further proceedings could be initiated under any of the provisions of the Act of 1961 and the purported exercise of jurisdiction pursuant to notice under section 148A of the Act of 1961 could not be initiated or proceeded with.

8.11 The ratio of the above decisions squarely applies to the facts of the present case. In the case before us, the initial allegation of unexplained cash deposits of Rs. 1.33 crores did not survive in the order passed u/s 148A(d) of the Act. The Ld. AO changed the basis of reopening to denial of deduction u/s 80P of the Act. The income on such basis is Rs. 24,45,022/-, which is below Rs. 50 lakhs. Therefore, the notice issued u/s 148 of the Act beyond three years is barred by limitation and is without jurisdiction.

8.12 We further note that the reassessment has finally been completed only by disallowing deduction u/s 80P(2)(a)(i) of the Act. No addition has been made towards alleged unexplained cash deposits. This further confirms that the cash deposit issue was not the real basis of escaped income in the reassessment. Therefore, the Revenue cannot justify the validity of notice issued u/s 148 of the Act by relying on a basis which was not ultimately pursued either in the order u/s 148A(d) of the Act or in the reassessment order.

8.13 In view of the above discussion, we hold that the condition prescribed u/s 149(1)(b) of the Act was not satisfied. The notice issued u/s 148 of the Act dated 30.03.2022 is therefore barred by limitation and invalid in law. Consequently, the order passed u/s 147 of the Act is also liable to be quashed.

8.14 Accordingly, the legal ground raised by the assessee is allowed. The notice issued u/s 148 of the Act and the consequential reassessment order are quashed. Since the reassessment itself has been quashed on the legal ground, the other grounds raised by the assessee on merits become academic and are not adjudicated.

9. In the result, the appeal of the assessee is partly allowed.

Order pronounced in court on 20th day of July, 2026