Smt. Sudha Reddy Nookala Vs ITO (Telangana High Court)
Telangana High Court Upholds Reassessment Proceedings Over Alleged Undisclosed Overriding Commission Receipts
Summary: The Telangana High Court, in Smt. Sudha Reddy Nookala Vs ITO, dismissed a writ petition challenging the order dated 22 June 2026 passed under Section 148A(3) and the consequential notice dated 23 June 2026 issued under Section 148 of the Income-tax Act, 1961, for Assessment Year 2022-23. The reassessment proceedings arose from alleged overriding commission receipts of ₹81,02,160 from insurance companies through middle-layer business entities. The petitioner contended that the receipts had already been disclosed under the presumptive taxation provisions of Section 44AD, declaring gross business turnover of ₹81,78,434 and presumptive income of ₹8,17,844. Relying on Form 26AS, she disputed the allegation of acting merely as a pass-through entity and argued that the Department had failed to properly examine her explanation and supporting documents. However, upon examining the order passed under Section 148A(3), the High Court found that paragraphs 4.1 to 4.6 specifically recorded reasons for rejecting the petitioner’s explanation. Consequently, the Court considered the reassessment notice prima facie justified and declined to interfere. It observed that the petitioner could submit relevant documents and information before the Assessing Officer and pursue statutory appellate remedies against any adverse assessment order. Accordingly, the writ petition was dismissed, with directions to conduct the assessment strictly in accordance with law. The Court did not finally adjudicate the taxability of the disputed commission receipts or the applicability of Section 44AD.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
This Writ Petition has been filed under Article 226 of the Constitution of India, seeking the following relief:-
“… Hon’ble Court may be pleased to:
(a) to issue a writ, order or direction, more particularly in the nature of Writ of mandamus declaring the impugned order dated 22.06.2026 bearing DIN and Notice No.ITBA/AST/F/148A/2026- 27/1090275602(l) passed under Section 148-A(3) of the Act for A.Y. 2022-23 A.Y. 2022-23 as arbitrary, illegal, without jurisdiction, without proper application of mind and violative of Article 14 of the Constitution of India apart from being passed in violation of principles of natural justice; and
(b). consequently quash the notice issued under Section 148 dated 23.06.2026 bearing DIN and Notice No.ITBA/AST/S/1481/2026-27/1090283575(1) for the AY 2022-23 and pass such other order or orders…”
2. Heard Mr.A.V.Raghu Ram, learned counsel for the petitioner and Ms.Bakaro Sapna Reddy, learned Senior Standing Counsel for Income Tax, for respondent No.1. Perused the record.
3. The brief facts of the case are that the petitioner is an individual assesse under the Income-Tax Act, 1961, (for short ‘the Act’) bearing PAN: AXFPN8869A, and that petitioner submitted returns in respect of the Assessment Year 2022-23, corresponding to Financial Year 2021-22.
4. It is further stated that the respondent-Department issued a notice under Section 148-A(1), dated 29.03.2026, to the petitioner, alleging receipt of Rs.81,02,160/- during the said assessment year, and called upon to explain, as to why the notice under Section 148 should not be issued, and in response, the petitioner submitted a reply, dated 17.04.2026 explaining that the receipts in question were fully disclosed in the return of income, as having been offered under the presumptive provisions of Section 44-AD of the Act, and the same was reflected in Form 26-AS, and thus, the petitioner filed the return of income for A.Y.2022-23, disclosing gross business turnover of Rs.81,78,434/- with presumptive income at 10% amounting to Rs.8,17,844/-. It is also stated that, though the petitioner explained that the receipts related to marketing/business-promotion and contractual activities, and specifically denied the allegation that she had acted merely as a passing-through entity, the 1st respondent passed impugned order proceeding on an altogether different factual figure of Rs.81,02,160/-, comprising different amounts. Consequently, the foundational factual premise of the impugned order is demonstrably inconsistent with the Department’s own Form 26-AS, which was admittedly furnished by the petitioner during Section 148-A Proceedings.
