UTKARSH SMALL FINANCE BANK LIMITED,INDIA vs. ASSESSMENT UNIT, INCOME TAX DEPARTMENT, INDIA

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI (Through Virtual Hearing) BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.146/VNS/2025 A.Y. 2017-18 Utkarsh Small Finance Bank vs. Assessment Unit, Limited, Utkarsh Tower, NH-31 Income Tax Department Airport Road Sehmalpur, Kajisarai B.O., Sarai Kazi, Varanasi, 221105, Uttar Pradesh PAN: AABCU9355J (Appellant) (Respondent) Assessee by: Sh. Hiten Thacker, C.A. Revenue by: Sh. Koushlendra Tewari, CIT DR Date of hearing: 17.02.2026 Date of pronouncement: 14.05.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act on 18.06.2025, wherein the ld. CIT(A) has dismissed the appeals of the assessee against the orders passed by the Assessing Officer under section 147 r.w.s. 144B of the Income Tax Act for the A.Y. 2017-18 on 24.05.2013. The grounds of appeal are as under:- “1. The Learned CIT(A) erred in not quashing reassessment proceedings despite being void-ab-initio and bad in law 2. The Learned CIT(A) erred in dismissing the appeal without application of mind and without providing any justification for dismissing the grounds of appeal and thereby, the order passed by the Learned CIT(A) is not a reasoned order. 3. Without prejudice to the Ground 1 and 2 above, the Learned CIT(A) erred in upholding the action of the learned AO in making an addition of Rs 14,30,285 as income of the Appellant. 1

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 3.1 The Learned CIT(A) erred in not considering and appreciating the documentation submitted and facts reproduced to substantiate that cash deposit did not belong to the Appellant but belonged to another taxpayer 4. Without prejudice to the Ground 1 and 2 above, the Learned CIT(A) erred in confirming the tax liability computed by the learned AO considering the addition on account of cash deposits amounting to Rs 14,30,285 twice, i.e., once at normal rates (i.e. at 29%) and second time at special rate prescribed under section 115BBE of the Act (i.e. at 60%). 5. Without prejudice to the Ground 1 and 2 above, the Learned CIT(A) erred in confirming the tax liability computed by the learned AO on Rs 2,05,01,909 (an addition made under the original assessment order dated 27 December 2019) twice, i.e., once at normal rates (i.e. at 29%) and second time at special rate prescribed under section 115BBE of the Act (i.e. at 60%) though such addition was not made under 69A of the Act 6. The Learned CIT(A) has erred in confirming the levy of consequential interest under section 234A and 234B of the Act. 7. The Learned CIT(A) has erred in dismissing the ground on levy of penalty under section 271AAC of the Act The Appellant craves leave to add, alter, vary, omit, substitute or amend any or all of the above grounds of appeal, at any time before or at the time of the appeal, so as to enable the Hon'ble Income tax Appellate Tribunal to decide this appeal according to law.”

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 during the demonetization period. Accordingly, the assessee was asked to explain the same. The assessee submitted that the said bank account belonged to M/s Utkarsh Micro Finance Limited (UMFL), however, the enquiries of the AO revealed that the account belonged to the assessee company and therefore, he issued a show cause notice to the assessee proposing to add back this amount to the income of the assessee as unexplained money. In response to the show cause notice, the assessee submitted that it had commenced its banking operations only on 23.01.2017 and the cash deposited belonged to Utkarsh Micro Finance Limited before the account had been taken over by the assessee company. It submitted a confirmation letter dated 1.08.2022 from the Central Bank of India, which stated that during the demonetization period, the said bank account was operating in the name of Utkarsh Coreinvest Limited (UCL) i.e. erstwhile Utkarsh Micro Finance Limited (UMFL). However, the ld. AO did not accept this response. He held that Sh. Ravi Tripathi was the authorized signatory of the company for the bank A/c No. 3437783958 and he had deposited the cash of Rs. 14,30,285/- into the said bank account. He reproduced copies of communication received from Central Bank of India, where the assessee was shown as the account holder and Sh. Ravi Tripathi was operating the same on behalf of the assessee, being the authorized signatory. Accordingly, the ld. AO held that the assessee had no explanation with regard to the cash deposit and therefore, he added a sum of Rs. 14,30,285/- back to the income of the assessee as unexplained money under section 69A. Thus, the income of the assessee company was assessed at Rs. 12,44,19,464/- after the conclusion of the proceedings under section 147 r.w.s. 143(3). 3. Aggrieved with the said assessment order, the assessee filed an appeal with the ld. CIT(A). The ld. CIT(A), NFAC considered the submissions of the assessee. He held that the assessee company did not deny the fact that 3

