Udai Raj Chordia Vs ACIT (Karnataka High Court)
Reassessment Cannot Begin with a Doubt and End in a Fishing Enquiry: Karnataka High Court Quashes Section 148 Notice
The Karnataka High Court has reiterated that even under the amended reassessment regime, proceedings under Section 148 cannot be initiated for conducting a roving or fishing enquiry. The Jurisdictional Assessing Officer must act on definite information, examine the material available on record and meaningfully consider the assessee’s reply before deciding that it is a fit case for reassessment.
The petitioner, Udai Raj Chordia, claimed to have rendered marketing-support services to Tata AIG General Insurance Company Limited during Assessment Year 2019-20. According to the petitioner, the commission received from the insurance company had already been disclosed in the return of income. He asserted that a sum of ₹1,42,80,000 was offered as commission income from marketing-support services.
The Income-tax Department issued a show-cause notice dated 27 March 2025 under Section 148A(1). The petitioner submitted a reply explaining the transactions and specifically pointed out that the receipts from Tata AIG had already been declared. Therefore, according to him, there was no income escaping assessment.
Notwithstanding the reply, the Assessing Officer passed an order under Section 148A(3) and issued a consequential notice under Section 148 on 27 June 2025. The petitioner approached the High Court challenging both the order and the reassessment notice, principally on the ground that his explanation and the supporting return particulars had not been properly considered.
Department Relied on Alleged Routing of Overriding Commission
The Department’s information indicated that the petitioner had been identified as a “nominee recipient” in Tata AIG’s internal records and that ₹1,42,80,000 had been credited to him during Financial Year 2018-19.
According to the Assessing Officer, this payment formed part of a wider pattern in which insurance companies allegedly routed excess or overriding commission through Marketing Service Providers and vendors by obtaining bogus invoices for non-existent marketing and support services. The information was stated to be based on post-search findings and submissions made by the insurance company.
The Assessing Officer further recorded that the petitioner had claimed receipt of ₹1,64,40,000 as commission income. However, TDS relating to those payments had been reported under Sections 194J, 194C and 194-I(b). According to the officer, the reporting under different TDS provisions indicated an inconsistent and potentially misleading characterisation of the payments.
The order also stated that the petitioner had not produced satisfactory evidence proving that actual services had been rendered corresponding to the receipts. Based on these circumstances, the Assessing Officer concluded that the case was fit for reopening under Section 147.
Disclosure of Receipt and Claim of Expenditure Are Separate Issues
On behalf of the Revenue, it was argued that the reopening had to be examined in the context of the expenditure claimed against the commission receipts. If the petitioner could not establish the genuineness of such expenditure, reassessment proceedings under Section 147 could be justified.
The High Court, however, noticed that the impugned order had proceeded by generally doubting the transaction and the documents furnished. The Assessing Officer had not properly examined the petitioner’s computation of income and the factual assertions contained in his reply.
The Court observed that the petitioner had not merely disclosed the receipts attributed to him by the Department. According to the computation referred to by the Court, he had declared an amount higher than the receipts mentioned in the reassessment information, while claiming expenditure of only around 10% of the total receipts.
This aspect had a direct bearing on the allegation of escapement of income. If the receipts forming the basis of the information had already been offered—and an even higher amount had been declared—the Assessing Officer was required to examine what precisely had escaped assessment. If the real dispute was about the genuineness or allowability of expenditure, that issue had to be specifically examined with reference to the return, the assessee’s reply and the supporting documents.
Section 148 Requires Definite Information, Not a General Suspicion
The High Court held that even under the new reassessment regime, a notice under Section 148 cannot be issued merely to undertake a roving or fishing enquiry. The statutory process is not intended to enable the Assessing Officer to reopen an assessment first and search for possible escapement later.
The Jurisdictional Assessing Officer must examine the information available, compare it with the return and accompanying material, consider the assessee’s response and then record a reasoned conclusion on whether it is a fit case for issuance of notice under Section 148.
In the present case, the computation of income and the explanation forming part of the petitioner’s response had not been duly examined. The decision to initiate reassessment was therefore vitiated by non-consideration of relevant material.
Notice Quashed—but Proceedings Restored for Fresh Decision
The High Court allowed the petition in part and quashed the order passed under Section 148A(3) as well as the consequential notice issued under Section 148. However, it did not terminate the reassessment proceedings altogether.
The matter was restored to the Assessing Officer for fresh consideration. The petitioner was directed to appear before the officer on 5 October 2026 without awaiting any further notice. The Assessing Officer was directed to reconsider whether the case was fit for issuance of a notice under Section 148 in light of the Court’s observations.
Thus, the ruling granted the petitioner procedural relief but did not foreclose the Department’s right to reopen the assessment if, after proper examination, the statutory conditions were independently found to be satisfied.
