Demand notice issued and signed without valid order or without order is void. Officers must be careful and taxpayers need to be vigilant to find out existence of valid order.

[DEVKUMAR KOTHARI]

Demand notice issued and signed without valid order or without order is void. Officers must be careful and taxpayers need to be vigilant to find out existence of valid order.

Provisions about demand notice:

In any tax law we find provision relating to issue and service of demand notice. The provision to issue demand notice  is triggered only when an order determining any sum payable under the law takes place.

Demand can be for any tax, interest, penalty, fees or other levy or reversal of any refund or  reversal of any refund or credit granted earlier.

 It can be pursuant to original order passed by authority like Assessing Officer or adjudicating authority or pursuant to appellate or revision order. It can be as per original assessment order , rectification order, order giving effect to order of higher authority or court or reassessment order etc.

In some situations and provisions, when return is processed by way of some prescribed adjustments mostly by way of use of data base available and artificial intelligence, intimations are issued with figures as per return adjusted for available information in related returns like return of TDS, TCS, annual returns etc. intimation is issued and such intimation is considered or deemed to be demand notice for certain purpose.

In some situations when no intimation is issued because there is no adjustment and refund is allowed as per Return, for some purposes, acknowledgement of return can be deemed to be an intimation And it can  have some significance, as may be prescribed,  like as assessment order because self-assessment by assesse is  accepted as a summary assessment by the Assessing Officer.

For an example and to recapitulate section 156 of Income-tax Act, 1961 as it stand now it  is reproduced below with highlights added:

Income-tax Act, 1961

Notice of demand.

156. [1.] When any tax, interest, penalty, fine or any other sum   is payable in consequence of any order passed under this Act, the Assessing  Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.

Provided that where any sum is determined to be payable by the assessee or the deductor or the collector under sub-section (1) of section 143 or sub-section (1) of section 200A or sub-section (1) of section 206CB,  the intimation under those sub-sections shall be deemed to be a notice of demand for the purposes of this section.]

(2) Where the income of the assessee of any assessment year, beginning on or after the 1st day of April, 2021, includes income of the nature specified in clause (vi) of sub-section (2) of section 17 and such specified security or sweat equity shares referred to in the said clause are allotted or transferred directly or indirectly by the current employer, being an eligible start-up referred to in section 80-IAC, the tax or interest on such income included in the notice of demand referred to in sub-section (1) shall be payable by the assessee within fourteen days––

(i) after the expiry of forty-eight months from the end of the relevant assessment year; or

(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or

(iii) from the date of the assessee ceasing to be the employee of the employer who allotted or transferred him such specified security or sweat equity share,

whichever is the earliest.”

Discussion:

From the analysis by way of  highlighted words and expressions in above provision we can  observe that for a demand to be raised as enforceable for recovery there should be an order for determination of sum payable. The mode of recovery can be an order or intimation or even deemed intimation whereby sum payable is determined. Then there is issue of a demand notice or deemed demand notice by way of intimation.

However, precondition to exist is that there should be an order or intimation determining the sum payable.

Precondition is valid determination in an order:

Existence of a valid order is a precondition, If the order determining the sum payable is not valid, the demand notice issued will also be invalid and not enforceable.

Some cases discussed:

NAZIRPUR LARGE SIZED MULTIPURPOSE CO-OP SOCIETY LTD. & ANR. VERSUS UNION OF INDIA & ORS. - 2024 (7) TMI 905 - CALCUTTA HIGH COURT . ( Nazirpur case, herein after )

In  Nazirpur  case in the assessment order itself  it was held after considering documents and   reply of assesse that no adverse inference can be drawn and any  variation is not  to be made and income is assessed as per return at nil income.

 However,  in the computation order   and demand notice both proposed variation  were  made and taxable income and tax was determined. These were not in accordance with the order passed by the Ld. AO. Holding income as per return at zero or nil.

Thus computation order and demand notice were made in mechanical manner ( or might have been made before assessment order was passed) . Whatever be the case, these were not in consequence and accordance with the assessment order.

Taking note of provisions of S. 156 that computation and demand notice is to be in consequence of assessment order the Court held that both were invalid.

VIMAL TRADING VERSUS NATIONAL FACELESS ASSESSMENT CENTRE (FORMERLY KNOWN AS) NATIONAL E-ASSESSMENT CENTRE) , NEW DELHI, INCOME TAX OFFICER, WARD 3 (1) KALYAN, PRINCIPAL COMMISSIONER OF INCOME TAX-THANE, THE CENTRAL BOARD OF DIRECT TAXES, THE UNION OF INDIA. - 2025 (3) TMI 51 - BOMBAY HIGH COURT  ( herein after Vimal Trading case, in short)

In  Vimal trading case (supra.) the Court considered and applied basic and general law laid down in UMC TECHNOLOGIES PRIVATE LIMITED VERSUS FOOD CORPORATION OF INDIA AND ORS. - 2020 (11) TMI 966 - SUPREME COURT wherein it was inter alia  ruled that the first principle of civilized jurisprudence is  that a person against whom any action is sought to be taken or interest are being affected should be given a reasonable opportunity to defend himself to include the right to be heard, before an order entailing  any such consequence is passed.

