Bombay High Court Quashes Income Tax Demand for AY 2008-09: Service of Intimation Under Section 143(1) Is Mandatory
Case Overview
Paresh M. Shetti Vs PCIT (Bombay High Court)
The Bombay High Court has delivered a significant ruling reinforcing that an income tax demand cannot be enforced against an assessee unless the intimation under Section 143(1) of the Income Tax Act, 1961 has been duly issued and served. In the absence of such service, any adjustment of refund against such a demand is illegal and liable to be reversed.
Background and Facts of the Case
The assessee, a Computer Training Institute operating as a franchisee of the Computer Management and Information Technology (CMIT) programme, had been a regular income tax filer for approximately 25 years.
Return Filing for AY 2008-09
For Assessment Year 2008-09, the assessee filed his income tax return through his Chartered Accountant on 31st July 2008 — the last date for filing within the due date. The computation for that year stood as follows:
- Gross Total Income: Rs. 3,81,713/-
- **Net Taxable Income (after deductions)😗* Rs. 2,81,720/-
- **Total Tax Paid (including interest under Section 234)😗* Rs. 35,450/-
It is relevant to note that AY 2008-09 was the first year of mandatory e-filing of returns. The transition from paper-based filing to electronic filing had just been implemented, and the online software at the time did not auto-populate tax amounts against declared incomes — requiring manual data entry, which inevitably created scope for errors.
No Intimation Received
The assessee maintained that he received no intimation under Section 143(1) — neither by post nor through the electronic income tax portal — after filing his return for AY 2008-09. No demand, no discrepancy communication, and no notice of any kind was served upon him.
Shock Discovery During AY 2018-19 Refund Processing
The issue surfaced unexpectedly when the assessee claimed a refund of Rs. 9,040/- in his return for AY 2018-19. The return was duly processed under Section 143(1) and the refund (along with interest under Section 244) was approved. However, the credit never reached the assessee — it had been adjusted against an alleged outstanding demand of Rs. 96,812/- pertaining to AY 2008-09.
This came as a complete shock, as the assessee had no knowledge of any such pending demand. Upon checking the income tax portal, he discovered the said demand listed against his account.
Attempts at Grievance Redressal
Written Communication and Portal Complaint
The assessee wrote to the Income Tax Officer on 26th November 2019 seeking clarification on the demand, but received no response. His Chartered Accountant personally visited the Income Tax Department, only to be directed to raise the matter through the online grievance portal.
Accordingly, the assessee filed a grievance through the e-Nivaran portal on 24th January 2020, seeking rectification and nullification of the demand.
COVID-19 Disruption
Shortly thereafter, the COVID-19 pandemic brought all government offices to a halt from March 2020 onwards. The assessee personally suffered the impact of the pandemic severely — contracting COVID-19 twice and losing close family members during the period 2020-21. Due to these extraordinary personal circumstances, follow-up on the grievance matter was not possible for an extended duration.