E ASHWATH NARAYAN,BANGALORE vs. INCOME TAX OFFICER, WARD-3(3)(1), BANGALORE

Brief facts of the case are that the assessee had not filed the return of income for the A.Y 2015-16. The AO had information within the meaning of the provision of explanation 1(i) of section 147 of the Act which suggests that the assessee during the F.Y. 2014-15 had sold an immovable property and deposited cash being excess of Rs.50,00,000/- which was represented in the form of an asset i.e. immovable property being land or building or both as per the explanation to section 149(1) of the Act. On examination of the information available on records, it has been seen that the assessee had sold an immovable property for a sale consideration of Rs. 90,00,000/- to Shri Dhandapani Narayan. Further the assessee has deposited cash of Rs.39,23,000/- in Canara bank and did not disclose the nature & source thereof. The assessee had also earned salary income of Rs. 70,581/- from the Senior Post Master. The AO found that the assessee failed to file the return of income for the A.Y 2015-16 and failed to disclose the salary Income & capital gain. Based on the above information the AO noted that there is an E. Ashwath Narayan, Bangalore Page 4 of 19 income chargeable to tax that has escaped assessment for the A.Y 2015-16 & accordingly issued show cause notice u/s 148A(b) of the Act on 23/03/2022 by directing to submit the response with supporting documents on or before 29/03/2022. The AO passed a blank order u/s 148A(d) of the Act on 31/03/2022. Thereafter the AO issued notice u/s 148 of the Act on 31/03/2022 requiring the assessee to furnish the return within 30 days from service of the notice. However during the course of the assessment proceedings, the assessee neither responded to any of the notices issued u/s 148 & u/s 142(1) of the Act nor in response to show cause notices u/s 144 of the Act. The AO completed the assessment u/s 147 r.w.s. 144 of the Act on 04/03/2023 on a total income of Rs.2,24,25,743/- by making the following additions- i) Salary/Pension received from the officeof the senior postmaster amounting to Rs.70,581/-treated as income from undisclosed salary. ii) The value of all credits including cash deposits reflecting in Canara bank accounts of the assessee amounting to Rs.1,33,55,162/- deemed as unexplained money u/s 69A of the Act. iii) Entire consideration received from the sale of immovable property amounting to Rs. 90,00,000/- assessed as undisclosed LTCG by treating the cost of acquisition deemed to be NIL. 4. Aggrieved by the assessment order passed u/s 147 r.w.s 144 of the Act, the assessee preferred an appeal on 30.05.2024 before the Commissioner of income tax (appeals)/NFAC. The delay in filing the appeal was condoned by the learned CIT(A) based on application for condonation delay dated 08.07.2024. E. Ashwath Narayan, Bangalore Page 5 of 19 5. However, the learned CIT(A)/NFAC passed the order u/s 250 of the Act dated 02.08.2024 by not allowing the appeal as the assessee had not filed any documents/ explanations/evidences in support of his contentions & therefore the ld. CIT(A)/NFAC is of the view that the assessee is not willing to co-operate & accordingly the assessee has grossly failed in discharging the onus cast upon him for providing the documents/ explanations/evidences and thus the ld. CIT(A)/NFAC held that the additions made by the AO are found to be correct and thus upheld.

Aggrieved by the order of the ld CIT(A)/NFAC dated 02.08.2024, the assessee has filed the present appeal before this Tribunal. The assessee has also filed the paper book comprising 69 pages containing therein Written submission and relied case laws, Copies of the notice u/s 148A(b), order u/s 148A(d), notice u/s 148 of the Act, Copy of the Bank Statement as well as copy of copy of the Sale deed executed by the three joint owners.

Before us, the ld. AR of the assessee vehemently argued on the legal grounds by submitting that the AO by issuing notice u/s 148A(b) of the Act dated 23/03/2022 by granting time only up to 29/03/2022, which is less than the mandatory minimum time period of 7 days vitiated the entire proceedings. Further AR of the assessee submitted that the AO’s order u/s 148A(d) of the Act was completely blank and devoid of any contents, & thus violating the basic ingredients of income escaping assessment & thus rendering the entire proceedings void-ab-initio and illegal. Lastly the AR of the assessee submitted that the CIT(A) gross erred in overlooking the fact that the AO had not uploaded the mandatory approval obtained u/s 151 of the Act in the income tax portal. E. Ashwath Narayan, Bangalore Page 6 of 19 8. The ld. DR on the other hand supported the order of the authorities below & submitted that the assessee is a non filer and had not submitted any documents/information/evidences before any of the Authorities below. Further the ld. DR submitted that the AO had information within the meaning of the provision of explanation 1(i) of section 147 of the Act which suggests that the assessee during the F.Y. 2014-15 had sold an immovable property amounting to Rs. 90,00,000/- and deposited cash being excess of Rs.50,00,000/- which was represented in the form of an asset. Further the assessee had also Salary Income which was not disclosed by the assessee & therefore the AO had rightly assessed on a total Income of Rs.2,24,25,740/-

