Babjan Alla Bakish Vs ITO (ITAT, Bangalore Bench)
A Late Notice Cannot Spin a Tax Web: Reopening u/s 148 Beyond Six Years Quashed—Silk-Waste Trader’s Appeal Allowed
Summary: The assessee was an individual engaged in the business of purchasing silk waste from local farmers & selling it locally. He had not filed his original return of income u/s 139(1) for AY 2015-16.
Based on information concerning cash deposits of ₹87,34,250 in an Axis Bank account, the case was reopened. Notice u/s 148 was issued, followed by notice u/s 142(1) & a show-cause notice.
The assessee claimed that he had filed his return in response to the notice u/s 148, but the AO alleged that the return was not visible on the Department’s system.
VAT-Free Goods Mistaken for Income-Tax-Free Business
In his reply dated 11.10.2023, the assessee explained that he dealt in silk waste purchased from farmers. Since the commodity was exempt from VAT & GST, he was under a mistaken impression that the resulting income was also not liable to income tax. Consequently, he had not filed his return u/s 139(1).
The assessee maintained that he had subsequently filed the return in response to notice u/s 148 on 11.10.2023 under acknowledgement No. 401610401111023. Business income was declared on a presumptive basis u/s 44AD. Since the assessee had opted for presumptive taxation, he had not maintained pucca books of account.
It was further explained that the business was predominantly conducted with farmers in villages. Purchases & sales were substantially in cash, and the cash realised from the business was deposited into the assessee’s bank accounts.
Three Bank Accounts & Frequent Cash Movement
The AO found that the assessee maintained two savings bank accounts with Axis Bank. Cash was deposited in both accounts, while cash withdrawals were also made through ATMs either on the same day or shortly thereafter.
The AO further considered a savings bank account maintained with SBI. On examining all three accounts, the AO computed the aggregate cash deposits at ₹95,60,250, apart from other credits of ₹1,20,000.
Although the assessee had declared income at 8% u/s 44AD, the AO considered the declared profit insufficient & estimated the business profit at 15% of the cash deposits/turnover.
Thus, the AO did not treat the entire bank deposits as unexplained income but adopted a higher rate of profit on the business receipts.
CIT(A) Reduces Estimate From 15% to 10%
The assessee carried the matter in appeal. The CIT(A) considered the various grounds & reduced the estimated profit rate from 15% to 10%.
Regarding the assessee’s claim for credit of self-assessment tax, the CIT(A) directed the AO to verify the payment & grant appropriate credit in accordance with law.
Still aggrieved by the sustenance of profit at 10%, the assessee approached the ITAT.
Death of Chartered Accountant Explains 53-Day Delay
The appeal before the Tribunal was delayed by 53 days. The assessee explained that the first appeal had been filed through a Chartered Accountant & he was under the impression that the professional would continue to monitor the matter.
Unfortunately, the Chartered Accountant passed away. The assessee remained unaware of the appellate order & came to know that the appeal had been partly allowed only when a penalty notice was subsequently issued.
Immediately thereafter, the appeal papers were prepared & filed before the ITAT. Finding sufficient cause for the delay, the Tribunal condoned it & admitted the appeal.
Notice u/s 148 Crossed the Six-Year Boundary
At the hearing, the assessee raised a fundamental jurisdictional objection. He contended that the notice u/s 148 was barred by limitation u/s 149.
For AY 2015-16, the statutory period available for issuing notice u/s 148 was six years from the end of the relevant AY. According to the assessee, that period expired on 31.03.2022. However, the impugned notice u/s 148 was admittedly issued only on 01.05.2022.
Therefore, the very notice initiating the reassessment was time-barred & all consequential proceedings founded upon it were liable to be quashed.
The assessee also contended that the approval references mentioned in the notices u/ss 148A(b), 148A(d) & 148 were identical, thereby creating a further defect in the proceedings.
On merits, it was argued that the assessee’s village-based silk-waste business was eligible for presumptive taxation u/s 44AD. Consequently, the CIT(A)’s estimation of profit at 10%, instead of the statutory presumptive rate of 8% offered by the assessee, was unjustified.
Tribunal Decides Jurisdiction First
The ITAT first examined the legal ground relating to limitation. It observed that, under the provisions of s.149 applicable to the disputed AY, the notice u/s 148 had to be issued within six years from the end of AY 2015-16.
That limitation expired on 31.03.2022. Since the notice u/s 148 was issued only on 01.05.2022, the Tribunal held that it had been issued after expiry of the prescribed period.
Once the foundational notice u/s 148 was barred by limitation, the reassessment proceedings initiated pursuant to that notice could not survive. A jurisdiction that had already expired could not be revived through subsequent notices, explanations or assessment proceedings.
Accordingly, the Tribunal quashed the reassessment on the legal ground itself. Since the entire proceeding was annulled for want of jurisdiction, the issues concerning the profit estimation of 10%, applicability of s.44AD & other merits were left unadjudicated.
The assessee’s appeal was allowed in full.
