This article is limited to assessment and reassessment notice under sections 148 and 148A of the Income Tax Act, 1961
Introduction
The maintainability of writ petitions in the High Court against re-assessment notices/orders u/s 148A of the Income Tax Act was in ambiguity. High Courts were dismissing the writ petitions which were challenging the issuance of notice under section 148 of the Income Tax Act, 1961, and the reasons recorded by the Assessing Officer for reopening such cases. The Writ Petitions were dismissed on the ground of maintainability [1]. But in the case Jeans Knit Private Limited v. The Deputy Commissioner of Income Tax, the Supreme Court held that Writ Petition challenging the issuance of Notice under section 148 of Income Tax Act, 1961 are maintainable in High Courts the respective High Courts must decide the matter on merits. Hence, if Notice under section 148 and Order under section 148A(b) of IT Act, 1961 has been passed by the Assessing Officer such assesses can approach the Hon’ble High Court of their respective state setting aside such Notice and Order.
When can assesses approach High Court against the Reassessment Orders?
It is a well-settled principle that the High Court, having regard to the facts and circumstances of the case, has the discretion to entertain or not entertain a writ. But whenever a writ petition is filed for enforcement of a fundamental right or where there is a violation of the principle of natural justice or where the order of proceeding is wholly without jurisdiction in such circumstances the High Court will entertain such writ petitions.[2]
In relation to writ petitions filed against the notice/order passed under sections 148 and 148A of the Income Tax Act, 1961 the High Court does not interfere with the merits of the case instead they only consider whether there was any prima facie some material available to assessing officer on the basis of which such order was passed.[3] It must be noted that the material available must have a direct nexus or consequential link between the alleged transaction and the assesses. Further, such notice issued and the order passed by the Assessing Officer for reassessment must specifically specify all details of the information based on which reassessment was initiated, a transaction that is involved, and all other consequential details[4]. When the foundational allegation was not specifically mentioned in the show cause notice issued by the Assessing Officer. Hon’ble High Court was pleased to quash the notice and order issued under sections 148 and 148A(b)[5].
Other Circumstances When the Notice And Order Passed Under Sections 148 And 148a Can Be Quashed
The other circumstances when such notices and orders can be quashed by the High Court are mentioned below-
1. When an effective opportunity of filing a reply is not provided.
Under section 148A(b) of the act a minimum of seven days’ time period has to be granted to the assesses to file its reply to the show cause notice[6]. When the petitioner was not even provided the minimum of seven days to submit its reply to the Hon’ble Delhi High Court was pleased to set aside the notice and order passed under sections 148 and 148A of the act. Moreover, when the petitioner was not provided the report based on which the reassessment was initiated and was denied the opportunity to file its reply against the such report, the Hon’ble High Court was pleased to set aside the notice and order[7]
2. The reply submitted by the assesses was not considered by the Assessing Officer
When the assesses submitted a detailed response to the show cause notice issued under section 148A which was not considered by the Assessing Officer while passing the order. Such action was held to be a violation of the principle of natural justice and, the notice and order issued under sections 148 and 148A(b) were set aside by the Hon’ble High Court.
3. When two Reassessment orders/notices are issued simultaneously.
When writ petition was filed against two reassessment notices issued simultaneously dated 12.05.2020 by Assessing Officer Ward 14(2) and 07.06.2021 by Assessing Officer Ward 14(1). It was contented by the Petitioner that two reassessment notices cannot be issued simultaneously. The Hon’ble High Court relied on the decision of CIT v. Sanjay Kumar Garg 2015 (9) TMI 390 (Delhi High Court) was of the opinion that “It is a settled law that during the subsistence of a reassessment proceeding, another reassessment notice cannot be issued for the same assessment year. Hence, the second notice dated 07,06.2021 and the preceding pursuant to said notice were quashed[8].
4. When show Cause Notice u/s section 148A and notice u/s 148 is issued against a dead person
The Delhi High Court recently in Dharamraj v, Income Tax Officer[9] held that notice issued u/s 148 of the Act, issued against a dead person is null and void and all consequent proceedings will be trained and liable to be set aside.
5. When the AO has not provided documents/material/information/ based on which notice u/s show cause notice u/s section 148a and notice u/s 148 was issued.
Recently the Hon’ble Delhi HC Shukla Enterprises Pvt. Ltd. v. Assistant Commissioner of Income Tax[10], set aside the order u/s 148A(d) and notice u/s 148 when it was brought to their notice that assesses was not given the material/information i.e. CRID details, Part of Search Appraisal Report based on which the allegations were leveled.
