Kargode Chandrashekar Dayananda Vs Assessment Unit (Karnataka High Court)
Section 148 Missed the 1 April Deadline: Karnataka HC Buries AY 2015–16 Reassessment With Its Penalty &; Recovery Baggage
SEO Title: Karnataka HC Quashes AY 2015-16 Reassessment Initiated After 1 April 2021
SEO Description: Karnataka HC quashes AY 2015-16 reassessment where Section 148A and Section 148 proceedings were initiated after 1 April 2021.
Summary:
In Kargode Chandrashekar Dayananda v. Assessment Unit, NFAC, decided on 7 July 2026, the Karnataka High Court quashed reassessment proceedings for AY 2015–16 because the proceedings u/s 148A & notice u/s 148 were initiated after 1 April 2021.
The assessee, a 76-year-old individual, was subjected to reassessment through a show-cause notice dated 19 March 2022 u/s 148A(b). This was followed by an order dated 29 March 2022 u/s 148A(d) holding that it was a fit case for issuance of notice u/s 148. On the same day, the AO issued the consequential notice u/s 148 for AY 2015–16.
The proceedings culminated in an ex parte assessment order dated 16 March 2023 u/s 147 r/w Sections 144 & 144B. A computation sheet & demand notice u/s 156 were issued simultaneously.
The Department thereafter passed a penalty order dated 18 September 2023 u/s 271F, along with a consequential computation sheet & demand notice. Recovery action was also initiated through a garnishee notice dated 10 November 2023 u/s 226(3) addressed to Karnataka Bank. Further proceedings under the Second Schedule were commenced on 12 August 2025.
The assessee challenged the entire chain before the High Court, including the reassessment notices, assessment order, tax computation, penalty, demands & recovery proceedings.
Issue before the High Court
The principal issue was whether reassessment proceedings for AY 2015–16, initiated on or after 1 April 2021, were legally sustainable.
A connected issue was whether the final assessment, penalty & recovery proceedings could survive when their jurisdictional foundation—the proceedings u/s 148A & notice u/s 148—was itself invalid.
The petition also raised the procedural question whether the High Court should exercise writ jurisdiction when the assessee’s statutory appeal against the assessment order was already pending.
Petitioner’s contentions
The assessee contended that the Section 148A proceedings were initiated only in March 2022, well after 1 April 2021. Since the reopening related to AY 2015–16, it fell outside the period in which a valid reassessment could be initiated.
Reliance was placed upon the Karnataka High Court Division Bench decision in Income Tax Officer v. Venkatala Iyyappa Rajanna, Writ Appeal No.612/2025, decided on 5 August 2025.
In that decision, the Division Bench had considered the Supreme Court’s ruling in Union of India v. Rajeev Bansal. It recorded the Revenue’s concession before the Supreme Court that notices issued on or after 1 April 2021 for AY 2015–16 were required to be dropped.
The assessee argued that his case was squarely covered by that principle. The Section 148A(b) notice dated 19 March 2022, order u/s 148A(d) dated 29 March 2022 & notice u/s 148 issued on the same date were therefore without jurisdiction.
Once the initiation failed, every consequential proceeding—including the assessment order, penalty, demand, bank attachment & recovery action—was liable to be quashed.
Revenue’s position
The Department’s Standing Counsel was heard at the stage of disposal. The judgment does not record any separate factual distinction or legal contention capable of taking the case outside the binding principle recognized in Venkatala Iyyappa Rajanna.
The relevant dates were undisputed. The reassessment related to AY 2015–16, while the proceedings u/s 148A & notice u/s 148 were issued during March 2022.
Findings of the High Court
The High Court held that the assessee’s case fell squarely within the category of AY 2015–16 proceedings that were liable to be dropped. It relied upon the Division Bench’s observations in Venkatala Iyyappa Rajanna, which, in turn, referred to the Revenue’s concession recorded in Rajeev Bansal.
Accordingly, the Court allowed the writ petition & quashed the complete reassessment chain. The documents quashed included:
- Section 148A(b) notice dated 19 March 2022;
- order u/s 148A(d) & notice u/s 148 dated 29 March 2022;
- assessment order, computation & demand dated 16 March 2023;
- penalty order, computation & demand dated 18 September 2023;
- bank garnishee notice dated 10 November 2023; &
- Second Schedule recovery notice dated 12 August 2025.
