Income Tax Proceedings cannot Survive if Empowering Notices have been Statutorily Quashed: Madras HC [Read Order]
The concerned notices had been priorly quashed by a Division Bench of the same Court, holding that it was predicated on a mere change of opinion, rather than any tangible material.
Madras HC
Madras HC
In a recent ruling, the Madras High Court reiterated the settled position of law that all proceedings flowing from a foundational or “empowering” notice under the Income Tax Act, 1961 shall stand vitiated if the relevant notice has been quashed by a competent court.
The petitioner, Devaraj Ramasamy Naidu had instituted a writ petition challenging the validity of reassessment and penalty proceedings initiated by the income tax authorities with relations to his financials for the assessment year 2013-14.
The petitioner had initially been served with a notice dated 13.03.2020, issued under Section 148 of the Income Tax Act, seeking to reopen his assessment on grounds of alleged escapement of income.
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Pursuant to this notice, the department proceeded to pass an assessment order under Section 147 read with Section 144B and also issued a penalty notice under Section 271(1)(c).
The original notice was challenged before the Madras High Court which proceeded to dismiss it at first instance.
However, upon appeal, the Division Bench of the High Court quashed the Section 148 notice, holding that it was predicated on a mere change of opinion, rather than any tangible material indicating income had escaped assessment.
The Division Bench even relied on the decision of the Bombay High Court in Aroni Commercials Ltd v. Deputy Commissioner of Income-tax-2(1) (2014) to buttress its decision.
Despite the quashing of the foundational notice, the department proceeded to pass assessment orders under Section 147 read with Section 144B, as well as a penalty notice under Section 271(1)(c).
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The petitioner, represented by Raghavrajeev Menon contended that when the notice issued under Section 148 of the I.T.Act itself was quashed by the Division Bench, any other proceedings initiated in furtherance of the said notice also stood liable to be quashed.
Dr. B. Ramaswamy, Appearing for the revenue, also fairly accepted the legal position proposed by the petitioner’s counsel.
The single-judge Bench of Justice Krishnan Ramasamy observed that the entirety of the reassessment and penalty proceedings would stand unsustainable when the original notice giving rise to such proceedings has already been set aside by the Division Bench.
The Bench proceeded to quash the impugned assessment and penalty orders and closed all connected miscellaneous petitions.
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