We have heard the rival submissions & perused the material available on record. It is an undisputed fact that the assessee had not filed his return of Income for the Assessment year 2015-16 either voluntarily u/s 139 of the Act or in response to notice u/s 148 of the Act. Further, we also take a note of the fact that, during the course of the assessment proceedings, the assessee neither responded to any of the notices issued u/s 142(1) of the Act nor in response to show cause notices u/s 144 of the Act. The AO completed the assessment u/s 147 r.w.s. 144 of the Act on 04/03/2023 on a total income of Rs.2,24,25,743/- by making the following additions- i) Salary/Pension received from the office of the senior postmaster amounting to Rs.70,581/-treated as income from undisclosed salary. ii) The value of all credits including cash deposits reflecting in Canara bank accounts of the assessee E. Ashwath Narayan, Bangalore Page 7 of 19 amounting to Rs.1,33,55,162/- deemed as unexplained money u/s 69A of the Act. iii) Entire consideration received from the sale of immovable property amounting to Rs. 90,00,000/- assessed as undisclosed LTCG by treating the cost of acquisition deemed to be NIL.

1 Further, on going through the order of ld. CIT(A)/NFAC dated 04/03/2023, we also take a note of the fact that the assessee had also not filed any documents/ explanations/evidences in support of his contentions & therefore the ld. CIT(A)/NFAC is of the view that the assessee is not willing to co-operate & accordingly the assessee has grossly failed in discharging the onus cast upon him for providing the documents/ explanations/evidences and thus the ld. CIT(A)/NFAC held that the additions made by the AO are found to be correct and thus upheld.

2 Before us, the assessee has raised mainly two legal grounds along with the grounds on merits for the addition of Rs.90,00,000/- as LTCG only. Since the legal grounds which is raised before us for the first time goes to the root of the case, we deem it fit to take the legal grounds first for adjudication & if necessary so desires, we will adjudicate the grounds on merit also.

3 Now the first legal ground as raised by the assessee is that the AO by issuing notice u/s 148A(b) of the Act dated 23/03/2022 by granting time only up to 29/03/2022, which is less than the mandatory minimum time period of 7 days vitiated the entire proceedings as this is clear gross violation of principles of natural justice. Further the second legal ground as raised by the assessee is that the AO’s order u/s 148A(d) of the Act was completely blank and devoid of any contents, & thus violating the basic ingredients of E. Ashwath Narayan, Bangalore Page 8 of 19 income escaping assessment & thus rendering the entire proceedings void-ab-initio and illegal. We will take up both the legal grounds ad seriatim.

4 Before us, the ld.AR of the Assessee submitted that the show cause notice u/s 148A(b) of the Act dated 23/03/2022 granting just 6 (six) days to submit response vitiated the entire reassessment proceedings. The notice issued u/s 148A(b) of the act are reproduced below for the sake of convenience & reference – E. Ashwath Narayan, Bangalore Page 9 of 19

5 On going through the above notice issued u/s 148A(b) of the Act, we find that the notice dated 23/03/2022 was issued for the assessment year 2015-16 requiring the assessee to show cause as to why in view of the details contained in Annexure A, a notice u/s 148 of the Act should not be issued. Further we also take a note of the fact that the AO had directed the assessee to submit his response on or before 29/03/2022. Therefore, it is not in dispute that the AO has granted only 6 (six) days’ time to submit the response to the show cause notice which is less than the mandatory minimum time period of 7 days.

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7 On plain reading of the above provision of the section 148A(b) of the Act, the AO shall, before issuing any notice under section 148, provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a). Undoubtedly, as per the mandate of Section 148A(b) of the Act, it is obligatory on the part of the AO to grant to the assessee a time period of not less than 7 days from the date of issue of the notice to explain as to why based on the E. Ashwath Narayan, Bangalore Page 11 of 19 information shared with him a notice u/s.148 of the Act shall not be issued to him.

8 We have also taken a note that even the guidelines for issuance of notice u/s 148 of the Act issued by the CBDT vide F.No.299/10/2022-Dir(lnv.III)/611 Dated: 01/08/2022 also provide that if the result of an enquiry/information available suggests that income chargeable to tax has escaped assessment, the AO shall provide an opportunity of being heard by issuing the show cause notice and the notice shall provide between seven to thirty days time for the assessee to submit their reply. The relevant para are reproduced below for ease of reference & convenience-

9 However, in the present case, the A.O vide notice u/s 148A(b) of the Act, dated 23.03.2022 by calling upon the assessee to show cause on or before 29.03.2022 had effectively allowed a time period of only 6 days to file his explanation which we not found to be in conformity with the mandate of law. Further we are of the opinion that there is a clear violation of the principles of natural justice by providing inadequate opportunity of being heard to the assessee. We are also of the considered opinion that minimum statutory requirement of 7 days to submit the response to show cause is not merely a procedural formality but an essential aspect of due process. It ensures the legal process remains fair & just. Further the Court have held that while computing 7 days period to give response to show cause notice, the date of receiving the notice and the holidays are to be excluded. In view of the above, as the minimum seven days requirement are mandatory requirement and E. Ashwath Narayan, Bangalore Page 12 of 19 failure to comply with would render a notice itself invalid. Therefore, on this ground alone, the notice would be vitiated resulting in quashment of not only the notice but also the subsequent assessment orders, penalty orders etc.

