Income Tax Orders Set Aside Where Notices Went To Wrong Email ID: Karnataka High Court Ruling

Background of the Dispute

The Karnataka High Court, in the case of Vyavasaya Seva Sahakari Sangh Pvt. Ltd. Vs Assessment Unit, examined the legality of income tax assessment and penalty proceedings for Assessment Year (AY) 2020–21 that were conducted entirely through faceless mode.

The assessee approached the Court under Article 226 of the Constitution of India seeking to invalidate a series of orders and notices issued under the Income Tax Act, 1961, primarily on the ground that notices relating to penalty proceedings were never served at its correct email address.

The core allegation was that penalty-related communications, particularly under Section 272A(1)(d), were dispatched to an email ID that did not belong to the assessee, thereby denying it any real opportunity to participate in the proceedings.

Impugned Orders and Notices Challenged

The writ petition targeted multiple actions of the Income Tax Department issued for AY 2020–21. The assessee sought quashing of the following:

  1. Assessment-related actions by Respondent No. 1:

    • Assessment order under Section 144 read with Section 144B dated 30.08.2022 (Annexure A1)
    • Computation sheet dated 30.08.2022 (Annexure A2)
    • Demand notice issued under Section 156 dated 30.08.2022 (Annexure A3)

  2. **Penalty under Section 270A (under-reporting / misreporting of income)😗*

    • Penalty order under Section 270A dated 16.03.2023 (Annexure A4)
    • Corresponding computation sheet dated 16.03.2023 (Annexure A5)
    • Demand notice under Section 156 dated 16.03.2023 (Annexure A6)

  3. **Penalty under Section 272A(1)(d) (for failure to comply with notices/summons)😗*

    • Penalty order under Section 272A(1)(d) dated 29.08.2022 passed by Respondent No. 2 (Annexure A7)
    • Computation sheet dated 29.08.2023 relating to Section 272A(1)(d) (Annexure A8)
    • Demand notice under Section 156 dated 29.08.2022 (Annexure A9)

  4. Penalty notices initiating proceedings:

    • Penalty notice under Section 270A dated 30.08.2022 (Annexure A10)
    • Penalty notice under Section 272A(1)(d) dated 27.03.2022 (Annexure A11)

In addition to quashing these actions (Annexures A1 to A11), the assessee requested any other appropriate reliefs that the Court considered just and equitable.

Assessee’s Key Contentions

Error in Email Address and Lack of Service

Counsel for the assessee argued that:

  • For the penalty proceedings under Section 272A(1)(d), the Department had used the email ID “ankolataluk1515@gmail.com”.
  • This email ID did not belong to the assessee.
  • The assessee’s correct registered email ID was stated to be “vssgokarna@gmail.com”.

Since the Department used an incorrect email address, the assessee asserted that:

  • It never received any of the notices pertaining to the penalty proceedings.
  • Consequently, it was unaware of the ongoing actions and could not submit objections, explanations, or replies.

Violation of Principles of Natural Justice

Based on these facts, the assessee contended that: