For determination of what constitutes a fit case to issue notice u/s 148, rule of relevancy of the material and application of mind to the objection raised still survive – High Court
In a recent judgment, Hon’ble High Court has held that as per amended provisions, even though the rule of recording “reasons to believe” to initiate the assessment proceedings, no longer exists, however for determination what constitutes a fit case to issue notice u/s 148, rule of relevancy of the material and application of mind to the objection raised, still survive.
ABCAUS Case Law Citation:
5205 (2026) (08) abacus.in HC
In the instant case, the Petitioner received a show cause notice issued under Section 148-A(1) of the Income Tax Act, 1961 (the Act). In that, notice a reference was made to information related to his PAN was derived under the risk management strategy through the Income Tax Portal. It was alleged that his proprietorship firm has made business transactions related to sales and purchases which were reported in GST returns and received professional fee on which TDS was deducted. However, the assessee had not reported those transactions in his return of income.
The Petitioner submitted that he was a salaried employee of a private Corporation. It was also stated that the petitioner had never engaged in any business activity of sale or supply of goods or services and not derived any other income.
The petitioner completely denied the fact of business transactions while admitting salary income. He completely denied knowledge of the name of the business entity (described as a proprietary concern of the petitioner) and further completely denied any business transaction performed by him in that trade name. He also completely denied association with the business address of the said firm as disclosed to the GST Authority.
Having denied its connection with alleged firm or any business conducted by him, the petitioner further stated that his identity might have been stolen specifically, while he submitted certain online loan applications.
However, the AO rejected the submissions and passed an order under Section 148-A(3) of the Act stating that after taking note of the objections filed, they were found as untenable.
Aggrieved, the Petitioner approached the Hon’ble High Court by way of filing a Writ Petition and claimed that he may not be subjected to reassessment proceedings, unless preliminary enquiries are made to ascertain that it is the petitioner, who is the real person behind the business transactions evidenced in the name of the alleged firm.
On the other hand, the revenue contended that, upon the amendment made to the law, the revenue is only obligated to establish existence of relevant material. The strict test of “reason to believe” as was available earlier, no longer applies.
Further, it was submitted that dealing with the objections in terms of the law laid down by the Supreme Court in GKN Driveshafts and as is also a statutory requirement under the amended law, may never amount to recording detailed reasoning on the individual merits of the objections.
The Hon’ble High Court observed that even though the rule of recording “reasons to believe” to initiate the assessment proceedings, no longer exists, for the purpose of Section 148-A(1) of the Act the assessing authority is only required to pass an order determining “whether or not it is a fit case to issue notice under Section 148”.
The Hon’ble High Court further observed that no detailed “reasons to believe” are required to be recorded by the assessing authority to initiate the assessment proceedings. However, to determine what may constitute a fit case to issue notice under Section 148 of the Act, the time tested rule of relevancy of the material and application of mind to the objection raised, may still survive.
The Hon’ble High Court further observed that while the petitioner did not dispute that certain financial transactions had been linked to its PAN, he disowned his involvement with those transactions. He claimed that his identity had been stolen. He lodged a complaint under Delhi jurisdiction which was pending.
The Hon’ble High Court also observed that the Petitioner also made enquiries and thereafter lodged complaint with GST Authorities. However, no enquiry had yet been conducted by the GST Authorities and therefore, no positive finding might have been returned by them that the petitioner was not the person who may have performed the transactions giving rise to the impugned proceedings.
The Hon’ble High Court observed that the information revealed that the registration under the GST Act was granted on the identity of the present petitioner. At the same time, it had been narrated that on field inspection, the firm was not found existing at the given principal place of business. Notice issued remained unresponded. Accordingly, registration had been cancelled. Further no bank account was found attached to the GST account. To the extent, no enquiry had been conducted by the GST Authorities and further to extent the Income Tax Authorities were within their rights to conduct an independent inquiry for the purposes of the Act, the communication issued by the GST Authorities is not of conclusive value. It plainly causes no effect, at present.
The Hon’ble High Court opined that to accept the defence of petitioner, evidence would have to be led, documents would have to be examined and enquiry would have to be made before firm conclusion of identity theft can be drawn. That may be done only during the course of proper assessment/re-assessment proceedings. At the preliminary stage, in the context of the amended law, no further enquiry was required to be made to determine that this is a fit case for re-assessment proceedings to arise.
However, the Hon’ble High Court added that it does not mean that the revenue is absolved of its responsibility to lead positive evidence to establish that the disputed transactions were performed by the petitioner. Once the petitioner has pleaded a negative fact and subject to his substantiating that stand before the assessing authority, the burden to establish the positive fact that the petitioner and no other had performed the transaction giving rise to the allegation of escapement of income, would have to be discharged by the revenue. Unless primary evidence is lead, the onus may not shift on the assessee.
The Petition was disposed off with above observation with liberty to Petitioner opportunity to lead such evidence in his defence in reassessment proceedings.
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