5. It is further contended that, the respondent-Department proceeded on an alleged departmental investigation concerning Overriding Commission, which the insurance companies are allegedly paying to the Middle Layer Business Entities (“MLBEs”), and passed the impugned order stating that the petitioner was in receipt of ORC payments through middle- layer entities, and held that there was an escapement of tax, and accordingly the respondent-Department issued a notice under Section 148, directing the petitioner to submit the return of income by curing the said defects.
6. The learned counsel for the petitioner mainly contend that the documents filed by the petitioner were not at all considered, except stating that the reply was carefully considered, as there was no analysis of the figures in Form 26AS or the figures alleged in the anonymous information, and that the respondent-Department, without a proper reasoning had mechanically arrived at a finding that income had escaped assessment and, issued the notice under Section 148, which is bereft of reasons. Therefore, the impugned proceedings are liable to be quashed and set aside.
7. The learned Senior Standing Counsel, Ms.Bakaro Sapna Reddy, appearing for respondent No.1-Department, would contend that, infact a show cause notice was issued under the provisions of the Act under sub-section (3) of Section 148-A, calling upon the petitioner to submit a proper explanation, and having not been satisfied with the said explanation and upon a specific analysis of the same, the impugned notice under Section 148 of the Act was issued, and it was a reasoned order.
8. Learned Senior Standing Counsel further contends that, the contention of the petitioner that her reply was not duly considered, stands negated in view of the specific consideration of the reply submitted by the petitioner and the specific reasoning recorded in paragraph No.4 of the notice, dated 26.06.2026, and having not been satisfied with the explanation offered by the petitioner, the respondent-Department had issued appropriate notice under Section 148 of the IT Act, and no prejudice has been caused to the petitioner, as the petitioner has every right to file a fresh return of income by disclosing all the relevant facts, which would be examined by the assessment authority, whereupon appropriate orders would be passed.
9. Having heard Sri Mr.A.V.Raghu Ram, learned counsel for the petitioner, and Ms.Bakaro Sapna Reddy, learned Senior Standing Counsel, appearing for the respondent No.1- Department, and having given earnest consideration to their submissions, perused the record.
10. Now, the only point that falls for consideration before this Court is, whether the proceedings emanating from the alleged escapement of tax, leading to the issuance of the impugned notice under Section 148, were initiated after scrutinizing the reply filed by the petitioner so as to arrive at the conclusion that there was an escapement of tax.
11. Apparently, upon close scrutiny of the notice, dated 26.06.2026, issued under sub-section (3) of Section 148-A of the Act, paragraph No.4 there specifically states how the reply of the petitioner was considered and specific reasoning was offered in paragraphs No.4.1 to 4.6.
12. Therefore, in the considered view of this Bench, the respondent-Department by the impugned order, dated 22.06.2026 has considered the reply of the petitioner assigning reasons and thereafter consequential notice, issued under Section 148 of the Act, dated 2306.2026 is prima-facie just and proper. Therefore, we do not see any good reason to interfere with the impugned notice issued under Section 148 of the IT Act.
13. Further, once a notice under Section 148 of the IT Act has been issued, the petitioner would have ample opportunity to file the return of income along with the relevant information/documents before the Assessing Officer, who shall consider the same and pass appropriate orders in accordance with law. Even, if the petitioner is aggrieved thereby, it is always open to the petitioner to avail further remedy of approaching the appellate authorities.
14. In that view of the matter, the writ petition is devoid of merits and is liable to be dismissed.
15. Accordingly, the Writ Petition is dismissed. It is also made clear that the respondent-Department, while passing the assessment order, shall ensure that the competent authority takes appropriate steps strictly in accordance with the provisions of the IT Act.
Miscellaneous petitions, if any are pending, shall stand closed.
