Reassessment notices issued under an obsolete PAN

Reassessment notices issued under an obsolete PAN without considering the assessee’s reply are invalid.

Issue

Issue I (Reassessment Validity): Whether a reassessment notice issued under Section 148 using an incorrect, obsolete PAN is legally valid when the assessee had already informed the Assessing Officer (AO) of their correct PAN and details during Section 148A(b) proceedings.
Issue II (Rejection of Books & Cash Deposits): Whether the Revenue can reject an assessee’s books of account and treat recorded cash deposits as unexplained money under Section 69A merely because the books were not audited under Section 44AB, even though the turnover was below the threshold and the books were audited under the Co-operative Societies Act.
Issue III (Fixed Deposits & Double Taxation): Whether investments in Fixed Deposit Receipts (FDRs) can be separately taxed as unexplained money when they are sourced from explained business receipts and previously accounted funds, resulting in double taxation.

Facts

The assessee is a co-operative society flagged on the Insight Portal for cash and time deposits during the financial year relevant to AY 2015-16.
The AO initiated reopening proceedings and issued a Section 148 notice based on an incorrect and obsolete PAN.
During the preliminary inquiry under Section 148A(b), the assessee explicitly brought the correct PAN and full transaction details to the AO’s attention. The AO ignored this response and proceeded under the old PAN.
The AO treated cash and time deposits totaling approximately ₹7.10 crores as unexplained money under Section 69A.
On appeal, the CIT(A) found that the AO had double-counted the cash deposits and reduced that specific addition to ₹1.94 crores, but still sustained the additions for the FDRs.
The assessee demonstrated that the cash deposits matched their recorded business receipts in their books of account. The revenue authorities rejected these books solely because they lacked an audit under Section 44AB of the Income-tax Act.
The assessee’s turnover did not exceed the Section 44AB audit threshold, and their accounts had already undergone a statutory audit under the Co-operative Societies Act.
The assessee further proved that the FDRs were sourced from documented funds and the renewal of older deposits.

Decision

Held, entirely in favour of the assessee.
Reassessment Proceedings Vitiated: Section 148A serves as a substantive statutory safeguard. Issuing a Section 148 notice under an obsolete PAN while completely ignoring the assessee’s clarification represents a patent non-application of mind. This failure to discharge the statutory mandate under Section 148A(c) renders the entire reassessment void and barred by limitation under Section 149.
Rejection of Books Unjustified: The Revenue cannot arbitrarily reject books of account for a lack of Section 44AB audit when the business turnover falls below the prescribed statutory limit, especially when the books are otherwise audited under the Co-operative Societies Act. Since the deposits matched the business records, the sustained addition of ₹1.94 crores is deleted.
No Double Taxation on FDRs: Taxing both the raw cash receipts and the subsequent fixed deposits made from those very same funds constitutes impermissible double taxation. Because the source of the FDRs was traced to explained funds and renewals, the addition on account of FDRs cannot be legally sustained.

Key Takeaways

Section 148A is Mandatory, Not Optional: The procedure under Section 148A requires a meaningful consideration of the assessee’s reply. An AO cannot treat it as a mechanical box-ticking exercise; failing to address a fundamental error like an incorrect PAN invalidates subsequent actions.
Audit Under Other Acts Holds Weight: For co-operative societies or small businesses below the standard tax audit thresholds, a statutory audit conducted under regional/sectoral laws (like the Co-operative Societies Act) provides structural legitimacy to the books of account that the tax department cannot easily dismiss without concrete contrary evidence.
The Principle of Single Taxation: The Revenue cannot tax the same economic fund twice—once at the point of receipt (cash deposit) and again at the point of investment (fixed deposit). Once a source fund is explained or targeted, its subsequent movement into banking instruments cannot be treated as a separate, independent stream of unexplained wealth.

IN THE ITAT CHANDIGARH BENCH ‘B’

Geora Agriculture Co-Operative Service Society Ltd.

ITO^*

Laliet Kumar, Judicial Member
and Manoj Kumar Aggarwal, Accountant Member

IT APPEAL No. 599 (Chd) OF 2025
[Assessment year 2015-16]

MAY 11, 2026

Rohit Kapoor, Adv. and Virsain Aggarwal, ITP for the Appellant. Dr. Ranjit Kaur, Addl. CIT

ORDER

Laliet Kumar, Judicial Member.- This appeal by the assessee is directed against the order dated 18.03.2025 passed by the Ld. CIT(A), NFAC, Delhi, arising out of the assessment framed under section 147 read with section 144B of the Income Tax Act, 1961 for the assessment year 2015-16.

2. In the present appeal Assessee has raised the following grounds:

That the CIT(A) has erred in facts and in law in confirming the addition made by the AO at Rs. 19375600 /- on account of cash deposited in bank and Rs. 7500000/-on account of investment in FDRs during the year under consideration.

That the CIT(A), while confirming the addition made by the Assessing Officer, has grossly erred both in law and on facts in ignoring the fact that the notice issued under section 148 dated 01.04.2022 is barred by limitation, as per the 1st proviso to section 149 of the Income Tax Act, 1961.