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 the account number in question was operative during the demonetization period and enquiries with the Central Bank of India had revealed that it belonged to the assessee, as against the claim that it belonged to Utkarsh Micro Finance Limited. Therefore, he confirmed the addition under section 69A. 4. The assessee is aggrieved at the said dismissal of its appeal and has accordingly come before us. Sh. Hiten Thakkar, Advocate (hereinafter referred to as the ld. AR) appearing on behalf of the assessee submitted that the assessee was wholly a subsidiary of Utkarsh Core Invest Ltd., earlier known as Utkarsh Micro Finance Limited (UMFL). During the captioned assessment year, Utkarsh Coreinvest Limited had transferred its micro finance business to the assessee and it was only pursuant to the business transfer that the assessee had commenced its banking operations on 23.01.2017. It was submitted that the addition of Rs. 14,30,285/- had been made on account of deposits made in the bank account during the demonetization period, which was before the assessee was doing its business and operating the said bank account. It was further submitted that during the said period, the said bank account was operated by Utkarsh Micro Finance Limited and a certificate from the bank had been placed before the AO to this effect. It was also submitted that the addition of Rs. 14,30,285/- had erroneously been computed twice, firstly at the normal rates i.e. 29% and then at the special rate prescribed under section 115BBE of the Act i.e. 60% which was evidenced by Sr. No. 14 and 15 of the computation sheet. Hence, it was submitted that the assessee had been subjected to tax twice for these two items. The ld. AR also pointed out that the very initiation of the assessment was bad in law and the ld. CIT(A) had failed to consider this fact while disposing of the appeal. Elaborating further, it was pointed out that the where re-assessment proceedings were initiated after an expiry of three 4

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 years from the end of the relevant year, the approval under section 151(ii) was mandatorily required to be obtained on the Principal Chief Commissioner of Income Tax / Chief Commissioner but in this case, even though the case had been reopened after a lapse of three years, the approval had been taken from the Principal Commissioner of Income Tax. Furthermore, it was pointed out that a case could be reopened after three years under the new law, only if the escaping assessment was above Rs. 50 Lacs. However, in the instant case, the amount of escapement determined by the AO was only Rs. 14,30,285/-. In the circumstances, it was held that the said initiation of the assessment proceedings was not in accordance with law and therefore, the consequent order was void ab initio and was required to be annulled. Drawing our attention to the paper book filed by him, the ld. AR highlighted pages 157 (copy of notice issued under section 148 of the Act on 30.06.2021), page 162 (copy of communication dated 1.06.2022 received under section 148A(b) of the Act), page no. 170 (copy of submission dated 14.06.2022 filed with the ld. AO) and page no. 172 (copy of the order dated 26.07.2022 passed under section 148A(d) of the Act) to demonstrate that the final notice had been issued beyond the period of three years, as the three year time limit expired on 20.03.2020, which had been extended up till June, 2021 by the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal in Civil Appeal No. 3005/2022. However, while doing so, the Hon’ble Court had pointed out that the said notice was to be treated as a notice under section 148A(b) and the new procedure was to be applied to obtain approval from the appropriate authority in accordance with the amended provisions of the Act. The ld. AR pointed out that after June, 2021, the approval was required to be taken under section 151 (ii) for cases where more than three years had lapsed at the end of the assessment year. The ld. AR also drew our attention to various judgments passed by the Hon’ble High 5

