Karnataka HC: Reassessment Order Quashed Where New Allegations Were Introduced Without Adequate Opportunity

Satyadeva Builders Vs DCIT (Karnataka High Court)

Karnataka HC: Reassessment Order Quashed Where New Allegations Were Introduced Without Adequate Opportunity

The Karnataka High Court partly allowed the writ petition and quashed the reassessment order passed under Sections 147 read with 144B along with the consequential penalty notices, holding that the assessee had not been afforded a reasonable opportunity to meet the case ultimately made out by the Department. The Court noted that the Section 148A proceedings referred only to the sale of a single unit, whereas the subsequent show cause notice issued during the reassessment proceedings for the first time alleged suppression relating to the sale of 119 apartments, thereby substantially expanding the scope of the proceedings. Further, the assessee was granted only about two weeks between the issuance of the show cause notice and the passing of the reassessment order to collate voluminous records and explain the transactions.

Considering these circumstances, the High Court held that the principles of natural justice required that the assessee be given an effective opportunity to respond before being fastened with tax liability on issues not forming part of the original Section 148A proceedings. Accordingly, the Court set aside the reassessment order and the consequential penalty notices, while leaving all questions on merits open. The assessee was granted four weeks to file a comprehensive reply, and the Assessing Officer was directed to complete the reassessment afresh after duly considering the response in accordance with law.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

The petitioner, a Partnership Firm engaged in the business of construction, has filed this petition calling in question the Show Cause Notice dated 02.05.2024 under Section 148A(b) of the Income Tax Act, 1961 [for short, ‘the IT Act’], the order under Section 148A(d), the Assessment Order dated 25.02.2026 under Section 147 read with Section 144B of the IT Act and the subsequent penalty Show Cause Notices. The proceedings are relevant to the assessment year 2020-21.

2. Mr. Hemant Venkatray Pai, the learned counsel for the petitioner, submits that the petitioner’s grievance insofar as the present petition could be redressed if this Court interferes with the Assessment Order dated 25.02.2026 and the penalty Show Cause Notices with liberty to file a detailed response to the Show Cause Notice dated 02.05.2024 leaving open all questions to be answered afresh by the Assessing Officer. In elaboration, the learned counsel submits that fi] the proceedings under Section 148A of the IT Act only referred to sale of one unit but the Show Cause Notice dated 03.02.2026 has referred, for the first time, to multiple units sold by the petitioner, and fig if the Show Cause Notice is dated 03.02.2026, the impugned order is dated 25.02.2026 allowing the petitioner only two weeks to collate all payments.

3. Mr. Hemant Venkatray Pai argues for a reasonable opportunity before the petitioner is fastened with liability. Mr. E. I Sanmathi, the learned Senior Standing counsel for the respondents, is heard for final disposal of the petition in the light of these circumstances. The petitioner is allowed time between the Show Cause Notice dated 03.02.2026 and the impugned Assessment Order dated 25.02.2026 to respond to a deficiency in filing returns on the sale of 119 apartments but without the advantage of notice of the proceedings based on this in the proceedings under Section 148A of the IT Act.

4. This Court finds that, in these circumstances, the petitioner’s case for a limited interference with the Assessment Order and the consequent penalty notices with opportunity to file response to the Show Cause Notices will be just and reasonable, especially when this Court can observe that all questions otherwise are left open for decision on restoration but based on the response that the petitioner can file within the time allowed by this Court. In the light of the afore, the following:

ORDER

The petition is allowed-in-part quashing the impugned Assessment Order dated 25.02.2026 and the subsequent penalty Show Cause Notices [Annexures – A3, A4, A5] with liberty to the petitioner to file a detailed response within four [4] weeks from today observing that the Assessing Officer shall conclude all proceedings upon due consideration of the response that is offered.