2026 (2) TMI 1380 - HC - Income Tax

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 ... Demand Notice u/s 156 issued when the assessment order u/s 143(3) had ‘Nil’ demand - whether Notice of demand u/s 156 requires an existing assessment or reassessment order? - notice issued without prerequisite order is beyond jurisdiction - Validity of a demand notice u/s 156 where the original assessment under Section 143(3) recorded nil demand and no assessment or reassessment order exists - HELD THAT: - The Court held that Section 156 contemplates service of a notice of demand only when a sum is payable in consequence of an order passed under or in pursuance of the Income-tax Act. Therefore a notice of demand cannot properly be issued in the absence of an assessment or reassessment order fixing tax or arrears. In the present case the assessment under Section 143(3) recorded nil liability and no reassessment order was passed; accordingly the demand notice issued u/s 156 had no foundation in any existing order and was legally impermissible. [Paras 7] Demand notice under Section 156 issued without any assessment or reassessment order is invalid and beyond jurisdiction. Reopening u/s 147 required before creating fresh tax liability where original assessment recorded nil - change of opinion - impugned notice u/s 156 of the Act is issued after four years without even going for procedure of reopening of the assessment as per Section 147 - HELD THAT:- The Court found that where the original scrutiny assessment considered the same material and resulted in nil liability, the revenue could not bypass the reassessment procedure and directly issue a demand years later. If the revenue wished to alter the conclusion reached in the assessment, it was obliged to invoke the reassessment provisions; absent that, issuing a demand based on the same material would amount to a mere change of opinion, which is impermissible in view of settled law. [Paras 7] Issuance of the impugned demand without reopening the assessment u/s 147 is unjustified and amounts to an impermissible change of opinion. Final Conclusion: The impugned Demand Notice u/s 156 for Assessment Year 2012-13 was issued without any antecedent assessment or reassessment order and after several years without invoking Section 147; it was therefore beyond jurisdiction and has been quashed. 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.