A Section 148A order is unsustainable when it fails to consider the assessee’s specific explanation.

The petitioner, a partnership firm, challenged an order under Section 148A(3), the approval under Sections 148A(3) and 151, and a notice under Section 148 of the Income Tax Act, 1961, concerning assessment year 2022–23.

After receiving a show-cause notice under Section 148A(1), the firm replied that the questioned bank credits of Rs. 3,35,80,385 comprised loans, capital transactions, debtor receipts, a vehicle-sale receipt, cash deposits, and interest on a refund, and supplied bank statements.

The Assessing Officer nevertheless concluded that the amount remained unexplained, including because the creditor’s bank statement had not been produced, and issued the order and notice.

The firm petitioned under Articles 226 and 227, contending, among other things, that its explanation had not been properly considered.

Under Section 148A(3) of the Income Tax Act, the Assessing Officer must consider the assessee’s response and decide, with cogent reasons, whether it is a fit case to issue a notice under Section 148; the decision must be based on an examination of the relevant material and explanation.

Approval under Sections 148A(3) and 151 must likewise be granted after due consideration of the relevant circumstances.

The petitioner’s reply specifically described the nature of the credits and referred to supporting bank statements. In particular, it asserted that the transactions with Ramanath Services were disclosed in the balance sheet, but the Assessing Officer’s recorded reasons did not address that specific explanation.

The Court considered this omission significant and held that the Assessing Officer should have examined the documents, given cogent reasons for treating the case as fit for reassessment, and sought clarification on the asserted absence of an increase in capital or unsecured loans before proceeding.

The Court also observed that the approving authority should have considered these matters and ensured that the circumstances did not support the allegation of predetermination.

The Court quashed the Section 148A(3) order dated 16 June 2026 and the consequential Section 148 notice dated 16 June 2026; it stated that the approval would stand dissolved upon quashing the order.

The petitioner was directed to appear before the second respondent on 30 October 2026, with liberty to provide further clarification sought by the officer. The officer was directed to consider the petitioner’s explanation in light of the Court’s observations.