2024 (1) TMI 1456 - HC - Income Tax

Reopening of assessment u/s 147 - validity of unsigned notice - HELD THAT - This Court has come to the categorical conclusion that the notice u/s 148A(b) is not signed either physically or digitally and the same is illegal invalid and inoperative and further proceedings pursuant thereto including the order u/s 148A(d) penalty notices orders etc. deserve to the quashed. Shorter period to respond - Minimum period of seven days prescribed u/s 148A(b) as held in the case of Mukesh J. Ruparel 2023 (8) TMI 228 - BOMBAY HIGH COURT that if notice under Section 148A(b) prescribes a period lesser than a period of seven days as contemplated in the said provision the said notice would be vitiated resulting in quashment of not only the notice but also the subsequent assessment orders penalty notices orders etc. In the instant case it is an undisputed fact that the Notice at Annexure A dated 21.03.2022 is not signed either physically or digitally but the impugned notice also prescribes a period of six days which is lesser than the minimum prescribed period of seven days as contemplated u/s 148A(b). In the light of the judgment of this Court in Begur s case 2023 (11) TMI 1222 - KARNATAKA HIGH COURT and Mukesh s case 2023 (8) TMI 228 - BOMBAY HIGH COURT the impugned notice at Annexure A and also consequential proceedings orders notices etc. deserves to be quashed by reserving liberty in favour of the respondents to take recourse to such remedies as available in law. Assessee appeal allowed.

Summary

The core legal questions considered by the Court in this matter primarily revolve around the validity and legality of notices and orders issued under various provisions of the Income Tax Act, specifically Sections 148, 148A(b), 148A(d), 147, 144, and penalty provisions under Sections 271F, 271(1)(b), and 271(1)(c). The issues include:

1. Whether the notice issued under Section 148A(b) of the Income Tax Act, which was unsigned (neither physically nor digitally), is valid and operative.

2. Whether the notice under Section 148A(b) complied with the minimum statutory period of seven days for the assessee to respond, as mandated by the Act.

3. Whether subsequent proceedings, including the order under Section 148A(d), notice under Section 148, assessment order under Sections 147 read with 144, and penalty orders under Sections 271F, 271(1)(b), and 271(1)(c) are valid when initiated pursuant to an invalid or defective Section 148A(b) notice.

4. Whether procedural irregularities such as incorrect approval under Section 151 and failure to specify the escaped income amount in the adjudication order under Section 148A(d) vitiate the proceedings.

5. The scope for the tax authorities to issue fresh notices and initiate proceedings in accordance with law after quashing the defective notices and orders.

Issue-wise Detailed Analysis

Issue 1: Validity of the unsigned Section 148A(b) notice

The legal framework mandates that notices issued under the Income Tax Act must be duly signed, either physically or digitally, to be valid and operative. The Court relied heavily on the precedent set by the Bombay High Court in Prakash Krishnavtar Bhardwaj vs. Income Tax Officer, which held that an unsigned notice under Section 148A(b) is invalid and no jurisdiction vests in the tax authorities to proceed further based on such a notice.

The Court examined the impugned notice dated 21.03.2022 and found it was neither physically nor digitally signed, rendering it illegal and inoperative. This defect was fatal to the validity of the notice and all subsequent proceedings flowing from it. The Court emphasized that the absence of signature is not a mere technicality but goes to the root of the authority and jurisdiction of the tax authorities.

The respondents did not dispute the unsigned nature of the notice, and the Court found no reason to deviate from the established precedent. The Court therefore quashed the unsigned Section 148A(b) notice.

Issue 2: Compliance with the minimum statutory period for response under Section 148A(b)

Section 148A(b) requires that the assessee be given a notice to show cause within a period not less than seven days and not exceeding thirty days from the date of issuance of the notice. The Court referred to the Bombay High Court decision in Mukesh J. Ruparel v. Income Tax Officer, which clarified that any notice prescribing a period less than seven days is invalid and vitiates subsequent proceedings.

In the instant case, the impugned notice allowed only six days for the petitioner to respond, which is less than the statutory minimum. This procedural irregularity was held to be fatal to the validity of the notice and all consequential orders.

The Court also noted that guidelines issued on 1st August 2022 reinforce the mandatory nature of the minimum seven-day period, and failure to comply renders the notice invalid.

Issue 3: Validity of subsequent proceedings based on defective Section 148A(b) notice

The Court examined the chain of proceedings following the defective Section 148A(b) notice, including the order under Section 148A(d), notice under Section 148, assessment order under Sections 147 read with 144, and penalty orders under Sections 271F, 271(1)(b), and 271(1)(c).

Relying on the principle that jurisdiction to proceed is contingent on the validity of the initial notice, the Court held that all subsequent proceedings flowing from the invalid Section 148A(b) notice were themselves invalid and liable to be quashed.

The Court also highlighted specific procedural irregularities in the Section 148A(d) order, such as the absence of the correct approval under Section 151 (the approval annexed pertained to a different assessee) and failure to specify the amount of income escaped from assessment, which further undermined the validity of the proceedings.

Issue 4: Treatment of competing arguments and evidence

The petitioner contended that the impugned proceedings were initiated without proper jurisdiction and that the cash deposits in question were bona fide business transactions or properly accounted for in tax returns, thus not warranting reassessment.

The respondents did not contest the absence of signature on the notice but sought liberty to issue fresh notices under Section 149 of the Act.

The Court acknowledged the petitioner's submissions and found merit in the argument that the procedural defects could not be overlooked. However, it also preserved the respondents' right to initiate fresh proceedings in accordance with law.

Issue 5: Scope for fresh proceedings

The Court explicitly reserved liberty for the tax authorities to issue fresh notices and initiate proceedings subject to all just exceptions and in compliance with the statutory provisions.

Significant Holdings

"The impugned notice dated 21.03.2022 having not been digitally / physically signed, the same is illegal, invalid and inoperative and no proceedings pursuant thereto could have been taken by the respondents and the same deserve to be quashed."

"If notice under Section 148A(b) prescribes a period lesser than a period of seven days as contemplated in the said provision, the said notice would be vitiated resulting in quashment of not only the notice but also the subsequent assessment orders, penalty notices, orders, etc."

"With the authorities being unable to dispute that the notice under Section 148A(b) of the IT Act is not either digitally or manually signed and with the proposition enunciated by the High Court of Bombay in the aforesaid decision being applicable on all fours to this case, the petition must be disposed of on the ground that the first respondent could not have continued the proceedings based on 148A(b) notice."

"Liberty is reserved in favour of the respondents to initiate proceedings against the petitioner subject to all just exceptions, in accordance with law."

The Court established the core principles that compliance with procedural requirements under the Income Tax Act, including valid issuance of notices with proper signature and adherence to prescribed timelines, is mandatory and any deviation renders the proceedings invalid. The jurisdiction of tax authorities is contingent upon such compliance, and failure to adhere vitiates subsequent proceedings.

In conclusion, the Court quashed the unsigned notice under Section 148A(b), the subsequent adjudication order under Section 148A(d), the notice under Section 148, the reassessment order under Sections 147 read with 144, and the penalty orders under Sections 271F, 271(1)(b), and 271(1)(c), while granting liberty to the tax authorities to initiate fresh proceedings in accordance with law.