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 Courts and the Tribunals wherein it had been held that where the notice had been issued beyond the period of three years from the end of the relevant assessment year, the case of the assessee fell within the provisions of section 151(ii) of the amended law and the specified authority for grant of approval in such cases was specified as Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General and where the approval had been taken from the Principal Commissioner of Income Tax instead, the impugned notice under section 148 was invalid and therefore, the consequent proceedings under section 147 were held to be void ab initio. The cases cited before us where this view had been taken were ACIT vs. Surya Ferrous Alloys (P.) Ltd. [2024] 169 taxmann.com 736 (Mum-Trib) and Income Tax Officer (Intnl Taxation) vs. Shapoorji Pallonji Mistry Sterlin Bay (2025) 180 taxman.com 870 (Mum-Trib), Ramesh Bachulal Mehta vs. Income Tax Officer (2025) 177 taxman.com 606 (Bombay). Accordingly, it was prayed that following the ratio of these judgments, the assessment proceedings against the assessee which were void ab initio. 5. On the other hand, Sh. Koushlendra Tewari, CIT DR (hereinafter referred to as the ld. DR) argued that the ld. CIT(A) had already considered the arguments of the assessee and after considering them had held that the assessment order, as valid as the Assessing Officer had taken the approval of the competent authority and passed the assessment order after providing sufficient opportunities to the assessee. He also pointed out that the ld. CIT(A) had considered the submissions of the assessee on the merits and observed that the confirmation obtained from the Central Bank of India did not make out its story that the account was being operated by Utkarsh Micro Finance Limited during the period. Accordingly, he placed reliance on the orders of the ld. Assessing Officer and the ld. CIT(A) and prayed that the order of the Assessing Officer may be upheld. 6

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 6. We have duly considered the facts of the case and the arguments of the rival parties. It is seen from the record that the last day of the assessment year was 31.03.2018 and the time limit of three years lapsed on 31.03.2021 which falls between 20.03.2020 and 31.03.2021, during which the provisions of the taxation and other laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) would apply. Accordingly, the amended provisions under the Act read with TOLA extended the time limit for granting approval till 30.06.2021 by the specified authority. It is observed that the notice under section 148 was issued on 30th June, 2021 and thereafter, following the judgment of the Hon’ble Supreme Court in the case of Ashish Agarwal (supra), the communication under section 148A(d) of the Act had been issued on 1.06.2022. Subsequently, the order under section 148A(b) had been passed on 26.07.2022, and then a fresh notice u/s 148 was issued on 26.07.2022. Thus, it is apparent that the issue of final notice u/s 148 was beyond the period of three years from the end of the assessment year. In the case of Union of India vs. Rajiv Bansal (2024) 167 taxman.com 70 (SC), the Hon’ble Supreme Court had held that where more than three years have elapsed from the end of the relevant assessment year then re-assessment notice could be issued after the expiry of three years from the end of the relevant assessment year only as per the conditions laid down in section 151. Thus, it could be issued only after obtaining the prior approval of the Principal Chief Commissioner or Chief Commissioner, Principal Director General or Director General of Income Tax. We notice that in the present case, the final notice under section 148 had been issued on 26.07.2022 which is beyond the period of three years and for income escaping assessment which is below the amount of Rs. 50 Lacs. In the circumstances, it is quite clear that the said notice could not have been issued except as per the amended section 149 and section 151. The issue has been 7

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 elaborately discussed by the Mumbai Bench ‘G’ in the case of ACIT vs. Surya Ferrous Alloys (P) Ltd (supra) which is also a case relating to A.Y. 2017-18. We have also considered the order of the Hon’ble Bombay High Court in Ramesh Bachulal Mehta vs. ITO (supra) and after considering these judgments, we hold that in the instant case as the amount escaping assessment was less than Rs. 50 Lacks and the approval has been obtained from the PCIT after three years from the close of the assessment year, therefore, the notice under section 148 dated 26.07.2022 and the subsequent assessment proceedings are void on that account. Ground no. 1 of the assessee’s appeal is accordingly allowed. 7. With regard to the merits of the case, we observe that the assessee had furnished a certificate from the Central Bank of India, to the Assessing Officer that during the period of demonetization, the said bank account was standing in the name of Utkarsh Micro Finance Limited (Utkarsh Coreinvest Limited) and therefore, as the assessee was not operating the said bank account during the period, it could not be expected to explain the credits into the same and be held accountable for the same prior to its commencement of business on 23.01.2017. Therefore, even otherwise there does not appear to be any reason to regard the amount credited into the said bank account before the assessee initiated operations, to be unexplained money in its hands. The addition is therefore, deleted. 8. In the result, the appeal of the assessee is allowed. Order pronounced on 14.05.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14/05/2026 Sh

ITA No.146/VNS/2025 Utkarsh Small Finance Bank Ltd. A.Y. 2017-18 Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.