No Fishing Enquiries in Reassessment – Pune ITAT Quashes 148 Proceedings After AO Dropped Original Issue!

Raigad District Police Cooperative Credit Society Limited Vs ITO (ITAT Pune)

No Fishing Enquiries in Reassessment – Pune ITAT Quashes 148 Proceedings After AO Dropped Original Issue!

The Pune ITAT quashed reassessment proceedings holding that once the Assessing Officer accepted the explanation regarding the very issue for which reopening was initiated, he could not make a fresh addition on another issue without issuing a separate notice u/s 148.

The case was reopened on the basis of alleged unexplained cash deposits of ₹1.28 crore in the assessee co-operative society’s bank account. During reassessment proceedings, the assessee satisfactorily explained the source of the cash deposits and the AO ultimately made no addition on that count.

However, the AO proceeded to deny deduction u/s 80P(2)(a)(i) on the ground that the return was not filed within the due date prescribed u/s 139(1), invoking section 80AC. The Tribunal held that this disallowance related to an entirely new issue which was not the basis of reopening and for which no fresh notice u/s 148 had been issued.

Relying on the Bombay High Court judgment in CIT vs. Jet Airways (I) Ltd., the ITAT reiterated that if the income forming the basis of “reason to believe” is ultimately not assessed, the AO cannot independently assess some other income in the same reassessment proceedings without fresh jurisdictional compliance. Accordingly, the entire reassessment was quashed as invalid and bad in law.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal at the instance of assessee pertaining to A.Y. 2018-19 is directed against the order dated 26.12.2025 of National Faceless Appeal Centre passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 06.03.2024 passed u/s.147 r.w.s.144B of the Act.

2. Brief facts of the case are that the assessee is a Cooperative Society and has not filed the return of income for A.Y. 2018-19. Based on the information available on Insight portal suggesting that income chargeable to tax has escaped assessment, case of the assessee reopened. Ld. Assessing Officer observed that assessee has made cash deposits with State Bank of India amounting to Rs.1,28,63,758/-. In response to notice u/s.148 of the Act, assessee filed the return of income on 17.06.2022 declaring Nil income and claimed deduction of Rs.77,67,33/-u/s.80P(2)(a)(i). Ld. Assessing Officer invoking section 80AC of the Act denied the deduction claimed by the assessee and added the said sum to the income of the assessee. Aggrieved assessee preferred appeal before ld.CIT(A) and ld.CIT(A) affirmed the action of the Assessing Officer by holding as under :

“6.3 Ground No. 1 challenges the assessment of income at Rs.77,67,330 by asserting that the assessee is a co-operative credit society entitled to deduction under section 80P(2)(a)(i).

6.3.1 The appellant’s entire argument hinges on the availability of deduction and the nature of income earned, while completely ignoring the mandatory statutory condition introduced through the substituted section 80AC, effective from AY 2018-19, which unequivocally prohibits grant of any deduction under Chapter VIA-C unless the return of income is furnished within the time prescribed under section 139(1).

6.3.2 The appellant admittedly did not file any return within the due date under section 139(1) and instead filed the return only in response to notice issued under section 148. Once the statute declares that no deduction “shall be allowed” if the return is not furnished within the due date under section 139(1), the requirement is absolute, mandatory, and leaves no discretion either with the assessee or the appellate authorities. The attempt to rely on the substantive nature of activities or on the benevolent character of section 80P does not override the explicit statutory bar under section 80AC.

6.3.3 Judicial precedents of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd., Karnataka State Co-operative Apex Bank, and Mehsana District Co-operative Bank pertain to the meaning of “attributable to banking business,” not to the statutory bar created by section 80AC. Thus, the appellant’s reliance on those decisions is entirely misplaced. Since the return was not filed under section 139(1), the Assessing Officer rightly disallowed the claim. The ground is devoid of merit and stands dismissed.”

3. Dissatisfied assessee is now in appeal before this Tribunal assailing the impugned order passed by ld.CIT(A).

4. The assessee has raised various legal issues as well as grounds challenging the disallowance of deduction u/s.80P(2)(a)(i) of the act.

5. Grounds of appeal No.1 and 2 being general in nature need no adjudication.

6. Ground of appeal No.3 challenging the validity of notice u/s.148 of the Act by the Jurisdictional Assessing Officer and not Faceless Assessing Officer has not been pressed and the same is dismissed as ‘not pressed.

7. Ground of appeal No. 4 raises the legal issue challenging the validity of notice u/s.148 of the Act on the ground that the reopening has been initiated to examine the cash deposits in the bank account but during the course of assessment proceedings the explanation made by the assessee has been accepted, however, ld. Assessing Officer has disallowed the deduction u/s.80P(2)(a)(i) of the Act without issuing any fresh notice u/s.148 of the Act.

8. At the outset, ld. Counsel for the assessee placing reliance on the judgment of Hon’ble High Court of Bombay in the case of CIT Vs. Jet Airways (I) Ltd. (2010) 195 Taxman 117 (Bombay) stated that the same squarely applied on the facts of the instant case and in light thereof the assessment proceedings deserves to be quashed.

9. On the other hand, ld. DR supported the order of ld.CIT(A).

10. We have heard the rival contentions and perused the record placed before us. We note that the assessee is a Cooperative Bank and did not file the return of income for A.Y. 2018-19. Based on the information about cash deposit of Rs.1,28,63,758/- in the bank account of the assessee held with State Bank of India notice u/s.148 of the Act has been initiated. The assessee furnished the return in compliance to the notice. In the reassessment proceedings, assessee submitted all the details to explain the source of cash deposits in State Bank of India to the satisfaction of the Assessing Officer. Ld. Assessing Officer has not made any addition on account of alleged unexplained cash deposits in the bank account. However, ld. Assessing Officer has disallowed the deduction u/s.80P(2)(a)(i) of the Act for not furnishing the regular return. It is pertinent to note that the reassessment proceedings have been initiated to examine the escapement of income on account of cash deposit in the bank account. The assessee has satisfied the Assessing Officer with all the details and ld. Assessing Officer has not made any addition on this reason for carrying out the reassessment proceedings. However, ld. Assessing Officer has made new addition in the form of disallowance u/s.80P(2)(a)(i) of the Act without issuing any fresh notice u/s.148 of the Act.

11. We take note of the ratio laid down by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) where the principle has been laid down “that section 147 of the section 147 has an effect that Assessing Officer has to assess or reassess income (‘such income’) which escaped assessment and which was basis of formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during course of proceedings. However, if after issuing a notice u/s.148, he accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice u/s.148 would be necessary, legality of which would be tested in event of a challenge by assessee”. This principle laid down by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) squarely applies on the facts of the instant case and since ld. Assessing Officer has not issued fresh notice u/s.148 of the Act for making disallowance on new issue which was not raised in the original notice u/s.148 of the Act, re-assessment proceedings deserves to be quashed as invalid and bad in law. We accordingly order so and set aside the finding of ld.CIT(A). Thus, legal issue raised by the assessee in Grounds of appeal No.4 is allowed. Dealing with remaining ground raised by the assessee on merit would be merely academic in nature and therefore held to be infructuous.

12. In the result, the appeal of the assessee is partly allowed as per terms indicated hereinabove.

Order pronounced on this 12th day of May, 2026.