Assessment Order Quashed Due to Email Communication Issue Despite Valid Section 148 Notice

S. Palani Vs Additional/Joint/Deputy/ACIT (Madras High Court)

In , the petitioner challenged a notice dated 31.03.2022 issued under Section 148 of the Income Tax Act, 1961 and the consequential assessment order dated 06.03.2023 passed under Sections 147, 144 and 144B for Assessment Year 2018-19.

The proceedings were preceded by a notice dated 21.03.2022 issued under Section 148A(b), followed by an order under Section 148A(d) dated 31.03.2022 and issuance of a notice under Section 148 on the same date.

The petitioner had originally filed a return of income under Section 139(1) declaring taxable income of Rs.30,09,400/-. After receiving the Section 148 notice, the petitioner filed a fresh return on 25.04.2022 reiterating the earlier income declaration.

The assessment proceedings were later transferred to the Faceless Unit, and notices under Sections 142(1) and 143(2) were issued. According to the petitioner, these communications were sent to an old email address which the petitioner had stopped using. The petitioner stated that after the Section 148 notice, returns had been filed through a new email address, but the petitioner failed to check notices uploaded on the portal and therefore overlooked the communications preceding the assessment order.

The petitioner contended that the proceedings arose from a search conducted under Section 132 in the case of M/s G Square and M/s Saravana Stores Bramandamai. Therefore, according to the petitioner, proceedings could have been initiated only under Section 153C and not under Section 148. It was also argued that the addition of Rs.4,87,50,000/- as undisclosed income under Section 69A was unjustified, particularly when a similar addition had already been made in the hands of the petitioner’s brother in separate proceedings for the same assessment year.

Alternatively, the petitioner requested that the matter be remitted back for fresh consideration.

The Revenue argued that the assessment order was well reasoned and valid. It was submitted that after amendments introduced by the Finance Act, 2021, reassessment proceedings in cases of escaped income were governed by the new provisions under Section 148. The Revenue further argued that Sections 153A to 153C had been amended with effect from 01.04.2021 and that reassessment proceedings after that date were required to proceed under Section 148.

The Court examined the amended provisions of Sections 153A and 153C. It noted that Section 153A applied to searches initiated on or before 31.03.2021, while Section 153C(3) specifically provided that the section would not apply to searches initiated on or after 01.04.2021.

The Court observed that the petitioner had not provided details regarding the date of the search conducted against M/s G Square and M/s Saravana Stores Bramandamai. In the absence of such details, the Court drew a statutory presumption under illustration (e) to Section 119 of the Bharatiya Sakshya Adhiniyam, 2023 that official acts had been regularly performed and presumed that the search had taken place after 01.04.2021. Consequently, the Court held that proceedings initiated under Section 148 were in accordance with law.

The Court further examined Section 148A(d) and the limitation provisions under Section 149. It observed that the escaped income alleged against the petitioner exceeded Rs.1 crore, namely Rs.4,87,50,000/-, and therefore the limitation for issuance of notice under Section 148 had not expired. Since the Section 148 notice had been issued on 31.03.2022, the Court held that the proceedings were within the prescribed limitation period.

Accordingly, the Court concluded that the invocation of Section 148 could not be faulted and rejected the challenge to jurisdiction.

However, the Court accepted the petitioner’s explanation that notices had been overlooked because they were sent to the old email address and uploaded on the portal. The Court held that this constituted a reasonable cause and inferred violation of principles of natural justice.

As a result, while upholding the validity of the Section 148 proceedings, the Court quashed only the assessment order dated 06.03.2023 and remitted the matter back to the Assessing Officer for passing a fresh assessment order after granting opportunity of hearing to the petitioner. The petitioner was permitted to raise all available defences except the challenge to jurisdiction under Section 148.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

In this Writ Petition, the Petitioner has challenged the impugned Notice dated 31.03.2022 issued under Section 148 Notice to the petitioner by the 2nd Respondent and consequential impugned Assessment Order dated 06.03.2023 passed under Section 147 read with Section 144 and Section 144B of the Income Tax Act, 1961 for the Assessment Year 2018-2019.

