Reassessment notice under Section 148A valid when based on new information from search operations against third party

The HC dismissed the appeal challenging reassessment proceedings under Section 148A. The assessee argued that the AO sought to reopen assessment on the same grounds as previous proceedings. However, the court found that the notice under Section 148A(b) was based on completely different reasons - information received from search and seizure operations against a third party, alleging the assessee was a beneficiary of accommodation transactions. The court held that these new grounds had no bearing on any pending or disposed proceedings, making the department's action jurisdictionally valid. The court distinguished cited precedents as factually inapplicable and found no grounds for interference under Article 226.

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The core legal questions considered in this judgment include:

1. Whether the issuance of the notice under Section 148A(b) of the Income Tax Act, 1961 was valid and maintainable, given the pendency of a statutory appeal before the Commissioner of Income Tax (Appeals) and a pending rectification application under Section 154 of the Act.

2. Whether the reopening of assessment under Section 148A(d) was permissible on the grounds stated, particularly when the issues raised in the reopening notice differed from those in the pending appeal.

3. Whether the assessing officer committed any procedural irregularity in issuing the notice under Section 148A(b) and passing the order under Section 148A(d).

4. Whether the assessment order passed during the pendency of the writ petition could be considered or entertained by the court.

5. The scope and applicability of judicial precedents concerning reopening of assessments, especially in cases where rectification applications are pending or appeals are filed.

Issue-wise detailed analysis:

Validity of notice under Section 148A(b) amid pending appeal and rectification application

The legal framework involves the provisions of the Income Tax Act, 1961, specifically Sections 148A(b), 148A(d), 154, 143(3), and 147/148. The relevant precedents include the Supreme Court's ruling in M/s. S.M. Overseas Pvt. Ltd. and decisions by various High Courts such as Principal Commissioner of Income-tax v. Coal India Ltd., Indian Tubes Co. Ltd., and others.

The appellant contended that since a statutory appeal was pending before the CIT(A) against the original assessment order dated 30.12.2018, and a rectification application under Section 154 filed by the assessee was pending disposal, the issuance of the notice under Section 148A(b) was impermissible. Reliance was placed on the principle that reopening proceedings cannot be initiated while rectification proceedings are pending, as held in M/s. S.M. Overseas Pvt. Ltd.

The Court examined the facts and noted that the rectification application filed by the assessee on 13.04.2020 was essentially a merit-based contention and its maintainability under Section 154 was doubtful. More importantly, the notice under Section 148A(b) dated 25.03.2023 was issued based on new information received from a search and seizure operation under Section 132 against a third party, Kailash Kumar Pattowari, and his controlled entities. The notice alleged that the assessee was a beneficiary of transactions accommodated by the said person, which was a ground distinct from the earlier appeal and rectification proceedings.

The Court held that since the reasons for reopening were different and based on new information, the issuance of the notice under Section 148A(b) was within jurisdiction and valid. The prior pendency of appeal or rectification application did not bar the initiation of reopening proceedings on new grounds.

Permissibility of reopening under Section 148A(d) on new grounds

Section 148A(d) empowers the assessing officer to pass an order after considering the assessee's submissions following issuance of notice under Section 148A(b). The Court analyzed whether the reopening was justified on the grounds stated.

The Court observed that the grounds for reopening related to the assessee being a beneficiary of transactions linked to a search and seizure operation, which was not the subject matter of the earlier appeal or assessment. This distinction was critical to uphold the reopening.

Precedents such as CIT v. S. Raman Chettiar and Indian Tubes Co. Ltd. were reviewed, which clarify that once a notice under Section 148 is issued, the original assessment is reopened and the finality of the first order ceases to exist. However, these precedents do not preclude reopening on new grounds discovered later.

The Court found no jurisdictional error or procedural irregularity in the reopening process and held that the reopening was valid and did not warrant interference under Article 226 of the Constitution.

Procedural regularity in issuance of notices and orders

The appellant challenged the procedural propriety of the notice under Section 148A(b) and order under Section 148A(d), contending that replies and representations filed by the assessee were not properly considered.

The Court reviewed the sequence of notices and replies, including the submission of returns and legal arguments by the assessee, and found that the assessing officer had complied with the procedural requirements. The Court noted that the assessing officer had granted opportunities and considered the submissions before passing the order under Section 148A(d).

Therefore, the Court concluded that there was no procedural irregularity that would vitiate the reopening order.

Consideration of assessment order passed during pendency of writ petition

The appellant sought to bring on record the assessment order dated 13.03.2025 passed during the pendency of the writ petition by way of a supplementary affidavit.

The Court declined to entertain any challenge to this assessment order in the present proceedings, emphasizing that the assessee was free to pursue available remedies under the law, including filing an appeal within the prescribed time.

Scope of judicial precedents on reopening and rectification

The Court examined several precedents cited by both parties. The appellant relied on rulings that emphasize the bar on reopening during pendency of rectification proceedings and the necessity of disposing of returns filed in response to earlier notices before issuing subsequent reopening notices.

The Court distinguished the present facts from those precedents, noting the new information obtained from search and seizure operations and the distinct grounds for reopening. The Court also relied on the Division Bench decision in Sardari Lal & Co., which recognized the jurisdiction of the assessing officer to reopen assessments on new sources of income under Sections 147/148.

Thus, the Court clarified that the principles established in the cited precedents do not apply to the facts at hand where the reopening was based on fresh material and distinct grounds.

Significant holdings include the following verbatim excerpt:

"Therefore, we are of the view that the reopening proceedings would not suffer from any jurisdictional error for the writ court to interfere in exercise of its powers under Article 226 of the Constitution of India."

Core principles established:

- The pendency of a statutory appeal or rectification application under Section 154 does not bar the issuance of a notice under Section 148A(b) if the reopening is based on new and distinct grounds arising from fresh information.

- Once a notice under Section 148 is issued, the original assessment proceedings are reopened, and the finality of the earlier order ceases to exist.

- The assessing officer must comply with procedural requirements, including considering the assessee's submissions before passing an order under Section 148A(d), but mere pendency of other proceedings does not invalidate reopening on new grounds.

- The writ court should exercise caution in interfering with reopening proceedings where jurisdictional and procedural requirements are met, especially when new information justifies reopening.

- Challenges to assessment orders passed during the pendency of writ petitions should be pursued through appropriate statutory remedies rather than in writ proceedings.

Final determinations on each issue:

1. The notice under Section 148A(b) dated 25.03.2023 was validly issued based on new information unrelated to the pending appeal or rectification application.

2. The order under Section 148A(d) dated 19.04.2023 reopening the assessment was legally sustainable and not vitiated by procedural irregularity.

3. The pendency of the appeal before the CIT(A) and the rectification application under Section 154 did not bar the reopening proceedings.

4. The assessment order passed during the pendency of the writ petition cannot be challenged in the present proceedings; the assessee may pursue statutory remedies.

5. The intra-court appeal challenging the order dated 14.08.2023 dismissing the writ petition was dismissed, with liberty granted to the assessee to file a statutory appeal against the assessment order within thirty days without being barred by limitation.

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