SADANANDA GUMAGODU BHASKAR,HONNESARA vs. ITO WARD 1 & TPS, SHIMOGA, SHIMOGA

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. The AO based on the information that the assessee had carried out the financial transactions for a value of Rs. 1,58,59,275/- during the year but not filed his return of income and therefore, issued a notice u/s. 148 of the Act. Thereafter, the assessee filed his return of income on 15/06/2024. The AO had initiated the proceedings u/s.

As against the said assessment, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had confirmed the additions on merits but remitted the issue of cash deposits of Rs. 7,00,000/- and Rs. 1,00,000/- to the AO for verifying the genuineness of the agricultural income.

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

At the time of hearing, the Ld.AR submitted that the order of the Ld.CIT(A) is against the principles of natural justice since the assessee was not served with the hearing notices. The Ld.AR further submitted that the communication window was enabled on 01/01/2026 and the appeal order was also passed on 01/01/2026 and therefore, no proper opportunity had been granted to the assessee. The Ld.AR further submitted that the Ld.CIT(A) had erred in remitting the part of the income while confirming the entire addition on merits. The Ld.AR also raised a legal plea that the notice issued u/s. 148 is beyond the period of limitation as prescribed u/s. 149(1)(a) of the Act and therefore, the entire proceedings are liable to be set aside. The Ld.AR also draw our attention to the facts involved in the present case since at the time of issuing the notice u/s. 148 on 30/03/2024, the AO had wrongly presumed that the transactions of Rs. 1,58,59,275/- was effected by the assessee and therefore, the AO has jurisdiction to issue the notice u/s. 148 of the Act after the period of three years. The Ld.AR further submitted that out of the total transactions mentioned by the AO, the time deposits with Shimoga District Co-operative Central Bank Ltd. of Rs. 1,40,86,249/- does not relates to the assessee as seen from the certificate issued by the bank on 14/03/2024 i.e. before the issuance of the notice u/s. 148 of the Act and if the same has been considered, the notice issued u/s. 148 is barred by limitation. The Ld.AR also filed a case summary chart and prayed that the entire assessment made based on the information is liable to be set aside since the same is not within the period of limitation.

The Ld.DR submitted that the assessee had not submitted the details about the income earned from the agricultural activities and therefore, in order to verify the same, the Ld.CIT(A) had rightly remanded the said issue to the AO. Insofar as the legal plea raised by the assessee that the notice issued u/s. 148 is barred by limitation, the Ld.DR submitted that while initiating proceedings, the transactions effected by the assessee would exceed Rs. 50 Lakhs and therefore, the notice issued on 30/03/2024 is in order and relied on section 149(1)(b) of the Act.

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

The assessee had mainly objected about the initiation of proceedings u/s. 148 of the Act since the same is beyond the period of limitation prescribed u/s. 149(1)(a) of the Act. Since the said argument goes to the root of the matter, we are adjudicating the said issue and thereafter, if necessary, we will adjudicate the issue on merits.

The disputed assessment year is 2017-18 and therefore, the period of limitation prescribed u/s. 149(1)(a) for issuing notice u/s. 148 would expire on 31/03/2021. On the other hand, if the income escaped assessment exceeds Rs. 50 Lakhs, then the assessee has further extended time to issue the 148 notice and in such circumstances, the notice issued by the AO would be within the period of limitation. In the present case, the assessee had not filed his return of income and therefore, the AO based on the specific information that the assessee had effected the financial transactions of Rs. 1,58,59,275/- had initiated proceedings and notice u/s. 148 was issued on 30/03/2024. In the details given in the assessment order, the AO had mentioned four transactions effected by the assessee and one of the transaction is with the Shimoga District Co-operative Central Bank Ltd. on a time deposit of Rs. 1,40,86,249/-. Based on the said transactions, the AO alleged that the assessee had effected transactions more than Rs. 50 Lakhs and therefore, the assessment should be reopened u/s. 147 of the Act after issuing notice u/s. 148 of the Act. Before that it was confirmed by the bank that the alleged time deposit of Rs. 1,40,86,249/- is an error by issuing a certificate on 14/03/2024. If the said alleged financial transaction was deleted from the total financial transactions, the total financial transactions effected by the assessee would be about Rs. 17,73,026/-. In such event, the AO should have initiated proceedings u/s. 148 within a period of three years from the end of the assessment year as per section 149(1)(a) of the Act. The AO without considering the said facts and also the banker’s certificate dated 14/03/2024 had issued notice u/s. 148 of the Act on 30/03/2024 as if the financial transactions effected by the assessee exceeds Rs. 50 Lakhs.

From the facts, as narrated above, the AO had assumed the jurisdiction to issue notice u/s. 148 of the Act on the wrong information available before him. Further, in the assessment proceedings, after issuing the notice u/s. 148 of the Act, the AO had not taken the time deposit made with Shimoga District Co-operative Central Bank Ltd. as a correct information and dropped the said time deposit. In such circumstances, the submission made by the assessee assumes importance since the 148 notice was issued on 30/03/2024 beyond the period of three years, that too when the escaped income was determined at Rs. 14,32,000/-.

If we consider the submission that at the time of initiation of proceedings u/s. 147 of the Act, the information available with the AO exceeds Rs. 50 Lakhs and therefore, the notice issued u/s. 148 on 30/03/2024 is within the period of limitation and need not be treated as barred by limitation, we are of the view that the mere possession of information is not enough and in fact, the information should relates to the assessee and then only the AO has jurisdiction to initiate proceedings u/s. 148 of the Act and not based on some misinformation. The assessee should not be penalized for the mistake committed by the revenue. If the said argument is accepted, then the AOs would adopt this method and alleged that the financial transactions exceeds Rs. 50 Lakhs even though the same does not exceed Rs. 50 Lakhs and thereafter issued notice u/s. 148 by invoking the extended period of limitation as prescribed u/s. 149(1)(b) of the Act. Therefore, the information should be a genuine one and related to the assessee and on that basis, the proceedings can be initiated within the extended period. In the present case, the AO was in possession of the certificate from the bank dated 14/03/2024 about the time deposit and therefore, the AO is precluded from issuing notice u/s. 148 of the Act on 31/03/2024 since the financial transactions are only about Rs. 17,73,026/-.

In view of the above said facts, we are satisfied that the notice issued u/s. 148 of the Act on 31/03/2024 is not within the period of three years as prescribed u/s. 149(1)(a) of the Act and therefore the same is beyond the period of limitation, liable to be set aside. When the initiation of the proceedings are held as not valid, the consequential assessment proceedings made by the AO is also bad in law and liable to be set aside.

In similar circumstances, the Coordinate Bench of this Tribunal in its order in ITA No. 2350/Bang/2025 dated 04/08/2026 in the case of Nekkanti Venkatanarayana vs. ITO had held that the notice issued u/s. 148 after a period of three years, is barred by limitation when the income determined in the assessment proceedings falls below Rs. 50 Lakhs. The principle laid down in the above said order supports the view taken by us in the present appeal.

We, therefore, set aside the assessment order dated 11/02/2025 as the same is not based on the valid notice issued u/s. 148 of the Act. Consequently, the order of the Ld.CIT(A) is also liable to be set aside. Since the appeal was decided on the legal ground, we are not adjudicating the grounds on merits with a liberty to raise the same at the appropriate time, if necessary.

In the result, the appeal filed by the assessee is allowed.