Reassessment notice under Section 148 beyond 3 years held time-barred where deposits below Rs. 50 lakhs; non-faceless issuance also invalid

1. Background of the dispute

The Hyderabad Bench of the ITAT, in the case of Vatti Prakash Reddy Vs ITO, examined the validity of a reassessment initiated under Section 148 for AY 2015-16. The controversy centred on:

  • Whether the reassessment notice dated 27.04.2022 was barred by limitation under the amended Section 149, since the alleged escapement was below Rs. 50 lakhs; and
  • Whether the reassessment was vitiated because the notice under Section 148A and subsequent Section 148 notice were issued by the Jurisdictional Assessing Officer (JAO) instead of through the National Faceless Assessment mechanism mandated by Section 151A read with Section 144B and CBDT Notification No. 18/2022.

The ITAT ultimately quashed the reassessment proceedings on both counts.

2. Brief facts and grounds of appeal

The assessee filed an appeal against the order dated 19.08.2025 passed by the CIT(A)-NFAC, Delhi, for AY 2015-16.

Key grievances raised by the assessee included:

  1. The initiation of proceedings under Section 148A(b) and issuance of notice under Section 148 on 27.04.2022 allegedly without satisfying the statutory preconditions under Sections 147, 148, 148A and 149, rendering the reassessment void.
  2. The reassessment notice was claimed to be beyond the time limit under the erstwhile Section 149(1)(b), and the extended 10-year limitation brought in by Finance Act 2021 was argued to be inapplicable to AY 2015-16, particularly where the alleged escaped income of Rs. 25.27 lakh was below the Rs. 50 lakh threshold in Section 149(1)(b).
  3. The assessee objected to reliance on “Insight Portal” data showing aggregate banking transactions of over Rs. 1.13 crore, claiming that the Assessing Officer (AO) treated this as escapement above Rs. 50 lakhs without verifying material filed during Section 148A proceedings.
  4. The assessee had furnished bank statements, a cash flow statement, ID proofs of lenders/borrowers, and past interest income details, which were allegedly not properly examined.
  5. The AO ultimately made an addition of Rs. 25,27,000 as unexplained money under Section 69A and taxed it under Section 115BBE, which the assessee challenged as unjustified.
  6. The assessee further contended that cash withdrawals and redeposits were wrongly disbelieved, relying on the decision in Dy. CIT v. Gordhan (Delhi Tribunal, 2019).
  7. Crucially, the assessee argued that the entire reassessment mechanism violated the faceless regime under Section 151A and Section 144B, relying on Kankanala Ravindra Reddy v. ITO (2023) and Tecumseh Products India Pvt. Ltd v. DCIT (2025), as notices were issued by the JAO rather than a Faceless Assessing Officer (FAO).
  8. Mechanical sanction under Section 151, non-furnishing of underlying material, denial of effective hearing including video conference under Section 144B(7)(vii) and CBDT Instruction No. 20/2021, and non-speaking appellate order under Section 250(6) were also alleged.
  9. The assessee invoked Union of India v. Ashish Agarwal (2022) and CBDT Instruction No. 1/2022 to contend that the extended limitation in Section 149(1)(b) cannot rest on mere suspicion or inflated figures.

While several issues were raised, the ITAT primarily adjudicated two core jurisdictional issues:

  • Whether the notice under Section 148 was time-barred due to escapement being less than Rs. 50 lakhs; and
  • Whether notices issued by the JAO in a non-faceless manner were legally sustainable.

3. Core issue 1: Limitation under Section 149 for escapement below Rs. 50 lakhs

3.1 Department’s basis for reopening

The AO issued a Section 148A(b) show cause notice on 22.03.2022, just before expiry of six years from the end of AY 2015-16. The AO relied on four categories of deposits/credits in the assessee’s bank account, aggregating to Rs. 1,13,80,229. This included both:

  • Cash deposits, and
  • Time deposits (fixed deposits).

These combined figures formed the basis for the AO’s view that income chargeable to tax exceeding Rs. 50 lakhs had escaped assessment, thereby, in his view, permitting reopening within 10 years under Section 149(1)(b).

3.2 Assessee’s explanation before the AO