Reassessment notices under section 148 of the Income Tax Act (hereinafter the Act) are perhaps more in numbers than the actual regular scrutiny assessment notices. This post is examining the legality of issuing more than one reassessment notice without dropping the earlier notice. At this point in time, when the Finance Act 2021 clearly changed the whole procedure of conducting a reassessment proceeding under section 147, still the issue is very much important as many reassessment orders were passed under the old law. Even if filing appeals for old cases, this can be a legal ground for quashing the order.
Issue of more than one notice u/s 148
If you received more than one notice u/s 148 under the Act up to 31st March 2021, for the reassessment of income of a particular assessment year, you need to check certain facts to assess the legality of the whole proceedings. If you have filed an appeal in such cases, a new legal ground can also be raised if the facts involved in your case show that the two or more than two notices u/s 148 served on you.
What do you need to check to understand the legality?
The Supreme Court and High Courts of the country have held that if an assessee files a tax return in response to a notice u/s 148, then any subsequent notice u/s 148 , without disposing of the notice (either dropping or making an assessment, vide first notice, shall vitiate the whole reassessment proceeding.
So, the most important fact to check is whether you filed a tax return after getting the notice u/s 148 and whether the AO disposed of the first notice u/s 148 before he issued the second 148 notice.
Supreme Court on Validity of Two Notices u/s 148
Two simultaneous notices u/s 148 is bad in law .
Madras High Court in S. Raman Chettiar v. CIT [1961] 42 ITR 700, held that when a return is furnished by the assessee in consequence of a notice issued under section 34 of the Indian Income-tax Act, 1922 (equivalent to section 148 of Income tax Act 1961 ), it was not open to the Income-tax Officer to ignore that return and issue a further notice under section 34(1)(a) on the assumption that there had been an omission or failure on the part of the assessee to make a return of his income.
In fact, the High Court further held that even if the original notice issued under section 34(1) of the Act was not a valid notice, the return filed in pursuance of such notice itself could not be regarded as non est or illegal and even in such a case, the initiation of fresh proceedings under section 34 with the issue of a fresh notice was without jurisdiction.
The income tax department challenged the decision in Supreme Court CIT v. Raman Chettiar [1965] 55 ITR 630. The Apex Court upheld the judgment of the Madras High Court.
Another decision of the Madras High Court in A.S.S.P & Co. Vs. CIT reported in (1988)172 ITR 274 (Mad.)that gave a similar judgment. The Hon’ble High court held that the second notice issued for reopening when the first notice for reopening pursuant to which the assessee had filed the return has not been disposed of then, the second notice of reopening could not have been issued by the AO and, therefore, it was found that the AO had no jurisdiction to issue the second notice and the reassessment framed pursuant to the second notice was quashed.
Calcutta High Court on Fate of Second 148 Notice
The Hon’ble Calcutta High court in the case of Indian Tubes Co. Ltd. Vs. ITO (2005) 272 ITR 439(Cal) had framed the question for consideration as under:
“The only question that arises for determination, therefore, in this writ application is whether the Income Tax Officer could initiate fresh proceeding under section 148 of the Act on March 29, 1983, when pursuant to the earlier invalid notice dated February 11, 1983, the petitioner had already submitted the returns.”
Calcutta High Court, by relying on the decision of the Hon’ble Supreme Court in S. Raman Chettiar t CIT v. Raman Chettiar [1965] 55 ITR 630. , t held as under:
“Applying the aforesaid principles to the facts of the case, it is clear that when the petitioner filed returns in compliance with the invalid notice dated February 11,1983, under section 148 of the 1961 Act, those returns should be treated as ‘returns’ and as such before making assessment on the basis of those returns, no further notice under section 148 of the Act could be passed.”
Allahabad High Court on validity of second reassessment notices
The facts involved in the case of Commercial Art Press v. CIT [1978] 115 ITR 876. before Allahabad High Court was that the ITO issued a notice under section 148 on July 2, 1966, for the reassessment of income. He issued a notice under Section 143(2) on April 13, 1967, requiring the assessee to attend in order to explain certain matters. Though these proceedings were pending, the ITO issued yet another notice under Section 148 on August 30, 1968. In due course, he completed the reassessment proceedings by an order dated December 2, 1968.
CIT(A) quashed the assessment order on the ground that the notice dated August 30, 1968, was clearly invalid because on that date proceedings consequent on the earlier notice issued under Section 148 were pending.
ITAT affirmed the decision of CIT(A) . So department challenged the decision in the high court. The division bench of the Hon’ble High Court held as under :
5. There can be no manner of doubt that an ITO has no jurisdiction at all to issue notices under Section 148 repeatedly. When reassessment proceedings commence owing to the issuance of the notice under Section 148 and the same are validly pending, no fresh notice can be issued under Section 148. Subsequent notices can only be in pursuance of the provisions of Section 143(2) requiring the assessee to come forward and explain the return filed by him. The view that the notice issued under Section 148 on August 30, 1968, was illegal, hence admits of no doubt or dispute.
6. In the eye of law, the reassessment proceedings were pending when the return was filed in pursuance of the notice dated July 2, 1966. They had to be completed by an assessment order. The assessment order passed on December 2, 1968, was within time computed from the date of the notice of July 2, 1966.
Conclusion
- AO has no jurisdiction to issue second notice u/s 148 when the reassessment order in pursuance of first notice u/s 148 is pending.
- If Assess files timely return in compliance of first 146 notice , he can claim that second notice u/s 148 is invalid.
- If AO passes reassessment order based on first notice ,then even if the second notice is invalid, the order in pursuance of first notice will hold good. [refer Allahabad High Court order in Commercial Art Case]