Challenge to S. 148A Order of Income Tax Not Maintainable under Article 226 Without Exceptional Grounds: Kerala HC dismisses Petition [Read Order]

In a recent ruling, the Kerala High Court ruled that the challenge to order issued under Section 148A of Income Tax Act, 1961 is not maintainable under Article 226 without exceptional grounds.

A writ petition was filed by an assessee, Gabi Gafoor challenging the issuance of notice under Section 148A(d) for the Assessment Year 2017-18. He is a Non-Resident Indian (NRI), who had been served with a notice under Section 148A(b), based on information suggesting that income chargeable to tax had escaped assessment.

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The notice referred to unexplained cash deposits of ₹19,38,543 and total debit transactions of ₹1,35,37,590 from the petitioner’s bank account. Despite replying that the deposits could have been made by family members and claiming that he had no taxable income in India other than interest income, the petitioner failed to substantiate the source of the cash deposits or the large withdrawals.

Subsequently, the Income Tax Department issued an order under Section 148A(d), after obtaining necessary approvals, stating that the transactions remained unexplained. As the total income escaped exceeded ₹50 lakhs, the ten-year limitation applied, and hence the proceedings were deemed to be within the statutory period. A notice under Section 148 was issued, directing the petitioner to file a return of income.

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The petitioner contended that the proceedings were based on a "roving enquiry" and that the notice was unsustainable in law, as it failed to meet the procedural safeguards outlined under Section 148A.

The petitioner’s counsel argued that withdrawals had been erroneously included with deposits to inflate the income alleged to have escaped assessment beyond the permissible threshold. The counsel relied on decisions including Catchy Prop-Build Pvt. Ltd v. ACIT and Red Chilli International Sales v. ITO in support of the arguments.

The Revenue countered that the order under Section 148A(d) was passed only after due consideration of the petitioner’s response and in full compliance with statutory provisions. It was also pointed out that the petitioner, despite carrying out high-value financial transactions, had not filed any return of income.

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The High Court noted that Section 148A was introduced as a remedial measure by the Finance Act, 2021 to protect the interests of assessees and ensure a fair pre-assessment process. The Court observed that the provision is not intended to conduct a full-fledged enquiry but merely to provide the assessee an opportunity to respond to information suggesting escapement of income.

The Court observed that “An order under section 148A(d) only opens the stage for issuing a notice for reassessment. Thereafter, petitioner will have every opportunity to contest the matter by filing the return. Therefore unless there are exceptional reasons like violation of the principles of natural justice or such other exceptional reasons, a challenge against an order under section 148A of the Act ought not to be entertained by the High Court under Article 226 of the Constitution of India. The specific time lines mentioned under section 148A indicates that it is a time bound procedure and cannot be prolonged by repeated challenges, that too, on the merits. At this stage of the proceedings, it is not proper for this Court to interfere in exercise of the powers under Article 226 of the Constitution of India.”

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Justice Bechu Kurian Thomas, relied on Supreme Court precedents in Renu Singh v. PCIT and Anshul Jain v. PCIT, which held that writ petitions challenging notices under Sections 148 and 148A are not maintainable when effective alternative remedies are available under the Income Tax Act.

Accordingly, the petition was dismissed.

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To Read the full text of the Order CLICK HERE

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