That the CIT(A) has erred in law and on facts in upholding the addition made by the Assessing Officer, without appreciating that the notice under section 148 was erroneously and deliberately issued on PAN AABTT9927E, instead of the correct PAN AAEAT6478N. The CIT(A) further failed to consider that the assessee had duly submitted a reply dated 25.03.2022, categorically informing the department that all the cash deposits and Fixed Deposit Receipts (FDRs) pertain to the correct PAN AAEAT6478N, and not to the PAN on which the notice was issued.

That the CIT(A) erred in sustaining the addition of Rs.1,93,75,600 towards cash deposits, primarily on the basis that the balance sheet submitted was not duly audited under a statutory audit and lacked the signature of a chartered accountant. This conclusion overlooks the fact that an internal audit was duly conducted under The Cooperative Societies Act 1860, by an Inspector of the Registrar of Cooperative Societies, appointed by the Assistant Registrar of Societies, who operates under the supervisory jurisdiction of the RCS. Furthermore, the CIT(A) failed to acknowledge that the provisions of Section 44AB of the Income-tax Act, 1961, were inapplicable to the assessee, as the turnover for the relevant assessment year did not exceed the threshold limit of Rs.1 crore.

That the CIT(A) erred in confirming the addition of Rs.75,00,000/- made by the AO in respect of FDRs, without appreciating the fact that the assessee society is engaged in money lending business and also accepts recurring, fixed and savings deposits for its members and nonmembers. The CIT(A) further failed to consider that the increase in member deposit and FDR deposits as reflected in liability side of the balance sheet constituted the source of the FDRs for which addition has been erroneously sustained.

That the CIT(A) erred in confirming the addition made by the AO without appreciating that the notice under section 148(b) was issued solely on the basis of incorrect facts reflected on the Insight Portal, in violation of Instruction No. 299/10/2022-Dir(Inv.III)/647dated 22.08.2022, which mandates that prior to issuance of a notice under section 148, there must be a proper verification of facts from the concerned bank, and not merely reliance on internal or portal based data.

That the addition made by the AO and confirmed by the CIT(A) is wholly unwarranted, particularly considering that the approval granted by the Principal Chief Commissioner of Income Tax (PCCIT) dt. 01/04/2022 was mechanical in nature and granted without proper verification of the information on which the proceedings were initiated.”

3. Brief facts of the case are that the assessee is a co-operative society engaged in the activities of Public Distribution System (PDS), sale of fertilizers and providing loans to its members. The assessment was reopened on the basis of information received through the Insight Portal alleging that the assessee had made cash deposits and time deposits in bank accounts. The Assessing Officer, during the course of assessment proceedings, observed that the assessee had deposited cash aggregating to Rs. 3,25,39,600/- and further made time deposits of Rs. 3,85,09,604/-and, in the absence of satisfactory explanation, treated the entire amount of Rs. 7,10,49,204/- as unexplained money under section 69A of the Act and added the same to the income of the assessee.

4. Aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A), who partly accepted the contention of the assessee by holding that the Assessing Officer had erroneously double counted the cash deposits and restricted the addition to Rs. 1,93,75,600/-. However, the Ld. CIT(A) sustained the addition to that extent and further confirmed the addition of Rs. 75,00,000/- on account of FDRs.

5. The assessee is now in appeal before the Tribunal and has challenged both the validity of reopening as well as the additions sustained on merits.

6. The Ld. AR, drawing our attention to the detailed written submissions placed on record , submitted that the entire reassessment proceedings are bad in law on multiple jurisdictional defects. It was contended that the notice issued under section 148 dated 01.04.2022 is barred by limitation in terms of the first proviso to section 149, as the period of six years for the assessment year 2015-16 expired on 31.03.2022 and, therefore, the notice issued thereafter is void ab initio. It was further submitted that the first proviso to section 149 operates as an absolute bar and cannot be overridden by the extended time limits or procedural provisions introduced by the Finance Act, 2021.

7. The Ld. AR further submitted that the notice under section 148 has been issued on an incorrect PAN, i.e., AABTT9927E, whereas the assessee had already obtained a new PAN AAEAT6478N under the correct status of AOP and had duly filed its return of income therein disclosing all transactions. It was contended that the assessee had specifically informed the Assessing Officer of the correct PAN during the proceedings under section 148A(b); however, the Assessing Officer failed to take cognisance of the same and proceeded under the incorrect PAN, thereby vitiating the entire proceedings for want of jurisdiction.

8. It was further submitted that the Assessing Officer failed to comply with the mandatory procedure under section 148A inasmuch as the detailed reply filed by the assessee along with supporting evidences was not duly considered before passing the order under section 148A(d).

9. On merits, the Ld. AR submitted that the cash deposits represent regular business receipts arising from activities such as PDS sales, fertilizer sales, member deposits, loan recoveries and other sources, which are duly recorded in the books of account. It was contended that the rejection of books merely on the ground that the same were not audited under section 44AB is unjustified, particularly when the turnover does not exceed the prescribed limit and the accounts are subjected to audit under the Co-operative Societies Act. With regard to the addition on account of FDRs, it was submitted that the same are sourced from explained funds, including maturity of earlier FDRs and business receipts, and that sustaining such addition results in double taxation.