Legal Principle
A valid notice u/s 148 issued within the limitation prescribed u/s 149 is the indispensable foundation of reassessment jurisdiction. Where the applicable six-year period expired on 31.03.2022, a notice issued on 01.05.2022 is time-barred. Once the foundation falls, the entire reassessment structure must fall with it—however strong the proposed addition may appear on merits.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 29/09/2025 in respect of the A.Y. 2015-16.
2. The brief facts of the case are that the assessee is an individual and not filed his return of income u/s. 139(1) of the Act. Even though the assessee had submitted that they have filed the return of income in response to notice issued u/s. 148 of the Act, the AO alleged that the same was not visible in the system. The case of the assessee was reopened to verify the cash deposits of Rs. 87,34,250/- made in the Axis Bank account. Subsequently, notice u/s. 142(1) and show cause notice was also issued to the assessee. On 11/10/2023, the assessee submitted his reply along with the copy of the bank statement. The assessee submitted that he is dealing in the silk waste purchased from the local farmers and sold locally which goods are exempted from the levy of tax from VAT and GST and therefore the assessee on the wrong notion that the income tax also would not apply to the commodities dealt with by him and therefore, no return of income was filed by him. The assessee also submitted that he has already filed his return of income to the notice issued u/s. 148 and declared his income u/s. 44AD of the Act and therefore, he has not maintained pucca books of accounts. Thereafter only a show cause notice was issued for which also the assessee submitted his reply and submitted that he has filed his return of income on 11/10/2023 vide acknowledgement number 401610401111023. The assessee also explained the nature of business and he is dealing with mainly farmers, all the transactions are effected only through cash and the said cash was deposited into his bank account. The AO had observed that the assessee is having two savings bank accounts with Axis Bank and in both the accounts, the cash has been deposited and also through the ATM, cash was also withdrawn on the same day or subsequent day. The AO had also considered the SB account with the SBI and arrived the total cash deposits in all the three bank accounts at Rs. 95,60,250/- and credits of Rs. 1,20,000/-. The AO had estimated the profit at 15% instead of 8% as declared by the assessee u/s. 44AD of the Act. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had considered the several grounds and refixed the profit at 10% instead of 15% adopted by the AO. The other grounds relating to the claim of self assessment tax, the Ld.CIT(A) had directed the AO to consider the same and pass orders in accordance with law.
3. As against the said order, the assessee is in appeal before this Tribunal with a delay of 53 days. In the said delay condonation application, the assessee submitted that the appeal has been filed through a Chartered Accountant and therefore, the assessee was under the impression that the matter to be followed up by him, but unfortunately, the Chartered Accountant passed away and therefore, the assessee has no knowledge about the appeal order and only when the penalty notice has been issued, he came to know that the appeal has been partly allowed and thereafter, the appeal was made ready and filed before this Tribunal with a delay of 53 days.
4. We have considered the said reasons and satisfied that there are sufficient cause for not filing the appeal in time before this Tribunal and therefore, we are condoning the said delay and proceeded to decide the appeal on merits.
5. At the time of hearing, the Ld.AR submitted that the notice issued u/s. 148 is barred by limitation. The Ld.AR brought to our notice that the assessment year is 2015-16 and during the relevant period, the limitation prescribed under 149(1) for issuing notice u/s. 148 is 6 years from the end of the A.Y. and in the present case, the A.Y. being the year 2015-16, the limitation of 6 years expires on 31/03/2022 whereas the 148 notice was issued on 01/05/2022 after the period of 6 years and therefore, the notice itself is barred by limitation and consequently, all the further proceedings are liable to be set aside. The Ld.AR also submitted that the reference in the approval mentioned in 148A(b) and 148A(d) and 148 are one and the same and therefore, the notices are also bad in law. Insofar as the merits of the case, the Ld.AR submitted that the assessee is doing the business of silk waste by travelling to the villages and therefore, he has opted to pay tax u/s. 44AD of the Act and hence the profit estimated at 10% by the Ld.CIT(A) is not correct and prayed to allow the appeal.
6. The Ld.DR submitted that the notice was issued within the period of time and also explained the reference number mentioned in the notices and also relied on the date of issuance of the notices which are all on different dates and therefore, prayed not to accept the said plea and prayed to dismiss the appeal.
7. We have heard the arguments of both sides and perused the materials available on record.
8. Before proceeding with the merits of the case, we are inclined to consider the legal plea raised by the assessee that the notice issued u/s. 148 is barred by limitation. The disputed A.Y. 2015-16 and as per section 149 prevailed during that time, the 148 notice has to be issued within a period of six years from the end of the A.Y. In the present case, the 6 years period expired on 31/03/2022 but admittedly, the 148 notice was issued on 01/05/2022 and therefore the said notice has been issued after the limitation period of 6 years and therefore, as rightly argued by the Ld.AR, the notice is barred by limitation. When the notice issued u/s. 148 is barred by limitation, the subsequent proceedings initiated based on the said notice is also not sustainable. Therefore, we are allowing the appeal filed by the assessee on this legal ground. Since we are adjudicating the legal grounds and allowed the appeal on that basis, we are not adjudicating the other grounds raised by the assessee.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 28th August, 2026.
