2025 (4) TMI 1134 - HC - Income Tax

Validity of reassessment notice - providing shorter period to respond - HELD THAT - As rightly contended by the learned counsel for the petitioner a plain reading u/s 148A(b) will indicate that the minimum statutory period prescribed therein is 7 days as held in the case of Janaki Aenuga 2024 (1) TMI 1456 - KARNATAKA HIGH COURT In the instant case a perusal of the impugned notice will indicate that it was issued on 20.03.2022 by granting time up to 25.03.2022 to the petitioner to submit his reply which clearly short of the minimum period of 7 days prescribed in the said provision and consequently on this ground alone the impugned notice at Annexure B and consequential proceedings including the impugned assessment order notices etc. deserves to be quashed. Decided in favour of assessee.

Summary

The core legal questions considered in this judgment revolve around the validity and legality of notices and orders issued under Sections 148A(b), 148A(d), 148, 147 read with 144 and 144B, and penalty provisions under Sections 271AAC(1) and 272A(1)(d) of the Income Tax Act, 1961 (hereinafter "the IT Act"). Specifically, the issues include:

1. Whether the notice issued under Section 148A(b) of the IT Act is valid when it is not digitally or physically signed.

2. Whether the notice under Section 148A(b) complies with the mandatory minimum period of seven days for the assessee to respond, as prescribed by the IT Act.

3. Whether the assessment and penalty orders passed pursuant to the impugned notices are valid, particularly when the petitioner is assessed as a firm instead of a co-operative society.

4. The effect of procedural irregularities, including unsigned notices and insufficient response time, on the jurisdiction of the assessing authorities and the consequent proceedings.

Issue 1: Validity of Unsigned Notice under Section 148A(b)

The legal framework mandates that notices issued under Section 148A(b) must be duly signed, either digitally or physically, to be valid and operative. The Court relied on precedents including the judgment in Begur Sinappa Venkatesh v. Income Tax Officer, where it was held that an unsigned notice under Section 148A(b) is illegal, invalid, and inoperative. Further, the Bombay High Court's decision in Prakash Krishnavtar Bhardwaj v. Income Tax Officer was cited, which established that failure to sign the notice vitiates the proceedings.

The Court interpreted these precedents to mean that the absence of a signature on the notice deprives the assessing officer of jurisdiction to proceed with the reassessment. The key evidence was the impugned notice dated 21.03.2022, which was undisputedly unsigned. The Court found this procedural lapse fatal to the validity of the notice and all consequential actions taken on its basis.

Respondents argued for the validity of the proceedings; however, the Court rejected these contentions, emphasizing the settled legal position that an unsigned notice cannot confer jurisdiction. The Court preserved the liberty of the authorities to issue a fresh notice in accordance with the law.

Conclusion: The notice under Section 148A(b) not being signed either physically or digitally is invalid and all proceedings based thereon are quashed.

Issue 2: Compliance with the Minimum Seven-Day Period under Section 148A(b)

Section 148A(b) prescribes that the assessee must be given a minimum of seven days to respond to the show cause notice. This requirement is mandatory and non-compliance renders the notice and subsequent proceedings void. The Court referred to the judgment of the Bombay High Court in Mukesh J. Ruparel v. Income Tax Officer, which held that a notice providing less than seven days is vitiated and liable to be quashed.

In the instant case, the impugned notice dated 20.03.2022 granted only five days for response, which is below the statutory minimum. The Court noted that this procedural defect alone sufficed to invalidate the notice and all subsequent proceedings, including the assessment order and penalty notices.

The respondents did not successfully counter this argument, and the Court emphasized adherence to statutory timelines to ensure fairness and due process.

Conclusion: The impugned notice providing less than the mandatory seven days is invalid, and consequential proceedings are quashed.

Issue 3: Validity of Assessment and Penalty Orders Issued in the Status of a Firm Instead of a Co-operative Society

The petitioner contended that the assessment and penalty orders were erroneously passed treating the petitioner as a firm, whereas the petitioner is a co-operative society. This misclassification was argued to vitiate the proceedings.

While the Court acknowledged this contention, the primary grounds for quashing the impugned orders were the procedural irregularities relating to the notice under Section 148A(b). The Court did not elaborate extensively on this issue but implicitly accepted that such a fundamental error in classification further undermines the validity of the assessment and penalty orders.

Conclusion: The misclassification of the petitioner's status further supports quashing the impugned orders.

Issue 4: Effect of Procedural Irregularities on Jurisdiction and Validity of Proceedings

The Court underscored that procedural compliance is integral to the exercise of jurisdiction under the IT Act. The absence of a validly signed notice and failure to provide the statutory minimum response period are procedural defects that render the entire reassessment process void.

The Court relied on multiple precedents and guidelines, including the Central Board of Direct Taxes (CBDT) guidelines prescribing templates and timelines for notices under Section 148A. It was noted that the impugned orders lacked proper approval and failed to specify the escaped income amount, further indicating non-application of mind.

The Court rejected the respondents' arguments defending the validity of the impugned notices and orders, emphasizing that procedural safeguards protect the assessee's rights and ensure fairness in tax proceedings.

Conclusion: Procedural irregularities vitiate the jurisdiction of the assessing authorities and invalidate the reassessment and penalty proceedings.

Significant Holdings:

"The notice under Section 148A (b) of the IT Act, is not signed either physically or digitally and the same is illegal, invalid and inoperative and further proceedings pursuant thereto including the order under Section 148A (d) of the IT Act, penalty notices, orders, etc., 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."

"The absence of signature on the notice deprives the assessing officer of jurisdiction to proceed with reassessment."

"Procedural compliance is integral to the exercise of jurisdiction under the IT Act and failure to comply with mandatory provisions renders the entire reassessment process void."

Final determinations include quashing the impugned notices dated 20.03.2022 and 21.03.2022 under Section 148A(b), all consequential orders including assessment and penalty orders, and reserving liberty to the respondents to initiate fresh proceedings in accordance with law.