Validity of demand notices requires an underlying assessment or order; absent reassessment, a demand is invalid.

Whether a demand notice can be validly issued where the original scrutiny assessment recorded nil liability: a demand notice is permissible only when issued in consequence of an existing assessment or other operative order under the Act; absent any reassessment, the revenue cannot convert a completed nil assessment into a demand by issuing a standalone notice. The proper and legally required mechanism to alter liability after a completed nil assessment is reopening under reassessment provisions; issuing a demand without such an order is jurisdictional excess and amounts to an impermissible change of opinion.

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Issues: Whether a notice of demand under Section 156 of the Income-tax Act, 1961 can be validly issued against the assessee where the original assessment under Section 143(3) recorded nil demand and no reassessment under Section 147 has been undertaken.

Analysis: Section 156 permits issuance of a notice of demand only when a tax, interest, penalty or other sum is payable in consequence of an order passed under or in pursuance of the Act. An assessment or other order establishing liability must exist before a notice of demand under Section 156 can be issued. In the present facts the assessment framed under Section 143(3) recorded nil liability; no reassessment proceedings under Section 147 were initiated prior to issuance of the impugned demand notice. The demand notice issued after several years relies on the same material that was considered during the original scrutiny assessment. Where the revenue seeks to raise demand after a completed assessment resulting in nil liability, the proper course is to reopen the assessment under Section 147; issuing a notice of demand in absence of any order altering the assessment would amount to jurisdictional excess and would, in effect, constitute a change of opinion without lawful exercise of the reassessment power.

Conclusion: The notice of demand dated 22.01.2020 issued under Section 156 of the Income-tax Act, 1961 is beyond jurisdiction and is quashed and set aside. The writ petition is allowed in favour of the assessee.

Ratio Decidendi: A notice of demand under Section 156 of the Income-tax Act, 1961 is valid only if it is issued in consequence of an existing assessment or other order under the Act; absent reassessment under Section 147, a demand cannot be raised against an assessment that recorded nil liability.

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