An income-tax notice can have serious financial consequences for a taxpayer, particularly when the Income Tax Department reopens an old assessment and makes additions aggregating to about Rs. 1.46 crore.
For an ordinary taxpayer, such a demand can mean years of financial uncertainty, but what happens when the tax department’s own records show that the notice initiating reassessment was never properly delivered to the taxpayer?
In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai, has quashed a reassessment involving additions of Rs 1.27 crore as unexplained expenditure and Rs 18.85 lakh as unexplained credit, holding that the mandatory notice under Section 148 of the Income-tax Act, 1961, was not validly served.
The ruling underscores for ordinary taxpayers the importance of never ignoring an income tax notice and the possible legal impact of the manner in which a notice is issued.
The case
In Ravi Dilip Waghela v. ITO [ITA No. 1799/Mum/2025, AY 2012-13, order dated 21 September 2026], the Mumbai ITAT dealt with a reassessment matter wherein the Income-tax Department had made additions aggregating to about Rs. 1.46 crore.
The Tribunal ultimately ruled in favour of Mr. Waghela as the Department had failed to validly serve the notice which was necessary to start the reassessment proceedings.
The case began with information received by the Income-tax Department about M/s Brown Pharmaceuticals and Chemicals, which had been identified by the Maharashtra VAT Department as a concern allegedly providing accommodation entries.
During such enquiries, the Department noticed transactions of Rs. 1.27 crore and Rs. 18.85 lakh in the name of M/s Kingsy Pharma, which the information linked to Mr. Waghela under PAN ABRPW5450E.
Based on this information, the Assessing Officer (AO) reopened his assessment and eventually treated Rs. 1.27 crore as unexplained expenditure and Rs. 18.85 lakh as unexplained credit.
Mr. Waghela, however, maintained that his actual and regularly used PAN was ACRPW8234D and explained that he had earlier worked as an office boy for a monthly salary of Rs. 3,500 and had given his signatures and KYC documents to his former employer for employment and security purposes.
According to him, the second PAN, M/s Kingsy Pharma, its bank account and related licences had been created by misusing those documents. He denied carrying on any business in the name of Kingsy Pharma or undertaking the transactions on which the Department had based the additions.
However, the ITAT need to first examine a more fundamental question on whether the revenue authorities (i.e. the income tax department) has validly served the section 148 notice required to reopen Mr. Waghela’s assessment.
The records showed serious problems with service of the notice. The Department initially sent the section 148 notice dated 27 March 2019 to a Bandra address, where it remained unserved. Another departmental record mentioned an entirely different address at Sonam Apartment, Bhiwandi.
Although the Department already had information suggesting that Mr. Waghela did not live there, an Inspector visited the premises, found a locked room and affixed the notice to its door. There was no evidence showing how that particular room was identified as Mr. Waghela’s residence or business premises, who identified it, or what connected him with that address.
The Department continued sending subsequent notices to incorrect addresses, many of which came back marked “LEFT.” It was only after obtaining information from TransUnion CIBIL that the AO discovered Mr. Waghela’s Vile Parle address and email ID.
A final show-cause notice dated 22 November 2019 then actually reached him. Mr. Waghela responded within five days and immediately stated that the PAN mentioned in the notice was not his regular PAN and that he knew nothing about Kingsy Pharma or the earlier notices. He subsequently appeared before the Department and repeated this explanation in his statement.
The ITAT observed that a postal endorsement saying “LEFT” is very different from “REFUSED.” “LEFT” suggested that the taxpayer was not residing at that address; it did not establish that he deliberately avoided receiving the notice.
Further, once the Department contacted Mr. Waghela at the correct address and email, he responded promptly which supported his claim that the earlier notices had simply never reached him. The ITAT also held that Mr. Waghela’s later participation in the assessment did not cure the problem.
He had objected to the earlier notices and disputed the PAN before the assessment was completed. Therefore, section 292BB could not be used to treat the defective service as valid merely because he subsequently cooperated with the proceedings.
