2026 (4) TMI 197 - HC - Income Tax

Reassessment invalid for non-service of Section 148 notice despite timely issuance; assessment and demand notice set aside with remand.

Reassessment under the Income-tax Act was held unsustainable where the Section 148 notice was issued within limitation under Section 149, but service of ... Validity of Reassessment proceedings - non Service of notice - Limitation for reopening assessment - use of the word “shall” - Principles of natural justice - Writ jurisdiction despite alternate remedy Reassessment notice - non Service of notice - Limitation for reopening assessment - Principles of natural justice - HELD THAT: - The Court held that the statute draws a distinction between issue of notice and service of notice. For purposes of limitation, what Section 149 requires is that the notice under Section 148 be issued within the prescribed time, and on the materials produced by the Department the notice stood issued on 29.03.2017, which was within time for the assessment year in question. Section 148 also mandates that notice must be served on the assessee before reassessment is made. The Department could show dispatch of the notice under Section 148, but could not establish the mode of dispatch or actual service of that notice. At the same time, the Court found that the subsequent notice under Section 142(1) sent by speed post and the petitioner's admitted participation in penalty proceedings showed knowledge of the assessment proceedings, so the reassessment could not be treated as wholly void for want of jurisdiction. The defect was one of irregular assumption of jurisdiction resulting in violation of natural justice. On that basis, the reassessment order and consequential demand were set aside and the matter was remitted for fresh assessment after service of notice and opportunity of hearing. [Paras 6, 7, 8] The reassessment was not barred by limitation and was not a nullity for lack of jurisdiction, but as service of the statutory notice u/s 148 was not established, the assessment and demand were set aside for breach of natural justice and the matter was remanded for fresh assessment. Writ jurisdiction despite alternate remedy - Violation of natural justice - HELD THAT: - The Court accepted that ordinarily a writ petition would not be entertained where an effective alternate remedy exists, but held that a case alleging breach of natural justice falls within the recognised exception to that rule. Though the petitioner's plea that he became aware of the assessment only upon recovery action was found inconsistent with his own pleading about participation in penalty proceedings, that circumstance did not dissuade the Court from exercising writ jurisdiction, since the decisive procedural defect was the Department's failure to prove service of the statutory reassessment notice before completion of assessment. [Paras 8] The Court exercised writ jurisdiction and interfered with the impugned reassessment on the ground of violation of natural justice despite the existence of an alternate statutory remedy. Final Conclusion: The Court held that the notice u/s 148 had been issued within limitation, so the reopening was not void for want of jurisdiction. However, as service of the statutory notice before completion of reassessment was not established, the reassessment order and consequential demand were set aside for violation of natural justice and the matter was remanded for fresh assessment after affording due opportunity to the petitioner. Issues: Whether reassessment completed under Section 147 read with Section 144 of the Income-tax Act, 1961 was vitiated for non-service of the notice under Section 148 and whether the assessment order and consequential demand notice were liable to be set aside with remand for fresh assessment.Analysis: The notice under Section 148 was found to have been issued within the period prescribed under Section 149, so the reassessment was not time-barred and the Assessing Officer did not lack subject-matter jurisdiction. However, the record did not establish service of the Section 148 notice on the assessee before completion of assessment, while the statutory scheme required service before making assessment under Section 147. The Court held that mere issuance of notice was not enough to sustain the completed reassessment when service was not demonstrated, and the defect attracted violation of natural justice. The assessment proceedings were therefore treated as suffering from an irregular assumption of jurisdiction rather than a void jurisdictional nullity.Conclusion: The assessment order and consequential demand notice were set aside, and the matter was remanded to the Assessing Officer for fresh assessment after serving notice under Section 148 and affording an opportunity of hearing.