INCOME TAX OFFICER, WARD-1(4), JALGAON, JALGAON vs. VIDYA URBAN CO OPERATIVE CREDIT SOCIETY LIMITED, JALGAON

Revenue has raised following grounds of appeal :

The Ld. CIT(A) erred in deleting the addition of Rs. 11.52,09,900/- made u/s 69A, failing to appreciate that the assessee did not furnish any evidence to establish the identity of depositors, source of funds, business nexus of cash deposits or proof that the deposits belonged to members. The AO's findings that the assessee accepted unverified cash from non-members and acted as a conduit for demand draft transactions remained unrebutted. Deletion of the entire addition, therefore, lacks factual and legal justification. 3. The Ld. CIT(A) erred in holding that merely because cash deposits were recorded in the books of account, the same cannot be treated as unexplained u/s 69A, ignoring that the onus to establish genuineness, identity, and source lies on the assessee, which was not discharged. 4. The Ld. CIT(A) erred in allowing deduction u/s 80P(2)(a)(i) without considering the AO'S finding that the assessee violated the principle of mutuality by conducting transactions with non-members, and was not engaged in genuine co-operative credit activity. 5. The Ld. CIT(A) erred in holding that the assessee was eligible for deduction u/s 80P solely on the basis of the Mavilayi (SC) decision, without appreciating that the factual matrix in the present case demonstrates activities in consistent with the nature of a credit co- operative society. 6. The Ld. CIT(A) erred in deleting additions of Rs.32,18,244/- (static liabilities) and Rs.62,260/- (unverified gift expenses) without examining the factual defects identified by the AO and without calling for supporting evidence from the assessee. 7. The Ld. CIT(A) erred in holding that no adjudication was required on the above additions on the ground that income, even if sustained, would be eligible for deduction u/s 80P. This finding is contrary to law since the character of income and factual verification must be independently examined before considering allowability of deduction. 8. The order of the Ld. CIT(A) is perverse, contrary to evidence on record, suffers from incorrect appreciation of law and facts, and deserves to be set aside and order of the AO to be restored. 9. The appellant craves leave to add, amend, alter, or withdraw any of the above grounds at the time of hearing.”

Facts of the case in brief are that the assessee is a Cooperative Society and did not file the regular return of income for A.Y. 2015-16. Subsequently, case selected for scrutiny by issuance of notice u/s.148 of the Act on 05.04.2022. The assessee has filed return in response to notice u/s.148 of the Act declaring gross total income of Rs.84,01,679/- and claimed the same as deduction u/s.80P of the Act, thus declaring Nil income. Reassessment proceedings carried out for examining the source of cash deposits in the bank account of the assessee. Assessee filed various submissions and after due consideration of these submissions, ld. Assessing Officer concluded the assessment proceedings assessing the income at Rs.11,87,32,083/- which inter alia included the addition for unexplained money u/s.69 of the Act at Rs.11,52,09,900/-.

Aggrieved assessee preferred appeal and raised the legal ground challenging the validity of notice u/s.148 of the Act being time barred and thereby rendering the reassessment proceedings as bad in law. Assessee has also raised grounds on merits of the case. Ld.CIT(A) on due consideration of the settled judicial precedents allowing the legal ground raised by the assessee quashed the assessment order. Further, ld.CIT(A) dealt with merits of the case and observed that the assessee has submitted the audited financial statements and that the alleged bank account cash deposits have been made are duly forming part of the books of account and transactions are duly accounted and the alleged cash deposits cannot be categorised as unexplained. Further, ld.CIT(A) also deleted the addition u/s.80P(2)(a)(i) of the Act as the primary activity is of providing credit facilities to its Members and that the assessee is not categorised as a Cooperative Bank and therefore eligible for deduction u/s.80P(2)(a)(i) of the Act. Now the Revenue is in appeal before this Tribunal.

Ld. CIT-DR at the outset referred to the legal ground raised in Ground No.1 and submitted that ld. Assessing Officer has issued valid notice u/s.148 of the Act and further made reference to the following written submissions :