Author’s Comments
The judgment draws an important distinction between information suggesting undisclosed receipts and information suggesting an excessive or unverifiable expenditure claim. If the alleged receipt is already fully disclosed, the order under Section 148A must identify the precise income said to have escaped assessment. A vague reference to bogus services or inconsistent TDS sections cannot substitute for examining the return and the assessee’s explanation.
At the same time, the relief is not a final victory on merits. The High Court has remanded the matter, leaving the Assessing Officer free to issue a fresh notice after proper consideration. The assessee must therefore be prepared to establish not only disclosure of the gross receipts but also the actual rendering of services and the genuineness of expenditure claimed.
The broader principle is nevertheless significant: Section 148A is intended to filter out unwarranted reopening. It cannot become a procedural formality in which the reply is received but not examined.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner asserts that he has rendered marketing support services for M/s. Tata AIG General Insurance Company Limited during the Assessment Year 2019-20, and that he has offered a total sum of Rs.1,42,80,000/- as commission income from marketing support services. The petitioner’s grievance is with the commencement of the proceedings for reassessment with the notice under Section 148 of the Income Tax Act, 1961 [for short, the Act’] and with the Order dated 27.06.2026 [Annexure-A] under Section 148A(3) of the Act. The petitioner has also impugned the Show Cause Notice dated 27.03.2025 [Annexure-C] under Section 148A[1] of the Act.
2. Mr. Narendra Kumar J Jain, the learned counsel for the petitioner, submits that the petitioner, when issued with the Notice under 148A[1] of the Act, has filed reply detailing the afore circumstances emphasizing that the petitioner has declared the receipts from M/s. Tata AIG General Insurance Company and therefore there is no escapement of income from assessment but the first respondent, with the Order under Section 148A[3] of the Act on 27.06.2026, has caused the Notice under Section 148 of the Act without considering the petitioner’s response.
3. Mr. M. Dilip, a learned standing counsel who accepts notice for the respondents, is heard on whether this Court must interfere with the Order dated 27.06.2025 under Section 148A[3] of the Act and the consequential Notice under Section 148 of the Act restoring the proceedings for reconsideration under Section 148A[2] of the Act. The learned Standing Counsel submits that the first respondent’s opinion must be examined in the backdrop of the expenditure that is claimed by the petitioner and if the petitioner cannot justify the expenditure, there could be justification for reassessment proceedings under Section 147 of the Act.
4. The first respondent’s conclusions, as seen in the impugned order dated 27.06.2025, are as under.
“The assessee has been identified as a nominee recipient in the internal records of M/s. TATA AIG General Insurance Co. Ltd., wherein an amount of Rs.1,42,80,000 was credited to him during FY 2018-19. This transaction forms part of a broader pattern of routing Overriding Commission (ORC) through intermediary entities, as revealed in the post-search findings and supported by the Insurance Company’s own submissions. The investigation revealed that insurance companies were routing excess commission through Marketing Service Providers (MSPs) and vendors by raising bogus invoices fornon-existent marketing and support services.
In his response, the assessee has stated that he received a sum of Rs.1,64,40,000 during the year as commission income. However, the TDS on this amount has been reported under sections 194J, 194C, and 194l(b), indicating inconsistent and potentially misleading characterization of the payments. No evidence has been furnished to substantiate the rendering of actual services corresponding to these credits. In view of the material on record and the absence of the satisfactory explanation, the case is considered fit for reopening under section 148.
The first respondent has doubted the transaction on the ground that the documents furnished would not justify the expenditure claimed.
5. It is trite, even under the new regime, that there cannot be a roving or a fishing enquiry and the notice under Section 148 of the Act must be issued on definite information. A Jurisdictional Assessing Officer must examine the material available on record and consider the Reply thereof in a given case to conclude that it is a fit case for reassessment for the issuance of notice under Section 148 of the Act.
6. Further, this Court, on reading the Computation of Income filed by the petitioner for the Assessment Year 2023-24, must observe that the petitioner has not just claimed the receipts received towards marketing support services but has also declared a much higher sum while claiming expenditure of just 10% of the total receipts. The Jurisdictional Assessing Officer [the first respondent] has not examined these which are part of the petitioner’s response. Hence, the following.
ORDER
[A] The petition is allowed-in-part.
[B] The first respondent’s impugned Order dated 27.06.2025 [Annexure-A] under Section 148A[3] of the Act, the Notice dated 27.06.2025 [Annexure-B] under Section 148 of the Act are quashed restoring the proceedings to the first respondent for due consideration.
[c] The petitioner without further notice shall appear before the first respondent on 05.10.2026 and the first respondent shall consider the fitness for issuing a notice under Section 148 of the IT Act in the light of this Court’s observations as aforesaid.
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