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Facts
The assessee filed a return of income, but later it was noted that large cash deposits were made. The Assessing Officer issued notices under Section 148 and 148A, but there was no proper response or mention of section 148A(d) in the assessment order. The assessment was completed under Section 147 r.w.s. 144 r.ws. 144B.
Held
The Tribunal held that the assessment order passed by NFAC was bad in law as it did not issue notice under Section 148A before concluding the assessment under Section 147. Relying on the decision of the Hon'ble High Court of Madras in Mark Studio India (P.) Ltd. V. ITO, the Tribunal quashed the assessment order.
Key Issues
Whether the assessment order passed under Section 147 r.w.s. 144 r.ws. 144B by NFAC is valid when notice under Section 148A was not properly issued.
Sections Cited
147, 144, 144B, 139(1), 135A, 133(6), 148, 148A, 139(8A)
AI-generated summary — verify with the full judgment below
Before: Shri S.S. Viswanethra Ravi & Shri S.R. Raghunatha
Year: 2020-21 Muthuvel Agathiyan, Vs. The Income Tax Officer, 18, Keela Fourth Street, Mannargudi Ward 1, Post, mannargudi, Thiruvarur 614 001. Thiruvarur. [PAN:AIHPA1940J] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri S. Kaarthick, Advocate ��थ� की ओर से/Respondent by : Ms. Gouthami Manivasagam, JCIT सुनवाई की तारीख/ Date of hearing : 30.10.2025 घोषणा की तारीख /Date of Pronouncement : 24.11.2025 आदेश /O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order dated 17.07.2025 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2020-21.
When the appeal was taken up for hearing, the ld. AR Shri S. Kaarthick, Advocate drew our attention to ground No. K raised in the grounds of appeal and submits that the assessee challenged assumption of jurisdiction under section 147 of the Income Tax Act, 1961 [“Act” in short] and the assessment order passed under section 147 r.w.s. 144 of the Act by the Assessing Officer NFAC is not in accordance with the provisions of law, which goes to the root of the case, raised for the first time before the Tribunal. He argued that the said legal ground can be raised at any stage of the proceedings including this Tribunal and placed reliance on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Reported in 223 ITR 383 (SC). He prayed to adjudicate the legal ground as preliminary ground.
The ld. DR Ms. Gouthami Manivasagam, JCIT submits that having participated before the Assessing Officer and the ld. CIT(A) the assessee did not raise the same before the said authorities. She argued that it requires examination of the facts and prayed to dismiss the said ground.
Having heard both the parties, we note that the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. (supra) was pleased to hold that the legal ground can be raised at any stage of the proceedings including this Tribunal. The ld. DR did not dispute the decision of the Hon’ble Supreme Court and we find no new facts are required to be examined and therefore, we proceed to admit ground for adjudication.
We note that the assessee filed his return of income under section 139(1) of the Act declaring total income at ₹.4,85,110/-, which includes salary income and loss on house property only. The said return was processed. However, as per information available with the revenue under e-verification scheme, 2021 formulated in accordance with the provisions of section 135A of the Act, the Assessing Officer noted that the assessee made cash deposits of ₹.1,30,67,300/- during the FY 2019-20. During the said proceeding, notice issued under section 133(6) of the Act to the assessee to furnish the explanation regarding cash deposits. Since there was no response from the assessee, the Jurisdictional Assessing Officer issued notice under section 148 of the Act dated 30.03.2024. However, there was no response from the assessee. We note that in the assessment order, there is no mention about passing of order under section 148A(d) of the Act. Against the show-cause notice dated 17.01.2025, the assessee filed his response dated 25.02.2025 and the submissions of the assessee are reproduced from page 11 to 19 of the assessment order. After considering the submissions of the assessee, the Assessing Officer, NFAC completed the assessment under section 147 r.w.s. 144 r.wṣ. 144B of the Act dated 03.03.2025, inter alia, made addition of unexplained income towards money received from Deepa Arulalan at ₹.87,65,000/- as well as addition towards unexplained cash deposit of ₹.1,55,72,841/-. The ld. CIT(A) confirmed the order of the Assessing Officer.
The ld. AR drew our attention to page 2 of the assessment order that the notice dated 30.03.2024 issued by the jurisdiction Assessing Officer under section 148 of the Act. The ld. AR vehemently argued that the assessment order passed by the Faceless mechanism [Assessing Officer] is bad in law in terms of the decision of the Hon’ble High Court of Madras in the case of Mark Studio India (P.) Ltd. V. ITO in W.A. No. 781 of 2025 dated 24.06.2025 and prayed to quash the assessment order passed by the NFAC without issuing notice under section 148A(d) of the Act.
The ld. DR strongly objected to the submissions of the ld. AR. She drew our attention to section 135A of the Act and by filing e- Verification Instruction No. 2(i) of 2024 dated 19.03.2024, the ld. DR submits that no updated ITR under section 139(8A) of the Act has been filled by the assessee. She further submits that if a Faceless Assessment Unit (FAU) has a FVR with remarks suggesting a return under section 139(8A) of the Act should have been updated, but has not, it means the FAU has information that income may have escaped assessment. In such a scenario, the FAU is generally expected to initiate the reassessment process and accordingly, the FAU reopened the assessment for the AY 2020-21 to assess the cash deposit made by the assessee, since, in this case, the assessee failed to update the return under section 139(8A) of the Act. Thus, the ld. DR prayed that the issue raised by the assessee is not maintainable and liable to be dismissed.
Heard both the parties and perused the material on record. Admittedly, the assessee has not updated the return of income under section 139(8A) of the Act. Upon perusal of the e-Verification Instruction No. 2(i) of 2024, we note that if a Faceless Assessment Unit (FAU) has a FVR with remarks suggesting a return under section 139(8A) of the Act should have been updated, but has not, it means the FAU has information that income may have escaped assessment. In such a scenario, the FAU is generally expected to initiate the reassessment process by issuing a show-cause notice under section 148A of the Act before deciding whether to issue a formal notice under section 148 of the Act. But, however, in the present case, the FAU has not issued any notice under section 148A of the Act or 148 of the Act before concluding the assessment under section 147 r.w.s. 144 r.w.s. 144B of the Act dated 03.03.2023. In the present case, we note that the notice under section 148 of the Act was issued by the Jurisdictional Assessing Officer i.e., ITO Ward, Tiruvarur and the assessment is concluded by the FAU. On perusal of the decision of the Hon’ble High Court of Madras in the case of Mark Studio India (P.) Ltd. V. ITO (supra), we note that the Hon’ble High Court was pleased to hold that the assessment made by the assessment unit of NFAC is not valid if the order and notice under section 148A(d)/148 of the Act issued by the Jurisdictional Assessing Officer, but, however, liberty was given to the Revenue to re-ignite the notice in case the Hon’ble Supreme Court interferes with the order of the Hon’ble High Court of Bombay in the case of Hexaware Technologies Ltd. V. ACIT 464 ITR 430 (Bombay). Accordingly, we hold that the assessment order dated 23.03.2023 passed by the assessment unit of NFAC is bad in law and it is quashed. The ld. AR prayed to keep open grounds of appeal filed along with Form 36 for the assessee in case the Hon’ble Supreme Court interferes with the decision of the Hon’ble High Court of Bombay in the case of Hexaware Technologies Ltd. V. ACIT (supra). Accordingly, the ground No. K raised by the assessee on assumption jurisdiction is allowed and other grounds raised under Form 36 are kept open.
In the result, the appeal filed by the assessee is allowed. Order pronounced on 24th November, 2025 at Chennai.