The argument of the Id DR is that the time allowed to the assessee to respond to the notice issued under section 148A(b) i.e. from 24.03.2022 to 08.03.2022 should be excluded as per the fifth proviso to section 149(1). We are of the considered view, for the purpose applying the exclusion period, the notice should first survive the test of being issued either under section 149(1)(a) or 149(1)(b) under the new regime. In the given case the notice under section 148 of the Act for AY 2015-16 does not survive the test by virtue of the first proviso and therefore the question of applying the fifth proviso for calculating the time limit does not arise. 11. In view of these discussions and considering the provisions of the Act r.w. the ratio laid down by the Hon'ble Supreme Court we hold that the notice issued under section 148 of the Act dated 18.04.2022 is barred by limitation. Accordingly the reassessment proceedings based on the invalid notice does not survive and the additions made therein are liable to be deleted. (Emphasis added). Appeal before Hon.ITAT 3. One of the grounds preferred by the revenue before the Hon.ITAT is that the notice u/s 148 issued on 01.04.2022 for AY 2015-16 was not time barred. It is contended by the revenue that if the time provided for replying to notice u/s 148A(b) as per third proviso to section 149(1) is applied, then the notice u/s 148 is well within the statutory limitation ie.31.03.2022 The following arguments being made which may be considered along with the arguments during the hearing. Is notice u/s 148 issued in case of assessee is hit by 1st proviso to Section 149(1)? 3.1 As per the first proviso to section 149(1) of the new regime, no notice shall be issued for the relevant assessment year beginning on or before 01.04.2021, if such notice could not have been issued at that time on account of being time-barred as per clause (b) of 149(1) of the old regime (Reassessment provisions as applicable before 01.04.2021). Under the old regime, notice u/s 148 could be issued for up to 6 years. Thus, for AY 2015-16, the time available for issuing notice u/s 148, as per old law, was till 31.03.2022. Therefore, as per the new section 149(1) rws first proviso to section 149(1), the time- barring for AY 2015-16 was 31.03.2022, if the escaped income was more than Rs.50 Lakhs. In the case of the assessee, the escaped income was more than Rs. 50 lakhs and therefore, time limit to issue the notice was 31.03.2022. The AO issued notice u/s 148A(b) on 19.03.2022 and allowed the assessee time till 26.03.2022 to respond. However, assessee failed to respond and AO passed order u/s 148A(d) and issued notice u/s 148 on 05.04.2022. As per the 3rd proviso to section 149 (1)(b), Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 1484 or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded: Thus, after exclusion of 7 days which were allowed to the assessee, as per notice u/s 148A(b), the notice u/s 148 was within 31.03.2022. Therefore, the AO has rightly issued notice u/s 148 for AY 2015-16 on 05.04.2022. After excluding the period of 7 days provided to the assessee for replying to the notice u/s 148A(b) legally notice u/s 148 was issued before 31.03.2022 ie within the time limit prescribed u/s 149 after exclusion of the period allowed to the assessee under notice u/s 148A(b). Is notice u/s 148 dated 04.04.2022 in the case of assessee valid under new regime? 3.2 The notice u/s 148 was issued on 05.04.2022. Therefore, it was case of reassessment beyond the three year period. So, it had to qualify the test of section 149(1)(b). Therefore, following conditions needed to be fulfilled a. Amount of escapement of income is more than 50 Lakhs b. Sanctioning authority should be PCCIT. Further, the procedure prescribed in section 148A needed to be followed. In the case of the assessee, the escapement of income is more than 50 Lakhs and sanctioning authority is PCCIT, Pune. Further, notices u/s 148(b) was issued on 19.03.2022. Order u/s 148(d) was passed on 05.04.2022. Subsequently, notice u/s 148 was issued on 05.04.2022 and after applying time exclusion as per third proviso, it was deemed to be within 31.03.2022. Thus, it is a valid notice as per section 149(1)(b) rws first and third proviso. Does first proviso gets precedence over the third proviso ? 3.3 The Ld.CIT(A), relying on the order of Hon.ITAT in Babu Hasan Sheikh(supra), has held that the first proviso to section 149(1) gets precedence over third proviso. Ld.CIT(A) has held that since notice u/s 148 is hit by first proviso, third proviso does not come to the aid of the AO. Before going into any such interpretation, it is necessary to look into the purpose of use of "Proviso" in legal drfating. A proviso to a section or sub-section is a legal clause that begins with the words "Provided that...". Its primary purpose is to qualify, exclude, limit, or create an exception to the main, general enactment, taking out of it a specific situation that would otherwise fall within its scope. For eg. In case of new amended section 149(1), the first proviso to new section 149(1) restricts the time period for issuing reassessment notices for AY 21-22 and earlier AYrs by linking it to time limits prescribed under the old Section 149 (un-amended) and does not allow the benefit of extended time limits under new law. For eg. though a notice u/s 148 is issued in say, January 2022 and new section 149(1) allows reassessment upto ten years, no notice u/s148 can be issued for say AY 2012-13 in January, 2022. This is due to the first to proviso to new section 149(1) which limits reassessment as per old section 149(1) where the time limit upto 6 years was prescribed. Thus, we see that first proviso limits or qualifies or excepts the time limits given in the main sub-section (1). 3.3.1 Now, let us see what purpose 3 ^ (rd) proviso to section 149(1) serves. The relevant proviso is reproduced below Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded: The proviso starts with the words " that for the purposes of computing the period of limitation as per this section". Thus, it is evident that while computing the period of limitation of three years or ten years, the time excluded as per this proviso should be considered. This proviso excludes the time allowed to the assessee as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order of any court. Thus, this proviso stops the clock of limitation at the moment stay/injunction/notice u/s 148A(b) is issued and restarts only when stay/injunction is lifted or time allowed as per notice u/s 148A(b) ends. Thus, this proviso excludes certain mandated time in special cases, creating an exception to time lines as per main sub- section. 3.4 It is pertinent to note here that if the contention of Ld.CIT(A) is accepted then first proviso gets primacy over 3rd proviso. It is a trite law that section as a whole should be read together and not in parts. No one proviso should be considered having primacy over the other. The doctrine of harmonious construction is a fundamental rule of statutory interpretation used to resolve conflicts between different provisions of a statute or between multiple statutes. It mandates that seemingly contradictory provisions should be interpreted to give effect to both, ensuring that no provision is rendered useless or dead, as the legislature is presumed not to create inconsistencies. Provisions must not be read in isolation but as part of the entire statute, aligning with the overall legislative intent. Hence, to say that notice u/s 148 should be tested first on restriction provided in first proviso to section 149(1) without even applying third proviso for computing the period of limitation under section 149(1) is not as per law. Provision for benefit of Taxpayer 3.5 New reassessment regime was brought in to safeguard the interests of the taxpayers and bring in transparency in the reassessment proceedings. Hence, new section 148A was introduced where in opportunity is given under section 148A(b) to the taxpayer of being heard in respect of the information in the possession of the department. It is in this context the third proviso excludes the time or the extended time allowed u/s 148A(b) notice. This is beneficial provision and in the interest of the transparency. Treating this proviso as redundant does not serve any purpose New Machinery after 01.04.2021 