The Income Tax Appellate Tribunal (ITAT), Pune Bench has set aside a reassessment notice issued under Section 148 of the Income Tax Act, 1961 on the ground that it was based on unverified and incorrect data from the Insight Portal. The Tribunal emphasized that both the Assessing Officer (AO) and the approving authority failed to independently verify the information, violating CBDT Circular No. F.No.299/10/2022-Dir(Inv.III)/647 dated 22.08.2022, which mandates factual verification before initiating proceedings. The judgment reinforces that reassessment notices must be grounded in accurate, verified facts and not mechanical acceptance of portal data.
Background & Facts
The Dispute
The appellant, Ajit Shrirang Patil, a salaried employee, was issued a notice under Section 148A(b) of the Income Tax Act, 1961 on 25.01.2023, alleging that he had deposited cash of Rs. 1,52,16,000 in Bank of Baroda during Assessment Year (AY) 2019-20. The notice was issued despite the appellant not filing a return of income for the said AY. The AO relied on data from the Insight Portal, which suggested escapement of income without verifying the bank account details or the authenticity of the deposits.
Key Facts
- The appellant was a salaried employee of Kelvion India Private Limited, earning Rs. 6,40,868 during the relevant AY.
- The AO alleged cash deposits of Rs. 1,52,16,000 in Bank of Baroda, but the notice did not specify the branch or account number.
- The appellant submitted bank statements, Form 26AS, and salary slips to prove that his total deposits during the year were only Rs. 30,43,200.
- The AO issued an order under Section 148A(d) on 23.03.2023, alleging escapement of income to the tune of Rs. 1,58,56,868, which was approved by the Principal Commissioner of Income Tax (Pr. CIT-3), Pune.
- The AO did not independently verify the Insight Portal data, nor did he obtain the appellant’s bank statements before issuing the notice.
Procedural History
- 25.01.2023: Notice u/s 148A(b) issued by the AO alleging cash deposits of Rs. 1,52,16,000.
- 07.02.2023: Appellant filed reply along with bank statements, Form 26AS, and salary slips, denying the alleged deposits.
- 23.03.2023: AO passed order u/s 148A(d), alleging escapement of income of Rs. 1,58,56,868, approved by Pr. CIT-3, Pune.
- 08.09.2023: AO issued notice u/s 133(6) to Bank of Baroda during assessment proceedings, indicating lack of prior verification.
- 11.07.2024: Learned Commissioner of Income Tax (Appeals), NFAC, Delhi dismissed the appellant’s appeal.
- 11.06.2026: Appeal heard by ITAT, Pune Bench.
- 13.07.2026: ITAT allowed the appeal, setting aside the reassessment notice.
Relief Sought
The appellant sought quashing of the notice issued under Section 148 of the Act, contending that it was based on incorrect and unverified data, and that the AO and approving authority failed to apply their minds to the submissions made.
The Legal Issue
The central question before the ITAT was whether a reassessment notice issued under Section 148 of the Income Tax Act, 1961 is valid if it is based on unverified data from the Insight Portal, without independent verification by the AO or the approving authority, in violation of CBDT Circular No. 2022.
Arguments Presented
For the Appellant
- The appellant argued that the notice u/s 148 was issued based on incorrect facts, as the alleged cash deposit of Rs. 1,52,16,000 was never made.
- The appellant submitted bank statements, Form 26AS, and salary slips to prove that his total deposits during the year were only Rs. 30,43,200.
- The appellant contended that the AO mechanically accepted the Insight Portal data without verifying the bank account details or the authenticity of the deposits.
- Reliance was placed on CBDT Circular No. 2022, which mandates independent verification of data before initiating reassessment proceedings.
For the Revenue
- The Revenue contended that the AO followed due procedure under Section 148A and that the notice was issued based on information suggesting escapement of income.
- The Revenue argued that the AO was not required to verify the data before issuing the notice, as the reassessment proceedings would provide an opportunity for verification.
The Court's Analysis
The ITAT critically examined the AO’s reliance on the Insight Portal data and the lack of independent verification. The Tribunal observed:
"The AO mechanically accepted the information which merely says that cash deposits in Bank of Baroda. This information does not have any head and tail at all. There must be thousands branches of the Bank of Baroda in India. The information does not mention anything which branch the assessee has account and the account number. The AO also do not want to verify these facts to blatantly hold that it is a fit case for issuing notice u/s 148 of the Act alleging escapement of income."
The Tribunal emphasized that CBDT Circular No. 2022 explicitly directed the AO and supervisory authorities to independently verify the data uploaded on the Insight Portal before initiating proceedings. The Circular acknowledged that such data may contain factual errors, and thus, verification was mandatory. The ITAT held that the AO and Pr. CIT-3, Pune, failed to comply with this directive, rendering the notice u/s 148 invalid.
The Tribunal relied on the following precedents to support its conclusion:
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Principal CIT-5 vs. Shodiman Investments (P.) Ltd. ([2020] 422 ITR 337 (Bombay)): The Hon’ble Bombay High Court held that reopening of assessment is an extraordinary power, and the AO must have a rational connection between the material and the belief that income has escaped assessment. The Court emphasized that the AO cannot rely on borrowed satisfaction and must apply his mind independently.
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Well Trans Logistics India (P.) Ltd. v. Addl. Commissioner of Income-tax ([2025] 474 ITR 131 (Delhi)): The Hon’ble Delhi High Court held that there must be a "live link" between the tangible material and the reason to believe that income has escaped assessment. The AO cannot solely rely on information from the Investigating Wing without further enquiry.
The ITAT concluded that the reassessment notice was issued without application of mind and was based on incorrect facts, making it bad in law.
The Verdict
The ITAT allowed the appeal in part, setting aside the notice issued under Section 148 of the Income Tax Act, 1961. The Tribunal held that the reassessment proceedings were invalid as they were initiated without independent verification of the Insight Portal data and without application of mind by the AO or the approving authority. Since the notice was quashed, the Tribunal did not adjudicate on the merits of the addition.
What This Means For Similar Cases
Independent Verification of Data Is Mandatory
- The judgment reinforces that CBDT Circular No. 2022 is not merely directory but mandatory. AOs and supervisory authorities must independently verify data from the Insight Portal or any other source before initiating reassessment proceedings.
- Practitioners should argue that notices issued without such verification are invalid and liable to be quashed.
Reassessment Notices Must Have a Rational Basis
- The AO cannot mechanically rely on portal data without establishing a "live link" between the material and the belief that income has escaped assessment.
- The judgment aligns with the principles laid down in Shodiman Investments and Well Trans Logistics, emphasizing that the AO must apply his mind and not act on borrowed satisfaction.
Procedural Compliance Is Non-Negotiable
- The judgment underscores the importance of procedural compliance in reassessment proceedings. Failure to adhere to statutory requirements, such as independent verification, renders the notice invalid.
- Taxpayers can challenge reassessment notices if the AO fails to verify the facts or relies on unverified data, as seen in this case.
Implications for Taxpayers and Practitioners
- Taxpayers who receive reassessment notices based on unverified data should immediately challenge the validity of the notice by highlighting the lack of independent verification.
- Practitioners should ensure that all submissions, including bank statements, Form 26AS, and salary slips, are filed during the proceedings under Section 148A to disprove incorrect allegations.
- The judgment provides a strong precedent for quashing reassessment notices where the AO fails to comply with CBDT Circular No. 2022 or acts mechanically without application of mind.