2. The facts of the case reveal that the impugned proceedings was preceded with a Notice dated 21.03.2022 issued under Section 148A(b) of the Income Tax Act, 1961 followed by an Order dated 31.03.2022 under Section 148A(d) of the Income Tax Act, 1961 and issuance of a Section 148 Notice also dated 31.03.2022.

3. The Petitioner had earlier filed a Return of Income under Section 139(1) of the Income Tax Act, 1961 on 29.03.2019. In the said Return of Income, the Petitioner had declared a taxable income of Rs.30,09,400/-. Pursuant to the Notice dated 31.03.2022 issued under Section 148 of the Income Tax Act, 1961, the Petitioner filed a fresh Return of Income on 25.04.2022 whereby the Petitioner reiterated the declaration in the Return of Income filed under Section 139(1) of the Income Tax Act, 1961 on 29.03.2019.

4. Subsequently, the assessment was transferred to the Faceless Unit. Thus, Notices were issued to the Petitioner under Section 142(1) and Section 143(2) of the Income Tax Act, 1961 by the 1^st The contention of the Petitioner is that all the communications were addressed to the Petitioner’s email ID namely absesoscm@yahoo.com, which the Petitioner had long ceased to operate.

5. It is further case of the Petitioner that subsequent to Section 148 Notice dated 31.03.2022, Return of Income was filed from the Petitioner’s new email ID namely, aura.banu1@gmail.com and the Petitioner failed to check the Notices as they were posted in the web portal, and that, the Petitioner overlooked these Notices that preceded the impugned Assessment Order dated 06.03.2023.

6. It is the contention of the Petitioner that the entire proceeding emanates from a search conducted under Section 132 of the Income Tax Act, 1961 on the searched person namely M/s.G Square and M/s. Saravana Stores Bramandamai and therefore proceedings can be initiated only under Section 153C of the Income Tax Act, 1961 and not under Section 148 of the Income Tax Act, 1961. The affidavit is silent on the date of such search.

7. That apart, learned counsel for the Petitioner submits that addition of a sum of 4,87,50,000/- to the income of the Petitioner as undisclosed income of the Petitioner under Section 69A of the Income Tax Act, 1961 as well as in the hands of the Petitioner’s brother namely Mr. Shanmugasundaram Subramanian was unjustified.

8. It is submitted that the said income was added to the latters income vide similar proceeding dated 24.03.2023 for the same Assessment Year under Section 144 and Section 144B of the Income Tax Act, 1961 in the hands of the Petitioner’s brother namely Mr. Shanmugasundaram Subramanian.

9. Alternatively, the learned counsel for the Petitioner submits that the Petitioner will be satisfied if the case is remitted back to the Respondents to pass fresh orders in lieu of the impugned Assessment Order dated 03.2023.

10. The learned Senior Standing Counsel for the Respondents on the other hand would submit that the impugned Assessment Order is well-reasoned and does not merit any interference in the hands of this Court under Article 226 of the Constitution of India.

11. It is submitted that after the amendment to the provisions of the Income Tax Act, 1961 vide Finance Act, 2021, new set of provisions were incorporated in the Income Tax Act, 1961 and therefore the argument that the proceedings were without jurisdiction has to be rejected.

12. It is submitted that with effect from 04.2021, Section 153A to Section 153C of the Income Tax Act, 1961 stood deleted and assessment under Section 143(3) of the Income Tax Act, 1961 including reassessment in the case of escape assessment could be only under the machinery under Section 148 of the Income Tax Act, 1961 as in force with effect from the said date and therefore proceedings initiated was in accordance with law as in force during the period.

13. I have considered the arguments advanced by the learned counsel for the Petitioner and the learned Senior Standing Counsel for the Respondents.

14. The Petitioner was issued with Section 148A(b) Notice on 03.2022 which is ultimately culminated in an Order dated 31.03.2022 under Section 148A(d) of the Income Tax Act, 1961 and Section 148 Notice also dated 31.03.2022.

15. With effect from 04.2021, a new set of provisions have been incorporated for the purpose of Assessment, Reassessment particularly in the case of income escaping assessment.

