ITAT Rajkot annuls reassessment for unsigned Section 151 approval and addition beyond recorded reasons

1. Background of the dispute

The Rajkot Bench of the Income Tax Appellate Tribunal examined the validity of a reassessment framed under Section 147 in the case of Bandharda Seva Sahkari Mandali Limited Vs ITO (ITAT Rajkot), ITA No. 881/RJT/2025, relating to Assessment Year 2019-20. The appeal arose from an order dated 09.10.2025 passed by the National Faceless Appeal Centre (NFAC) / Commissioner of Income-tax (Appeals) under Section 250, which had upheld reassessment proceedings and denial of deduction under Section 80P.

The assessee, a co-operative society, raised two core jurisdictional challenges before the Tribunal:

  • The mandatory approval under Section 151 for reopening the assessment was not signed either digitally or manually.
  • The reassessment was initiated on the basis of unexplained cash deposits/withdrawals, but the eventual addition related solely to disallowance of Section 80P deduction, without any addition on the original issue of bank transactions.

The Tribunal accepted both jurisdictional objections and set aside the reassessment order dated 05.03.2024, rendering the merits of Section 80P deduction academic.

2. Information trigger and initiation of reassessment

(i) Risk-based selection through Insight Portal

The case was flagged on the Department’s Insight Portal under the Risk Management Strategy (RMS) category “Non-filing of return – PAN cases”. Information indicated that the assessee had undertaken significant transactions with Junagadh Jilla Sahakari Bank Ltd., including:

  • Cash deposits in non-current accounts.
  • Cash deposits and withdrawals (including bearer cheque transactions) in current accounts.

The data reflected multiple cash movements aggregating to a total of ₹2,54,88,866 with Junagadh Jilla Sahakari Bank Ltd., while the assessee had not filed a return of income within time under Section 139.

(ii) Proceedings under Section 148A and issue of Section 148 notice

On the strength of this third-party information, the Assessing Officer (AO):

  • Issued a query-cum-show cause notice under Section 148A(b), calling upon the assessee to explain the nature and source of these bank transactions, as well as its failure to file a return.
  • As there was no response or explanation from the assessee, the AO concluded that the questions raised remained unanswered.
  • With prior sanction from the specified authority under Section 151, an order under Section 148A(d) was passed on 18.03.2023, holding that it was a fit case for issuing notice under Section 148.
  • Pursuant to this, a notice under Section 148 dated 25.03.2023 was issued and served on the assessee on 29.03.2023, requiring filing of a return within 30 days of service.

The assessee did not file any return within the stipulated 30 days in response to the Section 148 notice. The case was thereafter taken up by the National e-Assessment Centre, Delhi (now part of faceless scheme) for completion of reassessment.

3. Assessment proceedings and denial of Section 80P deduction

(i) Late filing of return and non-cooperation

The assessee eventually filed a return of income in response to Section 148 on 22.02.2024, well after the statutory 30-day period.

In the course of reassessment, the AO issued further notices asking for:

  • Source and nature of cash deposits and withdrawals in the bank accounts with Junagadh Jilla Sahakari Bank Ltd.
  • Supporting documents relating to the impugned bank transactions.

However, no substantive reply was furnished by the assessee on these specific bank-related queries.

(ii) Independent verification from co-operative bank

To verify the information on record, the AO invoked Section 133(6) and issued a notice to Junagadh Jilla Sahakari Bank Ltd. The bank responded with:

  • Account opening form of the assessee.
  • Relevant account details.

From this material, the AO observed that the assessee maintained accounts with the bank and had made considerable cash deposits during the year.

Given the assessee’s limited cooperation, the AO issued a final show cause notice on 24.01.2024, granting one last opportunity to explain the transactions and other relevant issues.

(iii) Nature and status of the assessee as co-operative society

In response, the assessee submitted a detailed explanation dated 22.02.2024. It stated that: