2026 (1) TMI 829 - HC - Income Tax

Recovery of tax from taxpayer without served assessment order u/s156 held unlawful; refund ordered unless order traced and served

Whether recovery was effected without authority of law: HC held that statutory liability arises only upon issuance and service of an assessment order and ... Recovery without authority of law - non-supply of assessment order - Assessee argued that without service of the assessment order and creation of demand notice under section 156 no statutory liability is created against which the amount can be recovered from the petitioner and thereafter the recovery of amount from the petitioner, is clearly illegal and contrary to petitioner’s fundamental rights - HELD THAT:- We are of the view that maybe the respondent-Department is justified in contending that since the petitioner had failed to change his address in the PAN database, the respondent-Department cannot be accused of the assessment order not being served. But in any case, when the amount was recovered from the petitioner, and the petitioner had asked for copy of the assessment order, it was incumbent upon the respondents to have supplied him a copy of the assessment order, which the Department has failed to do. Recovery of the amount from the petitioner and not supplying copy of the order amounts to recovery without authority of law. As the petitioner has been trying hard to get a copy of the assessment order and even pursuant to orders passed by this Court, the respondents have failed to provide a copy of the same, we hereby direct respondent No. 1 to refund along with interest to the petitioner in accordance with law latest by 31.03.2026. Needless to observe that in case, respondent No. 1 is able to trace out and serve a copy of the assessment order (whereby the demand to the tune of Rs. 11,14,660/- was raised against the petitioner) by 31.03.2026, the amount of Rs. 11,14,660/- shall not be required to be refunded. If the assessment order has been served upon the petitioner, it shall be free to challenge the same by way of filing an appeal under Section 246(A) of the Act of 1961, within a period of 30 days of service of the assessment order. Issues: (i) Whether recovery of Rs. 11,14,660/- from petitioner in relation to Assessment Year 2001-02 was lawful in absence of supply of the assessment order and creation of a demand notice under Section 156 of the Income-tax Act, 1961; (ii) Whether petitioner is entitled to refund and interim protection against further recovery pending tracing/serving of the assessment order; (iii) Whether, if the assessment order is traced and served, the petitioner may challenge it by appeal under Section 246A with relaxation of limitation.Issue (i): Whether recovery without supply of assessment order and demand notice under Section 156 is lawful.Analysis: The recovery relates to AY 2001-02 and the record of assessment order has not been supplied to the petitioner notwithstanding requests and directions. Statutory procedure requires the creation and service of a demand notice under Section 156 to create enforceable liability; absence of supply of the assessment order and accompanying demand particulars prevents the petitioner from knowing or contesting the basis of the demand.Conclusion: The recovery of the amount without supplying the assessment order amounts to recovery without authority of law and is against the assessee.Issue (ii): Whether refund and interim protection from further recovery should be granted pending tracing/serving of the assessment order.Analysis: The petitioner repeatedly sought a copy of the assessment order and the Department has not been able to produce it; further recoveries have been effected from refunds. In light of the absence of the enabling documentation supplied to the petitioner and the need to preserve the assessee's rights pending final determination, equitable relief in the form of refund and temporary restraint on further recoveries is appropriate, subject to the Department's ability to trace and serve the assessment order within a specified time.Conclusion: The petitioner is entitled to refund of Rs. 11,14,660/- with interest and to an order restraining further recovery until 31.03.2026, unless the assessment order is traced and validly served by that date.Issue (iii): Whether the petitioner may challenge a subsequently traced and served assessment order by filing an appeal under Section 246A with relaxed limitation.Analysis: If the Department is able to trace and serve the assessment order by the specified date, the statutory appellate remedy under Section 246A is available to the petitioner. Given the circumstances of non-supply and delayed service, relief from strict limitation is appropriate to preserve the assessee's right to challenge the order.Conclusion: If the assessment order is traced and served, the petitioner may file an appeal under Section 246A within 30 days of service and the appellate authority shall not raise any objection on limitation grounds; this conclusion is in favour of the assessee.Final Conclusion: The writ petition succeeds in part by directing refund with interest and granting interim protection against further recovery until 31.03.2026, while preserving the Department's right to trace and serve the assessment order and the assessee's right to appeal if served.Ratio Decidendi: Where tax recovery has been effected but the assessment order and demand notice underpinning the recovery have not been supplied to the assessee, such recovery lacks authority of law and the assessee is entitled to refund and interim protection until the order is validly traced and served, subject to available appellate remedies.