NEKKANTI VENKATANARAYANA,RAICHUR vs. INCOME TAX OFFICER, WARD-1, RAICHUR

IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER

ITA No.2350/Bang/2025 Assessment Year: 2015-16

Nekkanti Venkatanarayana, The Income Tax Officer, Vs. Sri Nagar Camp, Ward - 1, Rampur Post, Raichur. Raichur – 584 103. PAN – APUPV 5814 L APPELLANT RESPONDENT Assessee by : Shri S Ravishankar, Advocate Revenue by : Shri Ganesh R Ghale, Stanidng Counsel for the Dept. Date of hearing : 08.06.2026 Date of Pronouncement : 04.08.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal filed by the Assessee is directed against the order dated 22.08.2025 of the learned Commissioner of Income Tax (Appeals) under the National Faceless Appeal Centre (hereafter, the Ld. CIT(A)) under section 250 of the Income Tax Act, 1961 (hereafter, the Act).

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4.1 The assessee, in response, submitted that he is a farmer holding agricultural land on which paddy is cultivated. The cash deposited into the bank account was derived solely from the sale proceeds of the paddy. However, he maintained no books of account for agricultural activity. In support of the claim, the assessee furnished a copy of the record of right of the land owned by him as well as the record of the agricultural land taken on lease by him.

4.2 Regarding the purchase of immovable property, it was submitted that the property was purchased for Rs. 54 Lakh, with Rs. 34 Lakh paid by way of a bank loan availed from IDBI Bank, and the balance amount of Rs. 20 lakhs being paid out of funds remitted by his son from the USA and in the form of TDS. In support of the claim, a copy of the bank statement, the sale deed, and the general power of attorney from his son were furnished.

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4.3 However, the AO rejected the assessee's explanation in the order passed under section 148A(d) of the Act and held that it is a fit case of issuing notice u/s 148 of the Act. It was held that a cash deposit out of the sale of agricultural produce cannot be accepted in the absence of sales receipts. Further, the landholding details furnished were for the year 2021- 22, not for 2014-15.

4.4 Likewise, the AO held that the assessee had submitted a loan statement showing a loan of 34 lakh, but there was no evidence submitted to prove that the said loan was for the purpose of purchasing immovable property. The AO also rejected the assessee's claim regarding the foreign remittance, holding that corroborative evidence was not submitted.

4.5 Accordingly, a notice u/s 148 of the Act was issued on 29th March 2022, and the assessee, in response, filed his return of income declaring agricultural income of Rs. 4,49,400/- and interest income of Rs. 30,654/- only.

4.6 During the assessment, notices u/s 142(1) of the Act were issued, and the assessee furnished a reply and explanation. The AO accepted the sources of investment in immovable property to the extent of Rs. 34 lakhs, being a loan availed from IDBI Bank. However, the sources of cash deposits of Rs. 17.2 lakh out of agricultural income over the years and the source of payment of Rs. 19 lakhs toward the purchase of property were not accepted. Accordingly. The assessment order u/s 147 r.w.s. 144B of the Act was passed on 27th March 2023 by making an addition of Rs. 36.20 lakh to the total income of the assessee.

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5.1 However, the learned CIT(A) dismissed the grounds of appeal raised by the assessee by holding that the assessee had not responded to notices issued during the appeal proceedings.

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7.1 The learned AR submitted that in the present case, notice under section 148A(b) of the Act was issued on account of information of cash deposit of Rs. 17.2 Lakh and investment in immovable property of Rs. 58 lakh, and the assessee was asked to explain the sources of cash deposit and payment towards the purchase of property. The assessee duly explains the sources of the cash deposit and the purchase of property, with supporting documents. Specifically, in relation to the purchase of immovable property, it was explained that the property was purchased for Rs. 54 Lakh. It was explained that payment of Rs. 34 Lakh towards property purchase was made out of a loan availed from IDBI Bank, and Rs. 19 Lakh was paid out of foreign remittance received from his son working in the USA. The entire payment of Rs. 53 Lakh (Rs. 34 Lakh + Rs. 19 Lakh, with the remaining Rs. 1 Lakh as TDS and cash) was made through the banking channel by way of demand draft. In support of the said explanation, the appellant-assessee furnished a copy of the bank statement, a loan statement, a copy of the sale/purchase deed, and a GPA from his son. However, the AO dismissed the assessee's explanation and passed an order under section 148A(d), holding it to be a fit case for issuing a notice under section 148 of the Act.

7.2 The learned AR argued that from the documentary evidence submitted in response to notice issued under section 148A(b) of the Act, it was clearly established that the payment of Rs. 34 lakh was out of a loan availed from IDBI. The learned AR in this regard has drawn our attention to the loan statement placed on pages 12 to 15 of the paper book, as well as drawn our attention to page 8 of the sale/purchase deed, where details of payment are noted, which clearly state that Rs. 34 Lakh

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through DD dated 17-09-2014 drawn on IDBI was a loan availed from IDBI Bank.

7.3 The learned AR argued that once the source of payment of Rs. 34 Lakh is established, the amount of dispute decreased to Rs. 36.2 Lakh only. Accordingly, the notice under section 148 could not have been issued after the expiry of 3 years from the end of A.Y. 2015-16. However, the AO with a prejudiced mind did not accept the assessee's explanation and passed an order under section 148A(d) of the Act, holding it a fit case for initiating an income escaping assessment so that notice under section 148 could be issued even beyond 3 years. The learned AR contended that the prejudiced mind of the AO in passing the order under section 148A(d) of the Act is established from the fact that sources of Rs. 34 lakhs were immediately accepted in the assessment proceeding on the same set of documents.