Accordingly, the ITAT held that the section 148 notice had never been validly served on Mr. Waghela. Without valid service, the AO could not lawfully assume jurisdiction to complete the reassessment. The Tribunal therefore quashed the reassessment itself, which also resulted in the deletion of the Rs. 1.27 crore and Rs. 18.85 lakh additions.
Mr. Waghela won the case on this jurisdictional issue. However, it is pertinent to note that the ITAT did not decide on matters such as whether the second PAN had actually been obtained in a fraudulent manner, whether his KYC documents had been misused, whether he operated Kingsy Pharma or whether the underlying transactions were genuine.
Once the reassessment itself was considered invalid, the Tribunal considered those questions unnecessary to decide and left them open.
Thus, a proper service of a section 148 notice is not only a minor procedural formality but a basic legal requirement before the AO can validly proceed with reassessment.
The Department cannot satisfy this requirement merely by pasting a notice on the door of an unrelated premises without first establishing that the taxpayer actually resides, works or carries on business there.
Can an income-tax reassessment be declared invalid if the Section 148 notice was issued on time but was never validly served on the taxpayer?
Yes. Issuance of a notice within the prescribed time and validly serving it on the taxpayer are two separate requirements.
The Income Tax Department must meet both requirements before it can lawfully complete the reassessment. Merely issuing or dispatching the notice on time does not establish valid service. However, serving of notice after the deadline does not, by itself, invalidate the proceedings.
In Ravi Dilip Waghela v. ITO, the Department issued the section 148 notice within time but failed to establish that it had validly served the notice. It pasted the notice on the door of a locked room without showing any connection between the premises and Mr. Waghela.
The Tribunal held that this did not amount to valid service and cancelled the reassessment. Consequently, the additions totalling approximately Rs. 1.46 crore could not stand.
The taxpayer’s conduct during the proceedings also matters. In accordance with section 292BB of the Income-tax Act, 1961, a taxpayer who participates in the proceedings without raising any objection before the assessment is completed may lose the right to challenge such notice later.
However, this provision does not apply where the taxpayer raises the objection before completion of the assessment or reassessment. Considering Mr. Waghela had raised his objection in time, his subsequent cooperation did not cure the defect.
Accordingly, a reassessment can be declared invalid despite timely issuance of the notice where the Department fails to establish valid service and section 292BB does not remedy that failure.
Tax notice service: What happens if the taxpayer is absent?
Section 282(1)(b) of the Income-tax Act, 1961 provides that the Department should serve notices in the manner prescribed for serving summons under the Code of Civil Procedure, 1908 (CPC).
Accordingly, the Department should follow the applicable CPC requirements while serving a reassessment notice by affixture i.e. pasting a copy of the notice at the prescribed premises.
Rule 127(2)(a) of the Income-tax Rules, 1962 provides that the Income Tax Department may serve the notices on the addresses available in the PAN database, the relevant or latest income-tax return and, for a company, its registered office details.
In case the taxpayer has communicated another address in writing, the Department must use such address. If delivery of notice fails at the prescribed address, the Rule provides for use of alternative addresses available in specified records, including those of banks, insurers, government bodies, local authorities etc.
Under Order V, Rule 17 of the CPC, where the taxpayer cannot be found, the serving officer must exercise reasonable diligence before resorting to affixture.
The taxpayer must be absent with no likelihood of being found at the residence within a reasonable time, and no authorised agent or other person legally eligible to receive the notice must be available. Merely finding a locked door may not establish these conditions.
Rule 17 also covers refusal to sign the acknowledgement by a person eligible to receive service.
The officer must affix the notice on the outer door or another conspicuous part of the premises where the taxpayer ordinarily resides, carries on business or personally works for gain.
The officer needs to submit a report recording the circumstances of affixture and the name and address of any person who identified the premises and in whose presence the notice was affixed.
Further, where the Department invokes substituted service under Order V, Rule 20 of the CPC, the authority needs to satisfy that the taxpayer is avoiding service or that service cannot take place in the ordinary manner for another reason, and pass an appropriate order.
In the Ravi Dilip Waghela case, the ITAT rejected service by affixture because the Department pasted the notice on a locked room without establishing the taxpayer’s connection with those premises.
