Reassessment Quashed: Invalid Section 148A(b) Notice and Time-Barred Section 148 Notice Render Proceedings Void Ab Initio

Case Reference

Mohammed Yousuf Vs ITO (ITAT Bangalore)

Overview

The Income Tax Appellate Tribunal, Bangalore, delivered a significant ruling quashing reassessment proceedings in their entirety on twin grounds — procedural invalidity of the notice issued under Section 148A(b) of the Income Tax Act, 1961, and the time-barred nature of the notice issued under Section 148. The Tribunal concluded that when the very foundation of reassessment is legally unsound, all downstream proceedings collapse automatically and cannot be sustained in the eyes of law.

Background and Facts of the Case

The assessee, an individual, had not filed his return of income for Assessment Year 2015-16. Following receipt of information suggesting undisclosed transactions, the Assessing Officer (AO) initiated reopening proceedings. A notice under Section 148A(b) of the Income Tax Act, 1961 was issued on 20/03/2022, directing the assessee to furnish a response along with supporting documents on or before 25/03/2022. Subsequently, an order under Section 148A(d) was passed, and a notice under Section 148 was issued on 04/04/2022.

In response to the Section 148 notice, the assessee filed a return of income. However, the assessee did not respond to any subsequent notices issued by the AO, including those sent via speed post. Given the non-cooperation, the AO proceeded to issue a notice under Section 133(6) of the Income Tax Act, 1961 to the Sub-Registrar, Ganga Nagar, Bengaluru, who furnished a copy of the relevant sale deed.

The sale deed, dated 20/11/2014, revealed that the assessee had purchased an immovable property. The consideration recorded in the sale deed was Rs. 46,20,000/-, whereas the stamp duty value of the same property stood at Rs. 58,53,000/-. Based on this information, the AO:

  • Treated the entire investment of Rs. 46,20,000/- as unexplained investment under Section 69 of the Income Tax Act, 1961
  • Treated the differential amount of Rs. 12,33,000/- (stamp value minus consideration) as income from other sources under Section 56(2)(vii) of the Income Tax Act, 1961

The assessee challenged the assessment order before the learned CIT(A), National Faceless Appeal Centre (NFAC), Delhi. However, since the assessee once again failed to respond to notices issued by the appellate authority, the CIT(A) decided the appeal solely on the basis of available records and upheld both additions. Aggrieved by this outcome, the assessee preferred an appeal before the ITAT Bangalore.

Grounds of Appeal Before ITAT

The assessee raised the following grounds before the Tribunal:

The assessee contended that the assessment order passed under Section 147 read with Section 144B of the Income Tax Act, 1961 dated 26/03/2024 was bad in law on three counts:

  1. The notice issued under Section 148 of the Income Tax Act, 1961 on 04/04/2022 lacked requisite jurisdiction
  2. The said Section 148 notice was issued beyond the permissible limitation period
  3. The mandatory procedure prescribed under Section 148A of the Income Tax Act, 1961 was not duly followed

Ground 2 — Addition Under Section 69

The assessee challenged the addition of Rs. 46,20,000/- made under Section 69 of the Income Tax Act, 1961 as unsustainable.

Ground 3 — Addition Under Section 56(2)(vii)

The assessee challenged the addition of Rs. 12,33,000/- made under Section 56(2)(vii) of the Income Tax Act, 1961 as liable to be deleted.

Ground 4 — General Liberty

The assessee reserved the right to modify, amend, withdraw, or raise additional grounds during appeal proceedings.

Submissions by the Assessee's Representative

The Authorized Representative (AR) of the assessee advanced the following key arguments: