Non response to show-cause notice u/s 148A(b) would not make the otherwise invalid show-cause notice good – High Court
In a recent judgment Patna High Court has held that incorrect information furnished in notice u/s 148(A)(b) which was not supported by any material vitiated the proceeding under section 148 and the fact that assessee did not respond to the show-cause notice u/s 148A(d) would not make the show-cause notice good.
ABCAUS Case Law Citation:
4611 (2025) (06) abcaus.in HC
Important Case Laws relied upon by Parties:
Union of India vs. Rajeev Bansal [2024] 469 ITR 46 SC
Union of India vs. Ashish Agarwal
Ganesh Dass Khanna vs. Income Tax Officer and Anr
Salik Khan vs. Assessment Unit, Income Tax Department and Anr.
In the instant case, the assessee had challenged the notice passed under Section 148A(b) of the Income Tax Act, 1961 (the Act) along with order passed u/s 148A(d) and notice u/s 148 of the Act.
The Petitioner was running a proprietary concern. The petitioner filed his Income Tax Return for the relevant Assessment Year inter alia declaring exempt income under ‘Other Head’ as Long-Term Capital Gain received from sale of shares.
The Profit & Loss Account, Balance Sheet and Books of Accounts of the petitioner’s proprietorship firm was audited by a Chartered Accountant who issued Audit Report under Section 44AB of the Act.
After the passage of six years, the petitioner was served with a show cause notice dated 23.02.2022 u/s 148A(b) of the Act. According to the aid notice, on the basis of the information received from Insight Portal under the Module “Non-filing of Return” it was alleged that he had not filed his Income Tax Return for the Assessment Year 2015-16.
The petitioner submitted that it was alleged that in the relevant Assessment Year, the petitioner had deposited large amount of cash in the Bank and has further made transaction in large amount. On the basis of these information, the Assessing Officer was of the view that petitioner being a non-filer of return had large income from different sources but he had failed to offer tax, thus, it is a case of escaped assessment.
On these facts, the impugned order dated 06.04.2022 was passed under Section 148A(d) of the Act and notice under Section 148 of the Act were directed to be issued against the petitioner.
It was submitted that on receipt of the notice under section 148, the Petitioner immediately filed a reply and brought it to the notice of the Assessing Officer that the petitioner was a regular assessee of Income Tax, his books of accounts were audited annually and requested the Department to drop the impugned proceedings.
However, despite the specific reply, the Department issued Notice under Section 142(1) of the Act whereby the petitioner was directed to submit certain documents detailed therein. The petitioner complied with the said notice and submitted the requisite documents.
The petitioner submitted that despite his compliance of the two notices issued under Section 142(1), still the Department issued a third notice under Section 142(1). The petitioner complied with the notice and submitted all the relevant documents which were best available with him.
The Petitioner submitted that he was issued impugned Show Cause Notice u/s 148 by the Assessment Unit, Income Tax Department. The Petitioner contended that Hon’ble Supreme Court took note of the reassessment notices issued between 1st April, 2021 and 30th June, 2021 under the old regime on the ground that (i) sections 147 to 151 stood substituted by Finance Act, 2021 from 1st April, 2021; (ii) In the absence of any saving clause, the Revenue could initiate reassessment proceedings after 1st April, 2021 only in accordance with the provisions of the new regime since they were remedial, beneficial, and meant to protect the rights and interests of the assessees and (iii) the Central Government could not exercise its delegated authority to reactivate the pre-existing law. The Hon’ble Supreme Court held that the benefit of the new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 01.04.2021.
It was further submitted that in this case the Assessing Officer proceeded to issue the order based on “mere information” without there being any evidence of possession of books of accounts or other documents which would have revealed that income chargeable to tax which amounts to Rs. 50 lakhs or more has escaped assessment. The Petitioner relied upon paragraph ‘7.8’ and ‘8.1’ of the CBDT Instruction No. 01 of 2022 dated 11th May, 2022.
The Petitioner contended that lack of jurisdiction goes to the root of the matter and in this case a jurisdictional error had been committed by the assessing authority which will vitiate the whole reassessment proceedings.
