Reassessment Proceedings Invalid Without Proper Notice Service: Patna ITAT

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Patna ITAT Sets Aside Reassessment, Emphasizes Mandatory Notice Service in Income Tax Cases

Kolkata, March 17, 2025 – The Patna bench of the Income Tax Appellate Tribunal (ITAT), Kolkata, has partly allowed an appeal by assessee Ranjeet Singh , setting aside orders from both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The tribunal, comprising Judicial Member Shri Sonjoy Sarma and Accountant Member Shri Rakesh Mishra, emphasized the critical procedural requirement of proper notice service under Section 148 of the Income Tax Act, 1961 for valid reassessment proceedings.

Case Overview: Undisclosed Income and Notice Dispute

The case originated from a discovery of a substantial cash deposit of ₹30,50,000 in Ranjeet Singh 's bank account during the demonetization period and the rest of the financial year 2016-17. As Mr. Singh had not filed an income tax return, reassessment proceedings were initiated under Section 147 of the Act. A notice under Section 148 was purportedly issued on August 1, 2018, but the assessee claimed non-service of this notice. Subsequent notices under Section 142(1) were issued, and eventually, an assessment order under Sections 147/143(3) was passed, adding the entire deposit as unexplained income under Section 69A.

Arguments Before ITAT: Service of Notice and Procedural Lapses

In appeal before the ITAT, Mr. Singh contested the validity of the reassessment, primarily arguing non-service of the initial notice under Section 148. He further contended that the CIT(A) erred in shifting the burden of proof onto him to disprove notice service and in not appreciating that the onus to prove service lies with the department. The assessee also raised objections regarding the lack of virtual hearing opportunity and challenged the additions made on merits.

The department, represented by JCIT Ashwani Kr. Singal, argued that sufficient opportunity was given to the assessee, and the CIT(A) had acted correctly in partly allowing the appeal and directing verification of potential double addition. They emphasized that the assessee participated in assessment proceedings and raised the notice issue for the first time at the appellate stage.

Tribunal's Observation: Distinction Between Issue and Service of Notice

The ITAT bench meticulously examined the legal arguments concerning notice service. Referring to the Supreme Court’s judgment in R.K. Upadhyaya vs. Shanabhai P. Patel , the tribunal highlighted the distinction between the "issue of notice" and "service of notice" under the Income Tax Act.

> "Section 148(1) provides for service of notice as a condition precedent to making the order of assessment… Service under the new Act is not a condition precedent to conferment of jurisdiction on the Income-tax Officer to deal with the matter but it is a condition precedent to the making of the order of assessment."

The tribunal noted that while the notice under Section 148 was indeed issued, the assessment order lacked any mention of its service on the assessee. Despite Section 292BB of the Act deeming notice service valid under certain conditions of participation, the tribunal found insufficient evidence to conclusively prove valid service in this case, especially as the assessee claimed non-service from the outset, albeit belatedly.

De Novo Assessment Ordered: Service of Notice and Fresh Hearing Mandated

Acknowledging the jurisdictional validity of the issued notice but emphasizing the procedural necessity of its service, the ITAT deemed it appropriate to set aside both the AO's and CIT(A)'s orders. The tribunal directed the AO to:

1. Ensure service of the Section 148 notice dated August 1, 2018, on the assessee.
2. Verify whether the notice was indeed served previously and obtain an affidavit of non-service from the assessee if necessary.
3. Allow the assessee to file a fresh return of income in response to the served notice.
4. Provide a fresh opportunity of hearing to the assessee.
5. Conduct a de novo assessment regarding the cash deposits after considering the assessee's submissions and in accordance with the law.

The tribunal clarified that while the initial notice issuance was valid, the lack of demonstrable service constituted a procedural defect necessitating a fresh assessment. All other grounds of appeal were left unadjudicated, pending the outcome of the de novo assessment.

Implications: Procedural Rigor in Reassessment

This decision underscores the importance of meticulous adherence to procedural requirements in income tax reassessment proceedings, particularly the valid service of notice under Section 148. It reinforces that while participation in proceedings can sometimes cure defects, it does not automatically waive the fundamental requirement of proper notice service, especially when challenged by the assessee, even at a later stage. Taxpayers should ensure they formally raise objections regarding notice defects during assessment proceedings to avoid complications at appellate stages. The case is I.T.A. No.: 304/PAT/2024, Assessment Year: 2017-18, Ranjeet Singh Vs. ITO, Ward-5(5), Patna . ```