10 Further, in holding so, we also take a guidance & support from the judgment of Hon’ble juri ictional High Court of Karnataka in the case of Panjos Builders (P) Ltd. V. Income Tax Officer [2024] 161 taxmann.com 573 (Karnataka) wherein the Hon’ble High Court following the judgment of the Hon’ble High Court of Bombay in the case of Mukesh J. Ruparel v. ITO [2023] 153 taxmann.com 70/ 295 Taxman 475 [ W.P. No. 15268 of 2023 dated 25/07/2023 held that if notice under section 148A(b) of the Act prescribes a period lesser than a period of seven days as contemplated in the said provision, the said notice would be vitiated resulting in quashment of not only the notice but also the subsequent assessment orders, penalty notices, orders etc. The relevant paragraph of the judgment is reproduced below for ease of reference & convenience-

11 Now coming to the second legal ground as raised by the assessee that the AO’s order u/s 148A(d) of the Act was completely blank and devoid of any contents & thus the entire proceedings is void-ab-initio and illegal. On plain reading of the provisions contained in section 148A(d) of the Act as above, the AO shall within one month as specified decide based on the material available on record including the reply of the assessee whether or not it is a fit case to issue a notice u/s 148 of the Act.

12 Before us, the AR of the assessee submitted that the AO’s order u/s 148A(d) of the Act was completely blank and devoid of any contents which violates the basic ingredients of income escaping assessment & thus rendering the entire proceedings void- ab-initio and illegal. The order passed u/s 148A(d) of the act are reproduced below for the sake of convenience & reference – E. Ashwath Narayan, Bangalore Page 16 of 19

13 On going through the above, we find that the contention of the AR of the assessee is acceptable as the order passed u/s 148A(d) of the Act are completely blank and devoid of any contents. The AO has decided nothing while passing order u/s 148A(d) of the E. Ashwath Narayan, Bangalore Page 17 of 19 Act. The provision of section 148A(d) of the Act uses the word “Decide”. In a legal context, "decide" means to make a final judgment or determination, often by a court or other legal body, regarding a legal matter or issue. It implies settling a dispute or controversy through a formal process, leading to a resolution. The “Decide” can be synonymous with “adjudicate,” which means to make a formal judgment about a case or dispute.

14 Thus, we are of the considered opinion that the Order u/s 148A(d) of the Act would have all the trappings of reasons recorded, objections raised by the assessee and disposal of such objections through the speaking order which is required to be enclosed with the notice u/s 148 of the Act. The High Court of Delhi in the case of Divya Capital One (P) Ltd v. Asstt. CIT [W.P.(C) No. 7406 (Delhi) of 2022, dated 12-05-2022] had taken note of the new re-assessment scheme introduced by the finance Act, 2021 and pointed out that the safeguards were brought in the amended re- assessment scheme in accordance with the judgment of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. V. ITO [2002] 125 Taxman 963 before any exercise of juri iction to initiate reassessment proceedings under section 148 of the Act. In the present case the AO should have passed a speaking Order U/s 148A(d) of the Act before directly jumped into the issuing of the notice u/s 148 of the Act. The clause (d) of section 148A of the Act requires the AO to decide on the basis of material available on record including the reply of the assessee as to whether it is a fit case for issue of notice u/s 148 of the Act. The AO has to pass a speaking Order. He has to decide whether there is fit case, or not a fit case for issue of notice u/s 148 of the Act. The AO has to consider the material on record (including information which prompted to conducting inquiries u/s 148A(a) of the Act and the reply of the assessee received u/s 148A(b) of the Act and the E. Ashwath Narayan, Bangalore Page 18 of 19 reasoning adopted by the AO for his decision. Speaking Order is the one which on mere perusal reveals the thinking process which went into the making of the Order. It should be self-explanatory, clear cut. The Order u/s 148A(d) of the Act is in fact an interlocutory order and confers juri iction for assessment only when it declares that it is a fit case for the issue of notice u/s 148 of the Act. In the present case the order passed U/s 148A(d) is completely blank & devoid of any content and thus illegal & void-ab-initio.

15 Thus we have no hesitation to hold that the assessing officer acted in great haste in completing the assessment by allowing only 6 days’ time to submit the response by the assessee & also uploaded the order u/s 148A(d) of the Act without deciding/adjudicating anything. The AO virtually condensed the procedure under the amended provision to a nullity. This clearly defeats the very purposes of new re-assessment scheme. 9.16 Under these circumstances, we hereby quash & set aside the notice dated 23/03/2022 issued under clause(b) of section 148A of the Act, the order dated 31/03/2022 passed under clause (d) of Section 148A of the Act as well as consequent Assessment order dated 04/03/2023 passed u/s 147 r.w.s 144 of the Act. We make it clear that since we have adjudicated the case on legal issues, the grounds raised on merit of the case are kept open. 10. In the result the appeal filed by the assessee is allowed. Order pronounced in the open court on 17th Apr, 2025 (Waseem Ahmed) Accountant Member (Keshav Dubey) Judicial Member

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file