3.6 It is pertinent to note that Supreme Court in various decisions and most famously in Union of India v. Ashish Agarwal [2022]444ITRI(SC) has stated that after 01.04.2021, the procedure for reassessment should be the new regime brought in by the FA 2021. Now, as per first proviso to section 149(1) of the new regime, as on 01.04.2021, the AY 15-16 was "live year or actionable year" ie the farthest department can go back and reassess, provided other conditions such quantum of escapement etc. are satisfied. Hence, after 01.04.2021, for initiating reassessment proceedings for AY 2015-16, new machinery of reassessment such as section 148A had to be used. This will include notices u/s 148A(b), order u/s 148A(d) etc. Now, when these sections are to be given full effect all relevant provisions related to these sections have to be considered. The third proviso to section 149(1) provides exclusion of time or extended time allowed to the assessee to reply to notice u/s 148A(b). To ignore this proviso would be curtail the operation of the section 148A. 3.6.1 Once the first proviso is satisfied (i.e., the year was "actionable" on 01.04.2021 for AY 2015-16), the computation of the actual date of expiry for that "actionable" year must be done in accordance with the current statutory framework, which includes the provisions of section 148A and third proviso to section 149(1). To hold otherwise would be to suggest that for any year beginning on or before 01.04.2021, the Revenue must comply with the new Section 148A (natural justice) but is denied the time-exclusion benefits under third proviso to specifically provided to facilitate that compliance. This would create a legislative absurdity where the Revenue is burdened with more procedures but stripped of the time to complete them. It can also be argued that if the machinery of the old regime was used for AY 2015-16 then notice u/s 148 would have been well within time as it is compliance with section 148A procedures which had necessitated extra time. Impinges on powers of Judiciary 3.6.2 The subordination of the third proviso to the first proviso also results in impinging on the powers of judiciary. This proviso excludes the time allowed to the assessee as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order of any court. Thus, this proviso stops the clock of limitation at the moment stay/injunction is granted and restarts only when stay/injunction is lifted. Now, let us suppose a scenario when third proviso is rendered un-operational. Suppose notice u/s 148(b) for AY 2015-16 is issued on 10.03.2022 and assessee files writ against the notice in High Court. High Court grants stay on 15.03.2022. The stay is vacated on 07.04.2022 and writ is dismissed. Then will the reassessment proceedings be barred by limitation as the time barring date was 31.03.2022? This scenario leaves revenue with no recourse. It also impinges on the powers of the judiciary. This surely is not the intention of the legislature. The courts should prefer an interpretation that makes a statute effective, operative, and functional rather than one that defeats its purpose or renders it meaningless. Harmonious construction of the new reassessment regime is necessary as it was brought in to safeguard the interests of the taxpayers and bring in transparency in the reassessment proceedings. Decision of Bombay High Court in Hexaware Technologies 4. The Ld.CIT(A) has quoted the decision of the Mumbai Bench of ITAT in the case of Babu Hasan Sheikh (ITA No.926/Mum/2025) wherein it was held that notice u/s 148 dated 18.04.2022 was time barred as first of all, the test of first proviso to section 149(1) should be applied and seen that the notice u/s 148 is within time. If the notice is not within time then the question of applying 3 ^ (td) proviso for calculating the time limit does not arise. 4.1 However, this is not legally tenable. First proviso to sec.149(1) restricts the time limit for issuing notice u/s 148 for AYrs before AY2022-23. Whereas the purpose of third proviso is to see whether the notice u/s 148 is as per time limit as per section 149(1)(a) or 149(1)(b). Both have different purposes. Hence, in the first instance, third proviso should be applied to see whether it falls under three year or ten year category. Once, that is done, then it is to be seen whether the notice u/s 148, after exclusion of time, passes the test of first proviso. This interpretation has been upheld by the Hon. Jurisdictional High Court in Hexaware Technologies Limited [2024] 162 taxmann.com 225 (Bombay)/[2024] 464 ITR 430 (Bombay) (See Annexure-1). The relevant para 30 is reproduced here 30. With respect to applicability of the fifth proviso and the sixth proviso to Section 149(1)(b) of the Act for extension of limitation for issuing the notice under section 148 of the Act, fifth and sixth provisos are only applicable with respect to the period of limitation prescribed in Section 149(1) of the Act, i.e., three years or ten years, as the case may be. Fifth proviso or sixth proviso extend limitation for issuing notice under section 149 of the Act, however, the first proviso is an exception to the period of limitation and provides for a restriction on the notices under section 148 being issued for Assessment Years upto 2021-22 beyond a certain date. Therefore, the way the Section would operate, is first to decide whether a notice issued under section 148 of the Act is within the period of limitation in terms of Section 149(1)(a) or (b) of the Act. To decide whether the notice is within the period of limitation under section 149(1)(a) or (b) of the Act, the extension of time as per the fifth and/or sixth proviso would be considered. Once, the notice is otherwise within the period of limitation, thereafter one has to see whether the said time limit is within the restriction provided in the first proviso or not. If the notice is beyond the restriction period, the notice is invalid. ( emphasis supplied) Thus, the Hon.Bombay High Court has clearly mentioned how the section 149 has to be read. First exclusion provisos such as third and fourth ( fifth/sixth in HC order as by FA 2023, three new provisos related search were introduced and third proviso became fifth proviso) and then the test of first proviso should be applied. Thus, in the case of the assessee, at first instance - if the exclusion of third proviso is applied then the notice is within 31.03.2022 and thus, passes the test of first proviso. Conclusion: 4.0 The interpretation that views the first proviso as an overriding "veto" over the rest of the section goes against the established principles of law. The first proviso specifies that a notice cannot be issued if it "could not have been issued at that time" under the old law. This phrase "at that time" refers to the limitation status as of 01.04.2021. Since AY 2015-16 was not barred as of 01.04.2021, the first proviso does not prohibit the issuance of the notice; it merely limits the Revenue's ability to use the new 10-year window for cases that were already dead under the 6-year window. To give primacy to the first proviso over the third proviso fails the test of harmonious interpretation. It also creates absurd situation where after 01.04.2021, the Revenue is expected to comply with the new Section 148A (natural justice) but is denied the time-exclusion benefits specifically provided to facilitate that compliance. The third proviso to Section 149(1) is essential to the working of the new assessment. Any interpretation which renders third proviso otiose is not as per the letter and spirit of the law. Lastly, the third proviso accommodates the Judicial intervention. The overruling of the third proviso may lead to unintended consequence of impinging on the scope of exercise of the powers by Constitutional courts. Further, the para 30 of the decision of Jurisdictional High Court in Hexaware Technologies Limited [2024] 162 taxmann.com 225 (Bombay)/[2024] 464 ITR 430 (Bombay) supports the above contention of the Revenue. 4.1 Thus, in view of the above, though the notice u/s 148 was issued on 05.04.2022, through the application of third proviso to section 149(1) is legally indistinguishable from a notice issued on or before 31.03.2022. In view of the above discussion, it is prayed that the reassessment proceedings may kindly be upheld. Submitted for kind consideration.”