10. Per contra, the Ld. DR relied upon the orders of the lower authorities.

11. We have heard the rival submissions and perused the material available on record, including the detailed submissions placed by the assessee. At the outset, we deem it appropriate to address the foundational issue relating to the validity of proceedings initiated on the basis of an incorrect PAN. The record reveals that the notice under section 148 of the Act was issued against an incorrect and obsolete PAN, notwithstanding the undisputed fact that the assessee had already obtained a fresh PAN under the correct status and had duly filed its return of income therein. It is further borne out from the record that this crucial fact was specifically brought to the notice of the Assessing Officer in the course of proceedings under section 148A(b). Despite being duly apprised of the correct factual position, the Assessing Officer chose to proceed under the old and redundant PAN. In our considered opinion, such an action is not a mere procedural lapse but a jurisdictional defect which strikes at the very root of the validity of the reassessment proceedings. Under the scheme of reassessment as revamped by the legislature, section 148A embodies a substantive safeguard, mandating a prior inquiry, consideration of the assessee’s reply, and formation of a reasoned satisfaction before issuance of notice under section 148. The provisions of section 148A(b) and 148A(c) cast a clear statutory obligation upon the Assessing Officer to consider the reply furnished by the assessee and to objectively evaluate the material on record before arriving at a conclusion that it is a fit case for issuance of notice under section 148.

12. In the present case, the material on record clearly demonstrates that the assessee had categorically submitted that all transactions stood duly disclosed under the correct PAN allotted to the AOP, and had also furnished complete details of such PAN to the Assessing Officer. However, the Assessing Officer, without adverting to or dealing with the said reply, proceeded in a mechanical manner to issue notice under section 148 on the basis of an incorrect and non-operative PAN. Such an approach reflects a patent non-application of mind and a failure to discharge the statutory mandate enshrined under section 148A(c) of the Act.

13. We are unable to countenance such action, as it is contrary to both the letter and the spirit of the reassessment provisions. The requirement to consider the assessee’s reply and to record a reasoned satisfaction is not an empty formality but a jurisdictional pre-condition. Failure to adhere to the same vitiates the entire proceedings. Accordingly, the initiation of reassessment proceedings in the present case, having been undertaken on the basis of an incorrect PAN and without due consideration of the assessee’s reply, cannot be sustained in the eyes of law.

14. At this stage, it is pertinent to refer to the judgment of the Hon’ble Bombay High Court in the case of Bhavna Steel v. Income-tax Officer 454 ITR 670 (Bombay), wherein it has been held that where the assessee has filed its return under the correct PAN and disclosed all transactions, initiation of reassessment proceedings under an incorrect PAN is unsustainable in law and renders the proceedings void. Applying the ratio of the said judgment, we hold that once the Revenue was aware that the transactions in question were disclosed under the correct PAN, it could not have initiated parallel proceedings under another PAN.

15. The legal position that emerges is that jurisdiction under section 147 can be assumed only against the correct assessee and on the correct PAN under which income has been assessed. Any action taken contrary thereto results in lack of jurisdiction. In the present case, the continuation of proceedings under the old PAN not only suffers from jurisdictional defect but also leads to impermissible double taxation of the same income, which is contrary to settled principles of law. Accordingly, the reassessment proceedings are liable to be quashed on this ground alone.

16. Even otherwise, on merits, we find that the additions made by the Assessing Officer and partly sustained by the Ld. CIT(A) are not sustainable. The Ld. CIT(A) himself has recorded a finding that the Assessing Officer had proceeded on incorrect facts by double counting the cash deposits. The assessee has furnished detailed explanation supported by books of account demonstrating that the deposits represent business receipts. The Revenue has failed to bring any material on record to rebut these explanations.

17. The rejection of books of account merely on the ground that they were not audited under section 44AB is also not justified, particularly when the turnover of the assessee does not exceed the prescribed limit and the accounts are otherwise maintained and subjected to statutory audit under the Co-operative Societies Act.

18. With regard to the addition of Rs. 75,00,000/- on account of FDRs, we find that the explanation of the assessee regarding the source of funds has not been controverted. The material on record demonstrates that a part of the FDRs represents renewal of earlier deposits and the balance has been made out of explained business receipts. Once the source stands explained, no addition can be sustained under section 69A.

19. Further, we find merit in the contention of the assessee that the same funds cannot be taxed twice. If the cash deposits are treated as unexplained, the corresponding investments in FDRs cannot again be taxed separately, as it would amount to double addition of the same income.

20. In view of the foregoing discussion, we hold that the reassessment proceedings initiated under section 147 are invalid being barred by limitation and further vitiated on account of issuance of notice under an incorrect PAN. Even on merits, the additions sustained by the Ld. CIT(A) are unsustainable. Accordingly, the impugned order is set aside and the additions are deleted.

21. Accordingly, the impugned order of the Ld. CIT(A) is set aside and the additions sustained are hereby deleted.

22. In the result, the appeal of the assessee is allowed.