Karnataka HC Restores Reassessment to Section 148A(b) Stage, Sets Aside Penalties

Smt Bhagyamma Vs ITO (Karnataka High Court)

Homemaker Misses Portal Notices, Ex Parte Reassessment &; Penalties Set Aside – Karnataka HC Restores Matter to Section 148A(b) Stage

Summary:

In Smt Bhagyamma v. Income Tax Officer, the Karnataka High Court partly allowed a writ petition concerning reassessment proceedings for AY 2018-19 and restored the matter to the jurisdictional Assessing Officer for reconsideration after giving the petitioner an opportunity to respond to the notices issued u/s 148A(b) of the Income-tax Act, 1961.

The petitioner had challenged the assessment order dated 05.03.2024 passed u/s 147 r/w section 144, the consequential demand notice u/s 156, penalty orders u/s 272A(1)(d) and 270A, the corresponding penalty demands, the notices dated 16.03.2022 and 23.03.2022 u/s 148A(b), the order dated 01.04.2022 u/s 148A(d) and the notice u/s 148 dated 01.04.2022.

The reassessment proceedings originated after the petitioner sold an immovable property acquired from her parents-in-law for a consideration of Rs.66,00,000/-. According to the petitioner’s submissions, the purchaser deducted 1% of the sale consideration as TDS and remitted it to the Department, and that remittance flagged the reassessment proceedings. The petitioner asserted that she was a homemaker without a digital footprint except for registration of PAN, and that she had reinvested a substantial part of the sale consideration in purchasing another residential property and was therefore entitled to exemption from Capital Gains Tax.

The petitioner also submitted that although the notices had been uploaded on the Income Tax Portal, she had not registered herself on the Portal. She further stated that she had not been served with the notices even though the proceedings recorded that they had been sent through speed post.

The Court considered these circumstances and concluded that the second respondent, described in the order as the Jurisdictional Assessing Officer, should extend an opportunity to the petitioner to place on record the details of the transaction in response to the notices issued u/s 148A(b), and thereafter conclude whether the case was fit for reassessment u/s 147 with notice u/s 148.

The Court therefore did not finally uphold or invalidate the underlying reassessment on merits. Instead, it interfered with the completed assessment and consequential proceedings and restored the matter to the statutory reassessment stage. The assessment order dated 05.03.2024 u/s 147 r/w 144, demand notice u/s 156 dated 05.03.2024, penalty order u/s 272A(1)(d) dated 09.09.2024, consequential demand, penalty order u/s 270A dated 17.09.2024, consequential demand, order u/s 148A(d) dated 01.04.2022 and notice u/s 148 dated 01.04.2022 were quashed.

Importantly, the two notices u/s 148A(b) dated 16.03.2022 and 23.03.2022 were not quashed. The petitioner was reserved liberty to file her response to those notices before the second respondent, together with supporting documents, by 15.09.2026. The Court’s order therefore leaves the reassessment question open for reconsideration at the statutory pre-notice stage.

The ruling is significant for cases where reassessment proceedings have culminated in an assessment despite the assessee asserting that the statutory notices were not effectively received and that relevant transaction documents and explanations were not placed before the Assessing Officer. The Court’s approach emphasizes an opportunity to place the transaction details on record before the jurisdictional Assessing Officer determines whether reassessment proceedings should proceed.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

The reassessment proceedings are begun for the assessment year 2018-19 with the petitioner being issued with notices dated 16.03.2022 and 23.03.2022 [Annexures – G & H] under Section 148A(b) of the Income Tax Act, 1961 [for short, ‘the IT Act’]. These proceedings have culminated with the Assessment Order dated 05.03.2024 [Annexure – A] and the subsequent Computation and Penalty after the Order dated 01.04.2022 [Annexure – J] under Section 148A(d) of the IT Act. The details of the impugned Notices and Orders are as follows.

2. Mr. Narendra Kumar J. Jain, the learned counsel for the petitioner, Mr. M. Dilip along with Mr. Vinayak S. Pandit who accept notice for the respondents, are heard for disposal of the petition examining whether there must be interference to restore the proceedings for reconsideration and if there must be such interference, the stage from which the proceedings must be recommenced.

3. Mr. Narendra Kumar J. Jain submits [a] that the petitioner has acquired an immovable property from her parents-in-law, which she has sold for a consideration of Rs.66,00,000/-, [b] that the purchaser has deducted 1% of the sale consideration as TDS and remitted the same to the Department, [c] that this remittance has flagged the initiation of the re-assessment proceedings, [d] that the petitioner, being a homemaker without a digital footprint except registering for PAN, has reinvested a substantial part of the sale consideration in purchase of another residential property and therefore, is entitled for exemption from Capital Gains Tax, [e] that the records indicate that all the notices have been uploaded on the Portal but the petitioner has not registered herself on the Portal and [f] that the petitioner has not been served with the notices though the proceedings record that the notices have been sent through speed post.

4. This Court, on a careful consideration of these circumstances, is of the view that the second respondent [the Jurisdictional Assessing Officer] must extend an opportunity to the petitioner to place on record the details of the transaction in response to the notice under Section 148A(b) of the IT Act and conclude on whether it is a fit case for re-assessment under Section 147 of the IT Act with notice under Section 148 thereof. In the light of the afore, the following.

[A] The petition is allowed in-part quashing the following.

[B] The petitioner is reserved with liberty to file response to the Notices under Section 148A(b) of the IT Act [Annexures – G and H] with the second respondent along with the supporting documents by 15.09.2026.