On the other hand, ld. Counsel for the assessee strongly relied on the finding of ld.CIT(A) and referred to the recent decision of Coordinate Bench, Mumbai in the case of Babu Hasan Shaikh in ITA No.926/Mum/2025 order dated 28.04.2025. Further, ld. Counsel for the assessee referred to the decision of Hon’ble Jurisdictional High Court in the case of Cherian Nallathu Abraham Annamma Vs. ITO [2025] 179 taxmann.com 433 (Bombay) wherein the Hon’ble Court held that the Revenue had categorically made a concession before the Hon’ble Supreme Court that for A.Y. 2015-16 it would drop all notices issued u/s.148 after 01.04.2021 and since the notice has been issued on 05.04.2022, the consequential assessment order, notice of demand, penalty notices/orders as well as recovery notices be quashed and set aside. He also referred to the decision of this Tribunal in the case of Shri Vardhaman Nagri Sahakari Patsanstha Vs. ITO in ITA No.2451/PUN/2025 dated 30.12.2025 wherein the Tribunal followed the decision of Hon’ble Jurisdictional High Court in the case of Cherian Nallathu Abraham Annamma Vs. ITO (supra).

We have heard the rival submissions and perused the record placed before us. We observe that the Revenue has challenged the finding of ld.CIT(A) holding that the notice u/s.148 of the Act is time barred and that ld.CIT(A) further erred in quashing the reassessment proceedings. We observe that the asesssee is Credit Cooperative Society and did not file the return of income for A.Y. 2015-16 and that no notice was issued during the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) period and directly notice u/s.148A(b) of the Act was issued on 19.04.2022 show causing the assessee as to why the proceedings u/s.148 of the Act should not be initiated. In response, the assessee failed to file any reply. Thereafter, ld. Assessing Officer issued notice u/s.148A(d) of the Act on 05.04.2022. Ld.CIT(A) has held that since notice u/s.148 of the Act has been issued after 31.03.2022 after six years from the end of A.Y. 2015-16 the same is time barred. For arriving at this finding, ld.CIT(A) has referred to plethora of decisions in its finding which is appearing at para 6 of the impugned order and the same reads as follows :