16. Section 153A, Section 153B and Section 153C of the Income Tax Act, 1961 have also been amended vide Finance Act, 2021 with effect from 04.2021.

17. Text of relevant portion of Section 153A(1) of the Income Tax Act, 1961 and Section 153C(3) of the Income Tax Act, 1961 as amended vide Finance Act, 2021 with effect from 04.2021 is reproduced below for the sake of clarity:-

18. Section 153A(1) of the Income Tax Act, 1961 as in force with effect from 01.04.2021 contains a non obstante clause. As per the said non obstante clause, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A after the 31^st day of May, 2003 but on or before the 31^st day of March 2021 nothing anything contained in Section 139, Section 147, Section 149, Section 151 and Section 153 of the Income Tax Act, 1961, shall apply.

19. Under these provisions, the Assessing officer may issue notice to such person requiring him to furnish within the period specified in the notice, the Return of Income for each assessment year falling within six assessment years as well for the relevant assessment year or years referred to in clause (b) of Section 153A, in the prescribed form duly verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return were one required to be furnished under Section 139. The Assessing Officer may also assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made, as well as for the relevant assessment year or years.

20. Under Section 153A(1) of the Income Tax Act, 1961, as in force with effect from 01.04.2021, an Assessing Officer shall first:-

i. issue a notice to a searched person, to furnish a return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in Clause (b) within such period, as may be specified in the said notice.

ii. Such Return of Income shall be in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

iii. The provisions of the Act shall, so far as may be, apply accordingly, as if such return were a return required to be furnished under Section 139.

21. In other words, return filed pursuant to such Notice shall be deemed to be the return filed under Section 139 of the Income Tax Act, 1961. The Assessing Officer shall assess or reassess the total income of six Assessment Years immediately preceding the Assessment Year relevant to the previous Year in which such search was conducted or requisition was made for the relevant Assessment Year or Years.

22. Assessment or Re-assessment under amended Section 153A of the Income Tax Act, 1961 will apply only in the case of a search initiated under Section 132 of the Income Tax Act, 1961 against the searched person or where the books of account, other documents or any assets were requisitioned under Section 132A of the Income Tax Act, 1961 between 31^st day of May, 2003 and 31^st day of March, 2021 and not after 31^st day of March, 2021.

23. Section 153C(3) of the Income Tax Act, 1961 which was simultaneously amended vide Finance Act, 2021 with effect from 01.04.2021 also contains a non obstante clause. As per the said non obstante clause, Assessment or Re-assessment will not apply in relation to a search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A on or after the 1^st day of April, 2021.

24. Relevant portion of Section 153C(3) of the Income Tax Act, 1961 is reproduced below:-

“153C. Assessment of income of any other person.

(1) …….

(2) …….

(3) Nothing contained in this Section shall apply in relation to a search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A on or after the 1^st day of April, 2021.”

25. Thus, Assessment or Re-assessment under Section 153C of the Income Tax Act, 1961 will not apply in relation to a search initiated under Section 132 of the Income Tax Act, 1961 or where books of account, other documents or any assets were requisitioned under Section 132A of the Act on or after the 1^st day of April, 2021.

26. There are no details forthcoming in the affidavit to indicate that the date of search said to have been initiated against the searched persons namely M/s.G Square and M/s.Saravana Stores Bramandamai was on or after the 1st day of April, 2021.

27. In this case, a statutory presumption has to be drawn in terms of the illustration (e) to Section 119 of the Bharatiya Sakshya Adhiniyam, 2023 (formerly under Section 114(e) of the Indian Evidence Act, 1872) that the search has taken place after the 1^st day of April 2021 and therefore proceedings are in accordance with law. Illustration (e) to Section 119 of the Bharatiya Sakshya Adhiniyam, 2023 reads as under:-

“119. Court may presume existence of certain facts.-

(1) The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case.

Illustrations.

The Court may presume that-

(a) ….

(b) ….

(c) ….

(d) ….

(e) judicial and official acts have been regularly performed. ”

…………….

28. Thus, proceedings initiated under Section 148 of the Income Tax Act, 1961 is to be held strictly in accordance with law.

