Income Tax Dept Fails to Serve Notice before Reassessment: Orissa HC Remands Matter for Fresh [Read Order]

In a recent ruling, the Orissa High Court has remanded a reassessment matter back to the Income Tax Department after finding that the statutory notice under Section 148 of the Income Tax Act, 1961 was not served on the assessee before initiating reassessment proceedings.

The petitioner Sunil Kumar Sahoo, proprietor of Bhagabati Cashew, discovered in May 2025 that his immovable property had been attached by the Income Tax Department, triggering his first awareness of a reassessment order dated 14.11.2017 and a ₹47.45 lakh demand notice issued under Section 147/144 of the Income Tax Act.

Senior Advocate Sidhartha Ray, appearing for Sunil Kumar Sahoo, contended that the reassessment order dated 14.11.2017 was legally unsustainable as the mandatory notice under Section 148 of the Income Tax Act was never served on the petitioner.

He argued that service of notice is a statutory prerequisite for invoking Section 147, and mere issuance without proof of delivery vitiates the entire proceeding.

He further submitted that the original return filed in April 2013 was never processed under Section 143, and therefore, reopening the case without completing the initial assessment was impermissible. The petitioner only became aware of the reassessment and demanded notice in May 2025 when his property was attached, prompting him to seek judicial intervention.

On the other hand, the revenue argued that the petitioner had delayed approaching the Court and failed to avail alternative remedies. The tax department asserted that statutory notices under Sections 148 and 142 were duly issued, and the reassessment was necessitated by unexplained cash deposits flagged by the Investigation Wing.

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They also maintained that the petitioner’s non-compliance with the notices, despite being given opportunities, left the Assessing Officer with no choice but to proceed ex parte under Section 144.

After hearing the submission and arguments from both sides, the high court observed that service of notice under Section 148 of the Income Tax Act is a mandatory condition for initiating reassessment under Section 147.

The Court noted that while the department claimed to have issued the notice on 29.03.2017, it failed to demonstrate actual service on the petitioner. That is, no postal delivery proof or acknowledgement was placed on record.

The division bench comprising Chief Justice Harish Tandon and Justice Murahari Sri Raman noted that the language of Section 148 uses the term “shall serve,” which denotes a compulsory obligation. Citing precedents including Bank of India v. Nangli Rice Mills, the Court said that procedural compliance is not a mere formality but a statutory safeguard.

The bench also observed that the reassessment was initiated mainly based on information from the Investigation Wing without any independent inquiry, and the petitioner was unaware of the proceedings until his property was attached in May 2025. Given these lapses, the Court concluded that the reassessment order dated 14.11.2017 and the ₹47.45 lakh demand notice were vitiated.

Accordingly, instead of quashing the proceedings outright, the Court remanded the back matter to the Income Tax Department for fresh consideration in accordance with law.

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