Introduction: Section 148 of the Income Tax Act, 1961 empowers the Assessing Officer to issue notices if any income has escaped assessment. However, the question arises whether a second notice can be issued for the same assessment year. Understanding the legal framework and judicial interpretations is essential to navigate this aspect effectively.
Section 147 of the Income Tax Act, 1961 (referred to as ‘IT Act, 1961’), grants the Assessing Officer (AO) the authority to assess or reassess income, or to recompute losses, depreciation allowances, or any other allowances or deductions for a specific assessment year. This is applicable if any taxable income has not been assessed for that particular year.
Section 148 of the IT Act, 1961 requires the Assessing Officer to issue a notice if any income has escaped assessment. Section 148A of the IT Act, 1961, introduced by the Finance Act, 2021, outlines the procedural steps that the Assessing Officer must follow before issuing a notice under Section 148 of the IT Act, 1961.
Time Limit for issuing notice under Section 148, IT Act
Section 149 of the IT Act, 1961 sets the time limit for issuing notices under Section 148. Generally, the notice must be issued within three years from the end of the relevant assessment year. However, if the Assessing Officer has books of account, documents, or evidence indicating that the income that escaped assessment amounts to or is likely to amount to fifty lakh rupees or more, the notice can be issued beyond three years but within ten years from the end of the relevant assessment year. This income can be in the form of:
1. An asset,
2. Expenditure related to transactions or events, or
3. An entry or entries in the books of account.
Can the notice be issued twice for the same assessment year?
Numerous decisions by the Hon’ble Supreme Court of India and various High Courts have established that the principle of res judicata, as outlined in Section 11 of the Code of Civil Procedure, 1908, does not apply to taxation matters. The Hon’ble Supreme Court, in its judgement in the case of Radha Soami Satsang, Saomi Bagh, Agra v. CIT[1], has held that:
“16. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”
Hence, one could argue that because the principle of res judicata doesn’t apply in tax matters, the Assessing Officer (AO) has the authority to issue multiple notices under Section 148 for the same Assessment Year.
Analyzing Precedents
The Madras High Court, in its judgment in T. Krishnamurthy v. ITO[2], determined that the Assessing Officer retains the authority to issue a notice under Section 148 of the IT Act, 1961 for a second time. The court reasoned that if the first notice under Section 148 was set aside solely on technical grounds and not on its merits, it does not prohibit the department from issuing a notice under Section 148 for a second time.
An intriguing aspect, the third proviso of Section 147 specifies that the Assessing Officer has the authority to assess or reassess income that has escaped assessment, excluding income that is the subject of any ongoing appeal, reference, or revision, and which is chargeable to tax.
Numerous judgments from various High Courts reinforce this principle, stating that if a notice under Section 148 has been issued and is pending adjudication before the Assessing Officer, CIT (Appeals), or the Tribunal, issuing a second notice would be legally flawed and subject to being invalidated.
In the case of Kamdhenu Enterprise v. ITO[3], the Hon’ble Delhi High Court, drawing on the precedent set in CIT v. Sanjay Kumar Garg[4] (Delhi), affirmed that it is firmly established that while reassessment proceedings are ongoing, another notice for reassessment cannot be issued for the same assessment year.
Likewise, in Smt. Pushpa Rajawat v. CIT, the Hon’ble Rajasthan High Court ruled that the adjudicating authority was not permitted to issue a second show cause notice under Section 148 of the IT Act, 1961, while the first notice issued under Section 148 was under consideration before the Commissioner of Income Tax (Appeals).
In the case of Pr. CIT v. Coal India Ltd[5], the Hon’ble Calcutta High Court ruled that when a notice under section 148 of the Act is issued, it effectively reopens or leaves open the original assessment proceedings, rendering the finality of the initial assessment order void. Therefore, without resolving the return of income filed by the assessee in response to the first notice, the assessing officer lacked the authority to issue a second notice to reopen the assessment, which, at that relevant juncture, did not legally exist.
In the case of Elite Pharmaceuticals v. ITO[6], the Hon’ble Calcutta High Court determined that the second notice under Section 148 issued by the Income Tax Department is legally invalid when the assessee had already filed its return concerning the first notice under Section 148, and the Department proceeded to issue a second notice under the same section without addressing the return previously submitted.
Conclusion
Indeed, the IT Act, 1961 does not explicitly stipulate the frequency with which a notice under Section 148 can be issued for the same assessment year. However, several judgments from various High Courts have favoured the department’s stance, particularly if an issue has escaped assessment and is subsequently discovered during proceedings. Indeed, it’s crucial to emphasize that the third proviso to Section 147 of the Income Tax Act, 1961 specifically prohibits the issuance of a second notice under Section 148 while the first notice is pending adjudication. This provision acts as a safeguard against the duplication of reassessment proceedings during ongoing assessments.
[1] RadhaSoami Satsang, Saomi Bagh, Agra v. CIT, AIR 1992 SCC 377
[2] T. Krishnamurthy v. ITO, (2020) 116 taxmann.com 476
[3] Kamdhenu Enterprise v. ITO, [2023] 146 taxmann.com 417
[4] CIT v. Sanjay Kumar Garg, [2015] 64 taxmann.com 334
[5] Pr. CIT v. Coal India Ltd, [2023] 146 taxmann.com 546
[6] Elite Pharmaceuticals v. ITO, [2023] 147 taxmann.com 378
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