29. Further, as per Section 148A(d) of the Income Tax Act, 1961 as amended with effect from 04.2021, the Assessing Officer is required to decide, on the basis of material available on record including Reply of the Assessee furnished under Section 148A(c) of the Act as to whether or not it is a fit case to issue a Notice under Section 148, by passing an order, with the prior approval of Specified Authority, within one month from the end of the month in which the Reply referred to in Clause (c) is received by him, or where no such Reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a Reply as per Clause (b) expires.

30. For the sake of clarity, Section 148A(d) of the Income Tax Act, 1961 and Proviso to Section 149 of the Income Tax Act, 1961 are extracted below:-

31. Therefore, an order under Section 148A(d) of the Income Tax Act, 1961 has to be passed by the Assessing Officer within one month from the end of the month in which the Reply referred to in Clause (c) is received by the Assessee.

32. In this case, the dispute pertains to the Assessment Year 2018­-2019. Based on the information gathered during the course of search held at the premises of M/s.G Square and M/s.Saravana Stores Bramandamai, it was inferred that the amount that had escaped assessment in the hands of the Petitioner is above 50,00,000/- as is evident from a reading of Section 148A(b) Notice dated 21.03.2022 and Section 148A(d) Order dated 31.03.2022 passed under the Income Tax Act, 1961.

33. Since the amount which has allegedly escaped assessment is more than 1 Crore i.e., Rs.4,87,50,000/-, pursuant to the sale of the property to the said M/s. G Square and M/s.Saravana Stores Bramandamai, the limitation for issuance of Section 148 Notice cannot be said to have expired under the old regime as Section 148 Notice itself was issued on 31.03.2022.

34. The limitation under the old regime and the new regime are as under:-

35. The only embargo for issuance of Section 148 Notice would have been under the 1^st Proviso to Section 149 of the Income Tax Act, 1961. As per 1^st Proviso to Section 149 of the Income Tax Act, 1961, Notice under Section 148 of the Income Tax Act, 1961 cannot be issued if the limitation has already expired under the old regime.

36. The Petitioner was issued with Section 148A(b) Notice on 21.03.2022. The Petitioner filed a Reply to Section 148A(b) Notice on 26.03.2022 under Section 148A(C) of the Income Tax Act 1961. It culminated in an Order dated 31.03.2022 under Section 148A(d) of the Income Tax Act, 1961 and with the issuance of Section 148 Notice dated 31.03.2022 for the Assessment Year 2018-2019.

37. Therefore, the challenge to the impugned proceedings cannot be countenanced since Section 148 Notice dated 31.03.2022 was issued before the expiry of the limitation period prescribed under Section 149 of the Income Tax Act, 1961.

38. Thus, it is evident that the invocation of machinery under Section 148 of the Income Tax Act, 1961 cannot be found fault with. Therefore, to that extent, the challenge to the impugned proceedings has to fail.

39. However, the fact remains that the Petitioner could not participate in the proceedings as the Notices were sent to the Petitioner’s new mail ID and were posted in the web portal, the explanation of the Petitioner appears to be a reasonable cause for having replied to the Notices that preceded the impugned Assessment Order after Section 148 Notice was issued to the Petitioner on 31.03.2022.

40. To that extent, a violation of Principles of Natural Justice can be inferred. Therefore, the impugned Assessment Order alone is quashed and the case is remitted back to the 1^st Respondent to pass a fresh Assessment Order in lieu of the impugned Assessment Order dated 06.3.2023 as expeditiously as possible.

41. Needless to state, the Petitioner shall be entitled to raise all the defences that are available to the Petitioner except the one relating to jurisdiction to issue Section 148 Notice to the Petitioner.

42. The Petitioner shall keep a Reply ready to the Notices that preceded the impugned Assessment Order by treating the impugned Assessment Order dated 06.03.2023 as an addendum to the Show Cause Notice that preceded the impugned Assessment Order and shall file with the 1st Respondent as and when the Income Tax portal is ready to receive the same.

43. The 1^st Respondent shall thereafter proceed to pass a final order on merits. Needless to state the Petitioner shall be heard before final orders passed.

44. This Writ Petition stands disposed of with the above observations. No costs. Connected Writ Miscellaneous Petitions are closed.