Replying to the query made by the Bench with regard to the contents of the annexure to notice 148A(b), the Department submitted that the first paragraph of the annexure to the said notice alleging non-filing of ITR seemed to be incorrect and maybe a result of a cut and paste practice while preparing the annexure to the notice. However, submits that so far as the main content of the annexure is concerned, it was correct and based on an information available on the Insight Portal of the Department which was showing a cash deposit.
The Hon’ble High Court observed that the foremost question for consideration was whether in terms of Section 149 as amended vide Finance Act 2021 with effect from 01.04.2021, a notice under Section 148 or Section 148A could have been issued by the assessing authority in respect of the Assessment Year 2015-16?
The Hon’ble High Court observed that the Finance Act, 2021 inserted Section 148A with a heading “Conducting inquiry, providing opportunity before issue of notice under section 148. Section 148A as inserted by Finance Act, 2021 with effect from 01.04.2021. Further, vide Finance Act, 2021 with effect from 01.04.2021, the time limit for notice under section 148 of the Act was changed.
The Hon’ble High Court observed that the allegation in notice u/s 148A(b) that the Petitioner had not filed return of income was factually incorrect. The Hon’ble High Court stated that the submission of the Department that mistake was committed in course of cut and paste cannot be taken as an appropriate explanation from the respondents. The name of the petitioner was mentioned in the first paragraph of the annexure and then the authority issuing the notice had apparently mentioned about a data available on the e-filing portal which is not a correct data. The fact remained that the petitioner had filed its ITR and his audit report was also uploaded.
The Hon’ble High Court further noted that in the second paragraph of the annexure, it is stated that the assessee had deposited cash in the Bank and had also made transactions but all these transactions had not at all been discussed later on and what had ultimately transpired is that the Assessing Officer has disallowed long term capital gain of Rs. 25,90,000/- only which was claimed by the petitioner in his Income Tax Return. The Hon’ble High Court opined that in view of the above conduct of the Department, the contention of the petitioner that in the annexure to the notice issued under section 148A (b) of the Act, the amount of escaped assessment was inflated to bring it over and above Rs. 50 lakhs only to avoid the period of limitation has much force and there was no reason as to why this submission of the petitioner be not accepted.
The Hon’ble High Court further noted that while issuing notice under section 148A(b), the notice issuing authority not only relied upon wrong information but he also failed to submit any material in support of the same to the petitioner.
The Hon’ble High Court observed that the Hon’ble Supreme Court in the case of Rajeev Bansal held that “under section 148A(b), the Assessing Officer has to comply with two requirements : (i) issuance of a show-cause notice; and (ii) supply of all the relevant information which forms the basis of the show-cause notice. The supply of the relevant material and information allows the assessee to respond to the show-cause notice. The deemed notices were effectively incomplete because the other requirement of supplying the relevant material or information to the assessees was not fulfilled. The second requirement could only have been fulfilled by the Revenue by an actual supply of the relevant material or information that formed the basis of the deemed notice.”
The Hon’ble High Court further noted that in the case of Ashish Agarwal the Hon’ble Supreme Court had held that a show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and materials by the Assessing Officer. Due to the legal fiction, the Assessing Officers were deemed to have been inhibited from acting in pursuance of the section 148 A(b) notice till the relevant materials were supplied to the assessee..
The Hon’ble High Court further observed that the speech of the finance minister while introducing the amendment in the Income Tax Laws may be found in the judgment of the Hon’ble Delhi High Court in which it is clearly stated that only in serious tax evasion cases where there is evidence of concealment of income of more than Rs. 50 lakhs, can the re-assessment be opened beyond the prescribed limitation period of three years. The approval for the same has to be taken from the highest level of the Department.
The Hon’ble High Court opined that there was no iota of doubt that no effective show-cause notice under section 148A (b) of the Act was served upon the petitioner. The fact that the petitioner did not respond to the show-cause notice would not make the show-cause notice good and compliant with the requirement of law. After coming into force of the Finance Act 2021, the Department could have issued a notice u/s 148 of the Act, only if the condition prescribed under Section 149(1) (b) would have been satisfied.
The Hon’ble High Court held that proceeding initiated against the petitioner was based on incorrect information furnished in the notice under section 148(A) (b) which was not supported by any material, therefore, the very initiation of the proceeding by issuing section 148 notice stood vitiated.
Accordingly, impugned orders and the demand raised against the petitioner was quashed.
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