Clipped from: https://taxguru.in/income-tax/sc-dismisses-reassessment-case-non-compliance-section-148a.html
ITO Vs R.K. Build Creations Private Limited (Supreme Court of India)
The Supreme Court of India has dismissed a Special Leave Petition filed by the Income Tax Department concerning reassessment proceedings against M/s R.K. Build Creations Private Limited. The court’s decision, rendered on January 17, 2025, effectively upholds the stance taken by the Rajasthan High Court, which had earlier quashed the reassessment initiation order due to procedural irregularities under the revamped tax laws.
The case originated from reassessment proceedings initiated by the Income Tax Officer (ITO) against R.K. Build Creations Private Limited for the Assessment Year (AY) 2015-16. The company had filed its original income tax return declaring nil income. Subsequently, on June 30, 2021, a notice was issued under the erstwhile Section 148 of the Income Tax Act, 1961, based on the belief that income for AY 2015-16 had escaped assessment.
Following the landmark Supreme Court judgment in the case of Union of India Vs. Ashish Agarwal on May 4, 2022, which addressed the validity of notices issued under the old reassessment regime after the introduction of new provisions by the Finance Act, 2021, the department was required to follow the new procedure. Consequently, a notice under Section 148A(b) of the Act was issued to R.K. Build Creations on May 30, 2022.
Section 148A, introduced by the Finance Act, 2021, mandates a specific procedure to be followed by the Assessing Officer (AO) before issuing a notice under Section 148. This procedure includes conducting an inquiry (if needed), providing the assessee an opportunity to be heard, considering the assessee’s reply, and passing a speaking order under Section 148A(d) determining whether it is a fit case for issuing a Section 148 notice.
R.K. Build Creations responded to the Section 148A(b) notice, filing replies on June 11, 2022, and June 14, 2022. The company requested details and documents relied upon by the department and raised objections to the proposed reassessment, including arguments about the proceedings being time-barred for the alleged escaped income amount. The department provided some information on June 27, 2022, reproducing a worksheet related to loans provided to another entity.
Subsequently, on July 26, 2022, the AO passed an order under Section 148A(d), rejecting the objections raised by the company and deciding to proceed with the issuance of a Section 148 notice. It was this order, along with the initial Section 148 notice, that R.K. Build Creations challenged before the Rajasthan High Court through a writ petition.
Before the High Court, the petitioner argued that the reassessment was time-barred for the stated income amount, that the adverse material was not fully provided, and critically, that the order under Section 148A(d) failed to properly address the objections raised in their replies, particularly the additional reply dated June 14, 2022. They contended that the procedure under Section 148A and the relevant guidelines were not followed, rendering the proceedings without jurisdiction.
The Income Tax Department contended before the High Court that the petitioner had an alternative remedy of filing an appeal against the reassessment order (which was passed during the pendency of the writ petition). They argued that the alleged escaped income justified the extended period of limitation and that information was provided to the assessee. The department also asserted that Section 151A was not applicable at the stage of initiating reassessment and that material related to the petitioner was seized during a survey on another entity.
The Rajasthan High Court, in its judgment, meticulously examined the procedure laid down under Section 148A and the guidelines issued by the Central Board of Direct Taxes (CBDT) following the Ashish Agarwal judgment. The court emphasized that Section 148A mandates the AO to consider the assessee’s reply and pass a speaking order based on the material available and the reply furnished.
The High Court found that while the department had reproduced the petitioner’s initial reply, the additional reply dated June 14, 2022, was not considered in the Section 148A(d) order. Consequently, the objections raised in the additional reply were not dealt with by the AO. The court held that this failure to consider all submissions and pass a speaking order addressing the objections violated the mandatory procedure prescribed under Section 148A and the principles of natural justice.
Rejecting the department’s argument regarding the alternative remedy, the High Court noted that the challenge went to the root of the jurisdiction to initiate reassessment proceedings due to the fundamental procedural flaw under Section 148A. Citing exceptions to the rule of alternative remedy, such as violations of natural justice or proceedings without jurisdiction, the court concluded that the writ petition was maintainable.
In light of these findings, the Rajasthan High Court quashed the order dated July 26, 2022, passed under Section 148A(d), and the consequential proceedings, including the notice under Section 148. The court remitted the matter back to the Assessing Officer to proceed from the stage of the notice under Section 148A(b), requiring the department to follow the procedure in accordance with the law, which would entail properly considering the replies and passing a valid speaking order.
Aggrieved by the High Court’s decision, the Income Tax Department filed a Special Leave Petition before the Supreme Court. However, during the proceedings before the apex court, the department made a concession in another related case, Union of India vs. Rajeev Bansal (Civil Appeal No. 8629 of 2024), decided on October 3, 2024.
The Supreme Court, in its brief order dismissing the SLP filed by the ITO against R.K. Build Creations, noted this prior concession made by the petitioner-Department in the Rajeev Bansal case. The court stated that having regard to this concession, the present Special Leave Petition would not survive for further consideration.
The dismissal by the Supreme Court, based on the department’s own concession in a similar matter, reinforces the importance of adhering strictly to the procedural requirements laid down under Section 148A of the Income Tax Act following the changes introduced by the Finance Act, 2021, and the directions of the Supreme Court in the Ashish Agarwal case for past period notices. The outcome highlights that failure to follow the mandatory steps, such as properly considering assessee’s replies and issuing a speaking order at the Section 148A(d) stage, can invalidate the initiation of reassessment proceedings. The matter now stands remitted to the Assessing Officer to cure the procedural defect identified by the High Court.
Read High Court Judgment: Reassessment Order Quashed for not considering assessee’s objections adequately
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
Having regard to the concession made by the petitioner-Department in the case of Union of India vs. Rajeev Bansal, Civil Appeal No.8629 of 2024 on 03.10.2024 (2024 SCC ONLINE 754), this Special Leave Petition would not survive for further consideration.
Hence, the Special Leave Petition is dismissed.
Pending application(s), if any, shall stand disposed of.
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