In a significant case, the Kerala High Court quashed the reassessment order as the 4 days time allowed to file the reply to the show cause notice (SCN) is not valid as per mandatory provision under Income Tax Act, 1961.
Mr S Arun Raj Counsel appeared for the petitioner and Mr. Christopher Abraham appeared for Standing Counsel for the Department.
The petitioner, Koyambrath Puthiyapurayil Mohammed Kunhi is a Non-Resident Indian working in Oman. The 1st respondent issued notice to the petitioner under Section 148A(b) of the Income Tax Act, 1961 for the Assessment Year 2018-19 informing the petitioner that the income of the petitioner chargeable to tax for the Assessment Year 2018-19 has escaped assessment for the reasons that the petitioner had purchased immovable properties worth Rs.1 crore, Rs.70 lakhs, Rs.2 crore and also purchased a vehicle for Rs.69 lakhs. The petitioner had not filed returns of his income. Therefore, sources of cash utilised for purchasing the immovable properties and vehicles remained unexplained.
The petitioner was unaware of the issuance of notice under Section 148A(b) of the Income Tax Act. So, the petitioner could not respond to the above notice. The assessment order, in the absence of the petitioner’s response, was finalised ex parte on 30.03.2022 under Section 148A(d) of the Act, holding that the petitioner had not filed returns of his income and the source of cash utilised for purchasing the immoveable properties and vehicle remained unexplained.
The petitioner submitted that the petitioner was unaware of the issuance of the order under Section 148A(d) and notice under Section 148 of the Act. In the meantime, on 26.03.2023, the assessment order under Section 147, read with Sections 144 and 144B of the Act, was passed, making an addition of Rs.4,39,00,000/-.
It was argued that there is violation of statutory prescription of seven days’ notice under Clause (b) of Section 148A of the IT Act. The said notice and the petitioner was granted time for uploading the reply to the said show cause notice on the e-portal of the Department up to 24.03.2022.
It was stated that Section 148A provides for conducting the inquiry, providing an opportunity before issuing notice under Section 148. Those steps are to be adhered to. Otherwise, notice under Section 148 would be rendered illegal. Sub-clause (b) of Section 148A specifically provides that show cause notice has to be served to the petitioner by providing an opportunity to be heard within the time not less than seven days and not exceeding thirty days from the date on which such notice is issued.
The single judge bench of Justice Dinesh Kumar Singh viewed that only four days’ time was granted to the petitioner to reply to the show cause notice under Section 148A(b) of the Income Tax Act.
While allowing the petition the court quashed the assessment order and the respondents are directed to issue a fresh notice under Section 148A(b), giving seven days or more time to the petitioner, but not more than thirty days’ time as prescribed under Section 148A(b) for filing the reply and hearing.
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