Although the assessee’s appeal was pending, the Court directed that it should be disposed of consequentially. Liberty was granted to the assessee to produce the High Court order before the appellate authority & seek closure of the appeal.
Legal reasoning
The reasoning rests on the principle that a valid notice u/s 148 is the jurisdictional foundation of reassessment. If issuance of that notice is barred by limitation, the AO lacks authority to proceed further.
This was not a curable procedural defect. It went to the very assumption of reassessment jurisdiction. Consequently, the assessment order could not acquire independent validity merely because the assessee participated insufficiently, an ex parte order was passed or a statutory appeal remained pending.
Every subsequent action was derivative. The penalty u/s 271F, demands u/s 156, garnishee proceedings u/s 226(3) & coercive recovery measures depended upon the assessment. Once the reassessment foundation disappeared, the consequential proceedings necessarily collapsed.
The existence of an appellate remedy did not prevent writ relief because the challenge concerned a jurisdictional limitation defect, already settled by binding authority.
Practical implications
The ruling offers direct relief in cases where reassessment notices for AY 2015–16 were issued on or after 1 April 2021. Taxpayers should examine the assessment year, date of notice & applicable limitation before contesting additions on merits.
The judgment also confirms that quashing an invalid reopening eliminates not merely the assessment but its complete aftermath—penalty, demand, attachment & recovery. A pending appeal does not compel an assessee to pursue merits where the reassessment itself is void.
The central takeaway is unmistakable: once Section 148 arrives beyond its lawful window, Sections 156, 226(3) & 271F cannot keep the dead assessment alive.
Cases Discussed
- Income Tax Officer v. Venkatala Iyyappa Rajanna — Writ Appeal No.612/2025 [T-IT], disposed of on 05.08.2025.
- Union of India V. Rajiv Bansal — Supreme Court ruling referred to in the Division Bench decision relied upon by the petitioner.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner’s grievance is with the Assessment Order dated 16.03.2023 [Annexure-A1], the computation and the consequential demands including the Demand for Penalty and Interest. Sri Pranay Sharma Y., the learned counsel for the petitioner, and Sri Thirumalesh M., a learned standing counsel who is called upon to accept notice for the respondents, are heard for disposal of the petition.
Sri Pranay Sharma Y submits that because the notice under Section 148-A(d) of the Income Tax Act, 1961 [for short, ‘the IT Act’] is dated 29.03.2022 [Annexure-B2] i.e., beyond 01.04.2021, the entire proceedings must fail. The learned counsel relies upon, among others, the orders of a Division Bench of this Court in Income Tax Officer v. Venkatala Iyyappa Rajanna in Writ Appeal No.612/2025 [T-IT] [disposed of on 05.08.2025] where the Division Bench has observed thus:
“In addition to the above, it is also relevant to note that the impugned notice was issued in respect of AY 2015-2016. Pursuant to the impugned notice, an order dated 31.03.2022 was passed under Section 148(d) of the Act, holding that it was a fit case for issuance of notice under Section 148 of the Act. The question whether such notices issued in respect of the Assessment Year, 2015-2016 were sustainable was a subject matter of observation by the Supreme Court of India, in Union of India V. Rajiv Bansal. During the said proceedings, it was readily conceded by the Revenue that all such notices issued on or after 01.04.2021 in respect of Assessment Year 2015-2016 were liable to be dropped.”
As the present case would fall squarely within the circumstances in which the proceedings are dropped earlier, the following order although the petitioner’s appeal is pending.
ORDER
[A] The petition is allowed and the Assessment Order dated 16.03.2023 [Annexure-A1], the Computation Sheet dated 16.03.2023 [Annexure-A2], the Notice of Demand dated 16.03.2023 [Annexure-A3], the Order of Penalty dated 18.09.2023 [Annexure-A4], the Computation Sheet dated 18.09.2023 [Annexure-A5], the Notice of Demand dated 18.09.2023 [Annexure-A6], the Notice under Section 148A(b) dated 19.03.2022 [Annexure-B1], the Order under Section 148A(d) dated 29.03.2022 [Annexure-B2], the Notice under Section 148 dated 29.03.2022 [Annexure-B3], the Notice dated 10.11.2023 [Annexure-C1] and the Notice of Proceedings dated 12.08.2025 [Annexure-C2] are quashed.
[B] The petitioner’s pending appeal shall consequently be disposed of, and the petitioner is reserved with liberty to file a copy of this Order in the appeal and seek such disposal.
