KHAJAMOINUDDIN MAHAMMAD, WARANGAL. vs. INCOME TAX OFFICER, WARD -1, WARANGAL.

The assessee has raised the following grounds of appeal :

The brief facts of the case are that, the assessee is an individual who had not filed any return of income under section 139 of the Income Tax Act, 1961 (“the Act”) for the assessment year 2016–17. Based on information available on the Insight Portal, the learned Assessing Officer (“Ld. AO”) observed that the assessee had deposited cash of Rs.49,13,500/- and made a time deposit of Rs.20,00,000/- during the year under consideration. Accordingly, the Ld. AO issued a notice under clause (a) of section 148A of the Act dated 09.02.2023. The assessee filed a reply dated 24.02.2023 along with a copy of the bank statement. However, the Ld. AO was not satisfied with the response and passed an order under section 148A(d) of the Act on 30.03.2023, and issued a notice under section 148 of the Act on the same date.

During the reassessment proceedings, the assessee did not comply with the notices issued by the Ld. AO. Consequently, the Ld. AO issued notice under section 133(6) of the Act to the bank and obtained requisite information. Finally, the Ld. AO completed the assessment under section 147 read with sections 144 and 144B of the Act on 22.02.2024, making an addition of Rs.1,03,51,793/- under section 69A and Rs.20,00,000/- under section 69 of the Act, and assessed the total income at Rs.1,23,51,793/-.

Aggrieved with the order of Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). However, the assessee did not respond to various notices issued by Ld. CIT(A), but only in response to the last notice sought adjournment. As no submission was received, the Ld. CIT(A) dismissed the appeal ex parte.

Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. At the outset, the Ld. AR raised a legal ground challenging the validity of notice issued under section 148 of the Act, contending that the said notice was barred by limitation under section 149(1)(b). The Ld. AR invited our attention to the notice issued under section 148A(a) dated 09.02.2023 wherein the Ld. AO had referred to three items of escapement i.e. (i) Cash deposit of Rs.32,13,500/-, (ii) Cash deposit of Rs.17,00,000/- based on single- day deposits above Rs.2,00,000/- and (iii) Time deposit of Rs.20,00,000/-. He submitted that the amount of Rs.17,00,000/- mentioned in item (ii) was already a part of the Rs.32,13,500/- mentioned in item (i), and that the Ld. AO had double-counted certain transactions merely on the basis of per-day thresholds. He referred to the bank statements placed at page nos. 9 to 13 of the paper book and a summary of cash deposits placed at page no.8 and pointed out that during the year there were only three instances of single-day cash deposits exceeding Rs.2,00,000/-, i.e. Rs.3,00,000/- on 05.11.2015, Rs.2,00,000/- on 30.11.2015 and Rs.12,00,000/- on 08.12.2015. All of which are already part of the overall Rs.32,13,500/- cash deposit. Regarding the time deposit of Rs.20,00,000/-, the Ld. AR submitted that the said deposit was made on 14.12.2015 from the same bank account out of the cash already deposited. Hence, the source of the time deposit had already been accounted for in the cash deposit item. The Ld. AR, therefore, contended that the only escapement of income, if any, is Rs.32,13,500/-, which is below the monetary threshold of Rs.50,00,000/- specified in section 149(1)(b) of the Act.

He further submitted that, the relevant assessment year is 2016– 17 and the notice under section 148 was issued on 30.03.2023, which is beyond three years from the end of the relevant assessment year. Hence, the notice is barred by limitation. The Ld. AR relied on the plain language of section 149(1)(b) of the Act, which clarified that reopening beyond three years is not permissible unless the alleged escaped income is Rs.50,00,000/- or more. The Ld. AR also submitted that the entire alleged escapement was based on transactions reflected in a single bank account, and denied that the assessee held any other bank accounts. He also submitted that, the correct amount of alleged escapement of income is Rs.32,13,500/-, which is less than the threshold limit of Rs.50 lakhs. Accordingly, the Ld. AR prayed that the notice issued under section 148 of the Act and the consequential assessment order be quashed as void ab initio.

Per contra, the Learned Departmental Representative (“Ld. DR”) supported the orders of the lower authorities and submitted that the Ld. AO had acted on the basis of credible information from the Insight Portal showing substantial cash deposit and making of time deposits. He submitted that the Ld. AO had followed the proper procedure under section 148A by issuing show cause notice and passing a speaking order under section 148A(d) before issuing notice under section 148. The Ld. DR also submitted that, the assessee did not avail of the opportunity to explain the transactions during the reassessment proceedings or before the Ld. CIT(A). He also submitted that at the time of forming a belief of escapement, the Ld. AO was justified in relying on the cumulative cash and time deposits, and verification of multiple bank accounts. He prayed before the Bench to uphold the validity of the reassessment proceedings and dismiss the legal objection raised by the assessee.

We have heard the rival submissions and perused the materials available on record, including the bank statements, summary of deposits, and notice issued under section 148A(a). For the purpose of completeness the relevant portion of the notice issued under section 148A(a) of the Act is reproduced as under :

On perusal of above notice, we found that, the said notice refers to the Cash deposit of Rs.32,13,500/-, Cash deposit of Rs.17,00,000/- (single-day deposit criteria) and Time deposit of Rs.20,00,000/-.

Further, on perusal of the bank statements and supporting summary (page nos. 8 to 13 of the paper book), if we proceed with the submission of the Ld. AR that the amount of Rs.17,00,000/- is already included in the total cash deposit of Rs.32,13,500/-, the same cannot be considered separately again based on single-day thresholds. Further, as regards the time deposit of Rs.20,00,000/-, we find that it was made from the same bank account and from the cash deposits already considered. Thus, the Ld. AR has submitted that the assessee had only one bank account and hence the alleged escapement was confined to Rs.32,13,500/-. However, on perusal of the notice issued under section 148A(a), it is seen that the Ld. AO has referred to two bank accounts i.e. one held at Syndicate Bank, Warangal Station Road and another at Syndicate Bank, Khairatabad. Further, from page no.4 of the assessment order, we note that the Ld. AO made an addition of Rs.86,51,793/- based on bank account number 126401000006987, which the Ld. AR denies to be the assessee’s account. The assessee has filed one bank certificate in support of their contention of holding of only one bank account by the assessee, which is to the following effect :-

In view of this contradiction, we find that the legal issue raised regarding limitation under section 149(1)(b) of the Act is linked with the number and ownership of bank accounts held by the assessee during the year. Since the order of the Ld. CIT(A) is ex parte and no findings have been recorded on this crucial aspect, we deem it fit to set aside the issue to the file of the Ld. CIT(A) for adjudication afresh, after verifying the number of bank accounts held by the assessee and the actual quantum of alleged escapement. The Ld. CIT(A) shall verify the ownership of the bank account referred to in notice issued by the Ld. AO under section 148A(b) of the Act and the assessment order of the Ld. AO, examine whether the total escapement exceeds Rs.50,00,000/-, and then adjudicate the validity of the notice under section 148 in accordance with law. The assessee shall be given adequate opportunity to present its case. In view of the above discussion, we restore the matter to the file of the Ld. CIT(A) for fresh adjudication of the legal ground challenging the notice under section 148, in accordance with law and after due verification of facts.

As we have set aside the legal issue to the file of the Ld. CIT(A), we also deem it appropriate to set aside the other grounds on merits to the file of Ld. CIT(A). In the event, the Ld. CIT(A) is not convinced on the legal issue, he is directed to adjudicate the grounds on merits in accordance with law. 13. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounnced in the open Court on 8th August, 2025.