We observe that ld.CIT(A) has referred to plethora of decisions and even before this Tribunal ld.DR has filed detailed submissions. We however note that judgment of Hon’ble Jurisdictional High Court in the case of Cherian Nallathu Abraham Annamma Vs. ITO (supra) has been followed by this Tribunal in the case of Shri Vardhaman Nagri Sahakari Patsanstha Vs. ITO (supra) by holding as under :

We also take note of the judgment of Hon’ble Delhi High court in the case of Shailendra Nath Rai Vs. ACIT and Another in Writ Petition (Civil) No.15305/2024, CM Appl.64265/2024 dated 29.05.2026 where also similar type of issue but pertaining to A.Y. 2017-18 and that to validity of notice u/s.148 of the Act came into consideration and the interplay of proviso 1 to section 149 as well as 5th and 6th proviso to section 149 and Hon’ble Court held that the time between the date of notice u/s.148A(b), i.e. 29.03.2024 and the date of which the petitioner had filed the reply on 21.04.2024 as given under 5th proviso is to be accepted and then from that date the period of seven days is to be taken as per the 6th proviso for the purpose of determining the last date of limitation by which the ld. Assessing Officer has to pass the order u/s.148A(d) and issue notice u/s.148 of the Act. The above judgment has been rendered by the Hon’ble Delhi High Court on 29.05.2026 and on the application of the same in light of above judgment we notice that in the instant case notice u/s.148A(b) of the Act has been issued on 19.03.2022 and the assessee was required to furnish reply on or before 26.03.2022. The assessee did not file any reply and therefore we count seven days from 26.03.2022 the last date for issuing notice u/s.148A(d) and 148 of the Act will be 03.04.2022. Even after excluding seven days as provided in 6th proviso, ld. Assessing Officer ought to have been issued notice u/s.148A(d) and 148 latest by 03.04.2022 whereas the notice has been issued on 05.04.2022. Therefore, even in light of the judgment of Hon’ble Delhi High Court also the notice u/s.148 of the Act issued in the instant case is time barred. We therefore fail to find any inconsistency in the finding of ld.CIT(A) quashing the notice u/s.148 of the Act as time barred and also holding the subsequent reassessment proceedings as bad in law.

Even on merits, we take note of the fact that ld.CIT(A) has clearly observed that the bank account in which the alleged cash deposits have been made were forming part of the audited financial statements and that the transactions were duly reflected in the books of account and therefore the finding of ld.CIT(A) on merits also deserves no interference.

In the result, the appeal of the Revenue is dismissed.