Notice for reassessment under Section 148 of Income Tax Act invalid if issued but not served, Bombay HC

The Bombay High Court recently ruled that a notice for reassessment of Income Tax will not be valid unless the notice is actually served. In this regard, a Division Bench of Justices Akil Kureshi and SJ Kathawalla emphasised,

. “ Service of notice is necessary and not its mere issuance .”

. The order was passed while setting aside a reassessment order issued by the Income Tax Department against a senior citizen who moved the Court challenging the tax reassessment.

. Case background

. The petitioner, a widow, having a Permanent Account Number (PAN), had never filed income returns, claiming that she did not have any taxable income.

. After the death of her husband, she moved in with her sisters at Jabalpur.

. In March last year, an assessing officer issued a notice under Section 148 of the Income Tax Act, to reassess her tax liability for the assessment year 2011-2012. The IT department had claimed that during the cited assessment period, the petitioner had entered into various high value transactions such as cash deposits, purchase of mutual funds, sale and purchase of immovable properties, etc.

. Section 147 of the IT Act allows the IT authorities to reassess escaped tax liabilities. In order to do the same, the authorities are required to issue a Income Escaping Assessment notice under Section 148 of the IT Act.

. However, the notice sent by the IT department in this case was returned by the postal authority with a remark “ left.”

. The IT department claimed that the address in the notice was based on information in the PAN database. On the basis of postal dispatch of the notice, the assessment officer passed an ex-parte order in December 2018, freezing the petitioner’s bank accounts for recovery of tax dues.

. Thereafter, during the period of scrutiny, the IT department attempted to inform her on address given by her to the bank. The IT authorities further argued that the petitioner did not respond to this attempt.

. The petitioner, on the other hand, claimed that she was unaware of the reassessment proceedings. She informed the Court that she had rushed to Mumbai to gather basic information about the proceedings only after being telephonically informed about certain despatches by the IT Department.

. Submissions

. Appearing for the petitioner, advocate Anupam Dighe submitted that mere issuance of a notice for reopening assessment by the IT Department is not sufficient and that service to the assessee is necessary.

. On the other hand, advocate Sham Walve argued for the for IT department argued that the issuance of reassessment notice is sufficient compliance with the requirement of Section 148 (1) of the Income Tax Act.

. “ The petitioner was systematically dodging the service of notice. And several notices issued during the reassessment were not accepted by the petitioner, ” Walve submitted.

. Reassessment order without complete service of notice invalid, Bombay High Court

. The Bench noted that the legal issue raised has already been settled by precedent as follows.

. “ It is a consistent view of the Courts that not the mere issuance of notice of reopening of assessment but its service on the assessee, that too, within the time frame envisaged under section 149 of the Act is necessary for a valid reopening of assessment. “

. In the case at hand, the Court observed that the postal communication should have been delivered at the address available with the bank, which was also accessible to the IT Department. As noted in the order,

. “ Since the delivery of the notice could not be made at the address of the assessee available in PAN database, by virtue of the further proviso to sub-rule (2) of Rule 127 [of the Income Tax Rules, 1962], the communication had to be delivered at the address as available with the banking company.

. It is undisputed that the Department had access to the petitioner’s bank account . It is precisely from the activities in such bank account that the department had gathered the material prima facie believing that the income chargeable to tax had escaped.”

. The Bench went on to hold that the assessing officer could not have passed the ex parte order for reassessing the petitioner’s tax liabilities in the absence of the notice being actually served. In this case, the Court noted that the service of notice was “ not complete.”

. “ In terms of Rule 127 and in particular, sub-rule (2) therefore, having regard to the further proviso therein, the Department had to deliver the notice of reassessment at the petitioner’s address given by her to the bank where her account was maintained. No such steps were taken. Service of notice, therefore, was not complete.

. In view of the same, the Court held that the consequential measures of the assessment officer to serve notices of the scrutiny assessment were also of no consequence. Consequently, the reassessment order was set aside by the Court and the petition allowed, on the ground that,

. “ Reopening of assessment was invalid. No valid assessment thereon could have been framed. “

. [Read the Order]

Notice for reassessment under Section 148 of Income Tax Act invalid if issued but not served, Bombay HC

Omkar Gokhale

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