6. When previous assessment/reassessment proceedings on the same issue were dropped
The Hon’ble Delhi HC in Modi Industries Limited v. Deputy Commissioner of Income Tax[11]was pleased to set aside the Notice issued under section 148 of the Income Tax Act, 1961 when it was shown that the AO had dropped the reassessment proceeding for AY 2015-16 and AY 2016-17 u/s 143 r/w section 147 on the same issue which that triggered the current reassessment proceeding.
7. When the assessing officer has not done due diligence
When it was found that the assessee has all the GST returns recorded for the alleged transaction and the only reason for opening reassessment, was that one of the entities/party to the alleged transaction was not found at a given address, the Hon’ble bench of Delhi HC in Majestic Handicraft Pvt. Ltd. v. Deputy Commissioner of Income Tax W.P (C ) of 3797 of 2023 was pleased to set aside the order u/s 148A(d) on the ground that AO has not done its due diligence.
8. When there is a failure on the part of the assessing officer to quantify the income chargeable to tax
The Hon’ble bench of Delhi High Court in Ornate Agencies Pvt. Ltd. v. ACIT Circle 19(1) New Delhi W.P. (C ) 3671 of 2023 was pleased to quash the order under Section 148A(d) of the Act and consequent notice u/s 148 when the Assessing Officer failed to quantify the income chargeable to tax. The order Section 148A(d) only stated “the income to the extent of Rs. 50,00,000 or exceeding Rs. 50,00,000/- has escaped assessment” and did not mention the exact amount.
9. When reassessment proceedings were initiated against a non-existent entity having an active PAN
Recently Bombay High Court in CLSA India Pvt. Ltd v. The Deputy Commissioner of Income Tax W.P No. 2462 of 2022 quashed the notice u/s 148 of the Income Tax Act, 1961 and categorically held that reassessment notices cannot be issued solely because the PAN in the name of a non-existence entity is active. A similar order was previously passed by the Bombay High Court in Teleperformance Global Services Private Limited v. ACIT W.P No. 950 of 2020.
10. When Reassessment is initiated on incorrect reasons like the entity having the same name but a different PAN
Recently, the Hon’ble Delhi High Court in Bharat Agro Overseas (India) v. ACIT Circle 34(1) and Anr. W.P No. 17455 of 2022 was confronted with the issue that reassessment proceedings were initiated against the dissolved partnership firm(a non-existent entity) of the assessee therein having the same name as his existing proprietorship firm but with a different PAN number. Hence, the Hon’ble High Court quashed the reassessment order passed u/s 148A(d) but directed the Assessing officer to reconsider the matter.
Conclusion
Any assesses approaching the High Court against such order/notice must noted that it is open to the assesses to prove that the assumption of the facts made in the notice was erroneous. The court will not interfere in the merits of the case. The questions of law and facts will still be decided by the assessing authority and the High Court would only quash/set aside the notice or order issued by the assessing officer and remit the case back to the assessing officer for fresh consideration if such notice was issued-
- Without specifically stating the foundational allegation and reasons to believe.
- When an effective opportunity of filing a reply is not provided i.e. less than 7 days.
- Approval is not taken from the specified authority.
- The reply submitted by the assesses was not considered by the Assessing Officer
- When two Reassessment orders/notices are issued simultaneously.
- Where the limitation u/s 149 has expired.
- When reassessment is initiated against a dead person
- Reassessment initiated on incorrect reasons like the same name but different PAN.
- Proper notice u/s 148A(b) is not issued within the limitation as set in the case of the Union of India vs. Ashish Aggarwal.
- Where order u/s 148A(d) has been passed without considering the reply filed by the assessee.
- Where the escapement of income is less than 50 Lacs. However, over 3 years have lapsed from the relevant year of reopening.
[1] Jeans Knit Private Limited v. The Deputy Commissioner of Income Tax, Civil Appeal No. 11189 of 2016.
[2] Whirlpool Corporation v. Registrar of Trademarks (1998) 8 SCC 1.
[3] Raymond Woollen Mills Ltd. v. ITO (1999) 236 CTR SC 34.
[4]Boutique International Pvt. Ltd. v. Deputy Commissioner of Income Tax , Delhi High Court, Writ Petition 13616 of 2022
[5] Catchy Prop Build Private Limited v. Assistant Commissioner of Income Tax [Delhi High Court] [Writ Petition- 13734 of 2022]
[6] Shri Sai Co-Operative Thrift and Credit Society v. ITO, Writ Petition- 7385 of 2022.
[7] Kusum Gupta v. ITO Ward, Delhi High Court, Writ Petition- 13466/2022.
[8] Kamdhenu Enterprises Ltd. v. Income Tax Officer Ward Delhi High Court, Writ Petition- 8589 of 2022.
[9] W.P. (C ) 9227 of 2021
[10] W.P. (C ) 3957 OF 2023
[11] W.P (C ) 1922/2022
