Muthuvel Agathiyan Vs ITO (ITAT Chennai)
Notice by Jurisdictional AO, Assessment by NFAC Held Invalid: ITAT Quashes Entire 147 Proceedings
Assessee filed return u/s 139(1) declaring total income of ₹4,85,110 consisting of salary income & loss from house property, which was processed. Later, based on e-verification information u/s 135A indicating cash deposits of ₹1,30,67,300 during FY 2019-20, Jurisdictional AO issued notice u/s 133(6) & on no response, further issued notice u/s 148 dated 30.03.2024. Subsequently, NFAC (Faceless Assessment Unit) completed assessment u/s 147 r.w.s. 144 r.w.s. 144B dated 03.03.2025, making additions of ₹87,65,000 as unexplained money allegedly received from one Deepa Arulalan & ₹1,55,72,841 as unexplained cash deposits. CIT(A)/NFAC confirmed the reassessment.
Before Tribunal, Assessee raised a legal ground for the first time, challenging assumption of jurisdiction u/s 147 & validity of the NFAC assessment on the footing that no order u/s 148A(d) was ever passed by NFAC & that reassessment was completed by NFAC though notice u/s 148 had been issued only by Jurisdictional AO. Relying on Supreme Court decision in NTPC Ltd., Tribunal admitted this additional legal ground, noting that pure questions of law can be raised at any stage.
On merits of jurisdictional challenge, Tribunal examined e-verification Instruction No. 2(i)/2024 (filed by DR) which provides that where FAU has FVR suggesting an updated return u/s 139(8A) ought to have been filed but is not, FAU is generally expected to initiate reassessment by issuing show-cause u/s 148A before deciding to issue notice u/s 148. Tribunal recorded that, in present case, while notice u/s 148 was issued by Jurisdictional AO, there was no notice u/s 148A by FAU & NFAC directly concluded assessment u/s 147 r.w.s. 144 r.w.s. 144B. Placing reliance on Madras High Court decision in Mark Studio India (P.) Ltd. Vs ITO, WA No.781/2025 dated 24.06.2025, Tribunal noted that an assessment made by NFAC assessment unit is not valid when order & notice u/s 148A(d)/148 are issued only by Jurisdictional AO, though liberty has been left to Revenue to re-initiate if Supreme Court interferes with Bombay High Court judgment in Hexaware Technologies Ltd. Vs ACIT 464 ITR 430 (Bom).
