AO Must Share Information and Pass Speaking Order: Allahabad HC

Arjun Sahu Vs ACIT (Allahabad High Court)

The Allahabad High Court heard four connected writ petitions filed by Arjun Sahu, Syed Quamer Abbas Zaidy, Shashi Kiran, and Nikhil Nirwal, all challenging reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961. The petitioners contended that the reassessment notices were issued after the Finance Act (No. 2) of 2024, which introduced amendments to Section 148-A effective from 1 September 2024, mandating that taxpayers be given an opportunity to respond before reassessment proceedings are initiated.

The petitioners argued that no material indicating escapement of income had been found against them and that they had not been given an opportunity to contest the initiation of reassessment. They claimed that no incriminating material was discovered during the search proceedings relevant to them, rendering the proceedings jurisdictionally invalid.

The Revenue countered that the amended Section 148-A provisions did not apply to searches conducted before 1 September 2024. Since the searches in question occurred prior to that date, the Assessing Officer was not legally required to provide an opportunity to the assessees before initiating reassessment. The Revenue maintained that the assessees could challenge any issues during the ongoing proceedings after filing their returns.

The Court, however, held that the Revenue’s objection was hyper-technical. Even before the statutory insertion of Section 148-A, the *Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19) had established a binding principle requiring the Assessing Officer to provide the assessee with reasons for reopening assessment and an opportunity to object before proceeding further. The High Court emphasized that this principle remains valid under Article 141 of the Constitution, unaffected by the subsequent amendments.

The Court noted that affording a minimal opportunity to the assessee before reassessment enhances transparency and credibility in tax proceedings. Accordingly, it disposed of the petitions with directions:

1. The assessees must file their individual returns by 31 October 2025.

2. Within one week of filing, the Assessing Authority must share all information relied upon for initiating reassessment.

3. The assessees shall have two weeks thereafter to file objections.

4. The Assessing Authority must pass a reasoned speaking order within two weeks of receiving objections.

5. If reassessment proceeds, the first hearing must be scheduled with at least 30 days’ notice.

The petitioners were also granted liberty to approach the Court again if any jurisdictional issue arises later.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard Shri Nitin Kanwar, learned counsel along with Shri Surya Pratap Singh, learned counsel for petitioners, Ms. Shalini Goel, learned counsel and Shri Dhananjay Awasthi, learned counsel for revenue.

2. Present writ petitions have been filed to assail the re-assessment proceedings initiated against the petitioners. Details of the same are disclosed hereinbelow:

3. Common submissions have been advanced. Accordingly all four writ petitions are being disposed of by this order.

4. Submission is, the re-assessment notices have been issued under Section 148 of the Income Tax Act, 1961 after the amendment to Section 148-A made by the Finance Act No. 2 of 2024, w.e.f. 01.09.2024. Therefore, the obligation to grant opportunity to the individual petitioners’ under that provision of law was mandatory, before re-assessment proceedings may have been initiated under Section 148 of the said Act.

5. As a fact, it has been submitted there is absolutely no material against any of the petitioners as may indicate to their respective Assessing Authority-that any income has escaped assessment, at their hands. No material, relevant to the present petitioners, was discovered in any of the search proceedings. Therefore, the re-assessment proceedings are without jurisdiction.

6. In continuation, it has been submitted, to the extent the petitioners have not been confronted with the adverse material and to the extent they have not been granted any opportunity to explain the correct facts by objecting to the proposed assumption of jurisdiction of re-assessment, there is no remedy available to the petitioners but to approach this Court.

7. On the other hand learned counsel for revenue have vehemently urged that the provisions of Section 148-A, as amended by Finance Act No.2 of 2024, do not apply to cases of search that were carried out before 01.09.2024. To the extent it cannot be disputed that the search giving rise to the impugned re-assessment proceedings (against the petitioners), were completed before 01.09.2024, the Assessing Authority is not obligated or required by law to give any opportunity to raise objections to assumption of jurisdiction to re-assess them. Once the petitioners filed their return and participated in the proceedings, they will have ample opportunity, to dispute the assessment being proposed.

8. Having heard learned counsel for parties and having perused the records, it appears that the objection being raised by the revenue is hyper technical to be adjudicated, at this stage. Even if the objection being raised by the revenue were to be sustained, it may never be denied prior to the introduction of statutory law under Section 148-A there existed binding precedential law under the GKN Driveshafts (India) Ltd v. Income Tax Officer 2003 259 ITR page 19 SC wherein it was observed as below:

“5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objection, if filed, by passing a speaking order, before proceeding with the assessment in respect of the aforesaid five assessment years “

9. Therefore, in this branch of law and in these nature of proceedings, it was settled from before introduction of Section 148-A, that the Assessing Authority may afford minimal opportunity to the assessee to object to the initiation of re-assessment proceedings, before that proceeding is actually undertaken-to re-assess an assessee.

10. In view of the above consideration, even if it is assumed-for the sake of argument, that there does not exist any statutory requirement under Section 148-A to afford the petitioner an opportunity to formally object to the proposed assumption of re-assessment proceedings, yet, equally binding effect in law would force the Assessing Authority to afford such opportunity under the precedential law that pre-existed that statutory provision.

11. The force of law created by virtue of Article 141 of the Constitution of India has not been diluted or done away by any of the amendments made to the Income Tax Act, 1961.

12. Even otherwise, we find that the rule of law introduced by GKN Driveshafts (supra), is deeply entrenched in our jurisprudence as also finds reverberate in the statutory principle contained in Section 148-A of the Income Tax Act, 1961.

13. Consequently, we find no reason to allow the revenue an unfair advantage at this stage, by proceeding to initiate re-assessment proceedings against the petitioners ex parte, so to say. Affording minimal opportunity of objection to such proceedings before actual exercise is undertaken introduces more transparency and therefore, infuses more credibility in the re-assessment proceedings that the assessing officer proposes to undertake.

14. For the aforesaid reasons, we find no useful purpose will be served by keeping these petitions pending and calling counter affidavit, at this stage. Accordingly, the writ petitions are disposed of with the following directions:

(i) Subject to the assessee filing their individual return on or before 31.10.2025, their respective assessing authority will confront the petitioner with information received as is being relied to initiate proceedings i.e. through email, within one week from the filing of return.

(ii) Thereafter, the individual assessee will have two weeks time, to file objections to the proposed re-assessment proceedings through the mode as may be provided for by the Assessing Officer and as may be facilitated to ensure that the objections are actually received by the competent authority.

(iii) Upon such objections being filed, a reasoned and speaking order may be passed by the concerned authority, within a further period of two weeks therefrom. Such order may be communicated to the individual assessees accordingly.

(iv) If re-assessment proceedings are to be initiated, the first date of the re-assessment proceedings may be fixed with at least thirty days advance notice.

15. Needless to add if any jurisdictional issue survives, petitioners will be at liberty to approach the Court at that stage.