Therefore, reasonable opportunity to be provided is fundamental before any adverse action can be taken in legal manner.

In Vimal Trading case assessee has filed a reply, and objected to show cause notice and proposed variations,  though it was delayed by one day. Assessee also sought further opportunity including by way of personal hearing through video conference. This opportunity was not allowed taking hyper technical view that the reply was not filed within time fixed in the show cause notice. For this reason the Court held that the assessment order was without providing reasonable opportunity and the rule of natural justice is not followed. For this reason the assessment order was held to be void.

In view of order that the assessment order itself is not valid, the Court held that the demand notice is to be in consequence of a  valid  order. When the order is void invalid, the demand notice is also not valid. Penalty notices were also held to be not valid.

This was so held because, existence of a valid assessment order is a precondition  because any other notice including   the demand notice are to be in consequence of assessment order.

SRIJANI FARMERS SOCIETY FOR RURAL LIVELIHOOD DEVELOPMENT VERSUS I.T. DEPTT., NFAC, DELHI - 2023 (1) TMI 35 - ITAT KOLKATA  (hereafter referred to as Drijani case)

In Srijani case, After consideration of submissions of assessee proposed addition was not made and return was accepted including claim made therein u.s. 80P(2). However, in computation this was not allowed therefore, computation was not as per decision taken and recorded in the order the demand notice was also based on such computation. Accordingly it was held that the demand notice was not in accordance with assessment order and it cannot be said in consequence of order passed by ld. AO . Therefore, demand notice was held to be invalid and hence set aside as void.

Conclusions:

The language of S.156 relating to demand notice is very clear. Even the form of demand notice and its content require that it is in consequence of order. There should also be details given in the demand notice about the order and nature of demand. As per some of  recent judgments  as discussed above this is clear mandate in S.156.

Therefore, this can only  means that first of all there must be a finalized and duly signed assessment order and that order must also be valid, then only the demand notice issued in consequence of a valid assessment order will be valid, otherwise demand notice will not be valid and enforceable.

In following situations, demand notice will not be valid:

 a. if there was no order passed  and duly signed determining sum payable before issue / signature of demand notice.

b. If the order itself is  found and held to be invalid or void for any reason, the demand notice though initially issued  in consequence of an order which turn out to be invalid then  as a consequence demand notice will also be invalid and  void and not enforceable.

Similarly , any penalty notice or order which is  issued  without any relevant  order , the notice or order for penalty may also be invalid.

If the order based on which notice to levy penalty is issued turn out to be invalid the notice or order levying penalty will also be turn invalid.

Therefore, it is advisable to check time of signature on order , demand notice, penalty notice or order etc. which is  required to be in consequence of a valid order. If the order is found to be signed after signature on demand notice, then the demand notice will be void.

Digital signature- utmost care required

Officers must use and put digital signature very carefully and personally. It should not be left to be used and put by secretary or other staff or even by applying Artificial Intelligence ( AI). The signature , though digitally placed, the person to whom signature belongs is solely responsible and cannot delegate anyone to use the digital signature to be placed on his behalf Even if it used through staff, professionals or any family member, the responsibility remains of the  person whose  digital signature is .

Though there is no restriction about day and time for signature of any document, particularly by way of digital signature, however, it is preferable that it should be in normal course of working hours or extended working hours. If orders is signed at unusual time like on a  Saturday or  Sunday or any other holiday, then it can definitely be a reason of doubt as to whether it was signed by concerned person or was just put by someone else to whom it was handed over to use. If one can prove that the person who has purportedly signed a document digitally, was not on the computer from which signature was placed  ( by way of i.p. address of computer)  or on that day the person was not at the place where signature is made ( as per i.p. address of computer) the veracity of signature can be questioned and it can be established that it was not signed by the person concerned/ officer concerned.

These are new and technical issues, which can arise. In case of orders of tax authorities, which are unjustified, and unreasonable, author many times have feeling that the order might have , in fact, written by irresponsible person who may not be the concerned officer but any junior to him. If that can be proved, then the order may be held void and illegal

The above aspects  as generla rules will be applicable under other tax laws also with suitable modification for provisions and procedures. Therefore, tax authorities must be very careful in such matters. Taxpayers can try to explore such aspects to get a releif from unreasonable orders.