7.4 Accordingly, the learned before us prayed that the notice issued under section 148 of the Act dated 29th March 2022 should be held as invalid on account of limitation, and the consequent assessment shall be quashed in the light of 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.

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was argued that the assessee's explanation was duly considered during the proceedings under section 148A, but the AO was not satisfied with the same and, therefore, rightly passed the order under section 148A(d) of the Act. The learned DR accordingly contended that the notice issued under section 148 was valid and within the period of limitation and prayed for dismissal of the assessee's legal ground.

9.1 In the present case, the notice u/s 148 of the Act was issued on 29.03.2022 for AY 2015-16. The notice was therefore issued after three years from the end of the relevant assessment year. Consequently, the notice could be sustained only if the conditions prescribed u/s 149(1)(b) of the Act were satisfied. We note that section 148A proceedings were initiated on the basis of cash deposits of ₹17.20 lakh and the purchase of immovable property stated to be of ₹58 lakh. However, the assessee had explained in response to the notice u/s 148A(b) of the Act that the actual purchase consideration of the property was ₹54 lakh. Out of the said

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amount, ₹34 lakh was paid from a loan obtained from IDBI Bank. The assessee had furnished the loan statement, bank statement and the sale deed in support of the said explanation.

9.2 We further find that the sale deed itself contained the details of the demand draft of ₹34 lakh dated 17.09.2014 drawn on IDBI Bank. Thus, the explanation regarding the source of ₹34 lakh was supported by independent banking documents and the registered sale deed. The AO nevertheless rejected the explanation while passing the order u/s 148A(d) of the Act. Significantly, during the assessment proceedings, the AO accepted the very same explanation and held that the investment of ₹34 lakh was made out of the loan obtained from IDBI Bank. The AO ultimately made additions of ₹17.20 lakh towards cash deposits and ₹19 lakh towards the remaining investment in the property, aggregating to ₹36.20 lakh.

9.3 This clearly shows that the income which was alleged to have escaped assessment was below the statutory limit of ₹50 lakh. The value of the entire property transaction could not be treated as income escaping assessment when a substantial part of the investment was admittedly financed through a bank loan. For the purpose of section 149(1)(b) of the Act, what is relevant is the amount of income which has escaped assessment and not the gross value of the transaction. The AO cannot acquire jurisdiction for reopening an assessment beyond three years merely by referring to the total value of an asset while ignoring the materials available on record explaining its source. The documents in the possession of the AO must reveal an escapement of income of ₹50 lakh or more. A mere transaction exceeding ₹50 lakh is not sufficient.

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9.4 Thus, proceedings u/s 148A of the Act are not an empty formality. The purpose of introducing the said provision is to provide a safeguard against unnecessary and mechanical reopening of concluded assessments. It gives the assessee an opportunity to explain the information available with the Department before being subjected to reassessment proceedings. It also enables the AO to examine whether the information actually suggests escapement of income and whether the statutory conditions, including the limitation prescribed u/s 149 of the Act, are satisfied.

9.5 The Hon’ble Supreme Court in the case of Union of India v. Ashish Agarwal reported in 444 ITA 1 has explained that section 148A of the Act has streamlined the procedure for reopening assessments. The AO is required to consider the reply of the assessee and decide, on the basis of the entire materials available on record, whether it is a fit case for issuing notice u/s 148 of the Act. The Hon’ble Supreme Court has observed that these requirements operate as safeguards before a notice u/s 148 of the Act is issued.

9.6 Therefore, the stage of proceedings u/s 148A of the Act is meant to prevent the initiation of reassessment where the assessee is able to satisfactorily explain the transaction or where the jurisdictional requirements are not fulfilled. The AO cannot first reject the explanation without proper consideration, issue notice u/s 148 of the Act and thereafter verify the same explanation during the assessment proceedings and accepts the same. Such an approach would defeat the very purpose for which section 148A of the Act was introduced.

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9.7 In view of the above detailed discussion, we find that the assessee, during the 148A proceeding, has established the sources of payment for the property at least to the extent of Rs. 34 Lakhs. Accordingly, the amount of alleged income escaped assessment has been reduced below Rs. 50 Lakhs. Therefore, the AO could not have jurisdiction to issue a notice under section 148 the Act, as the 3-year period from the end of the relevant assessment had already expired.

9.8 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 finalised considering only the bank account 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

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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.”

9.9 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 lakh, 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 i.e. less than Rs. 50,00,000/- and as the notice was issued after 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

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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 clear 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.

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9.10 In the present case before us, the AO himself ultimately restricted the additions to ₹36.20 lakh. Further, the evidence establishing the source of ₹34 lakh was already furnished by the assessee in response to the notice issued u/s 148A(b) of the Act. Therefore, even on the date of passing the order u/s 148A(d) of the Act, there was no material which could validly reveal escapement of income of ₹50 lakh or more.

9.11 In view of the above, we hold that the conditions prescribed u/s 149(1)(b) of the Act were not satisfied. The notice issued u/s 148 of the Act on 29.03.2022 was barred by limitation and was without jurisdiction. Consequently, the order passed u/s 148A(d) of the Act, the notice issued u/s 148 of the Act, and the assessment order passed u/s 147 r.w.s. 144B of the Act are hereby quashed.

9.12 Accordingly, Ground Nos. 3 and 4 raised by the assessee are allowed. Since the assessment itself has been quashed on legal grounds, the remaining grounds raised on merits have become academic and are dismissed as infructuous.

Order pronounced in court on 4th day of August, 2026 Sd/- Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 4th August, 2026 / vms /

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Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore