Court stays tax notices for failing to comply with Section 148A (of Income Tax Act, 1961) requirements

Get the full picture - access the original judgement of the court order here

Case Name

Bagaria Properties and Investments Private Limited & Anr. vs. Union of India & Ors. (High Court of Calcutta)

WPO/244/2021

Date: 15th July 2021

Key Takeaways

• Courts are increasingly scrutinizing whether tax authorities comply with Section 148A (of Income Tax Act, 1961) before issuing Section 148 (of Income Tax Act, 1961) notices
• Multiple High Courts have been staying such notices for non-compliance with Section 148A (of Income Tax Act, 1961)
• The burden is on tax authorities to prove they followed proper procedures
• This case adds to the growing body of jurisprudence protecting taxpayers from procedurally defective reassessment notices

Issue

The central legal question was: Did the Assessing Officer comply with the mandatory provisions of Section 148A (of Income Tax Act, 1961) before issuing notices under Section 148 (of Income Tax Act, 1961)?

Facts

• Bagaria Properties received two tax notices dated May 29, 2021, and June 18, 2021
• These notices were for assessment years 2014-15 and 2015-16 respectively, issued under Section 148 (of Income Tax Act, 1961)
• The company challenged these notices, claiming the tax department didn’t follow Section 148A (of Income Tax Act, 1961) procedures before issuing them
• The company also challenged the constitutional validity of The Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Act, 2020
• The court had previously given the tax department’s lawyer time to get instructions, but when asked, he couldn’t provide any response about compliance with Section 148A (of Income Tax Act, 1961)

Arguments

Petitioner’s (Bagaria Properties) Arguments:

• The tax department violated Section 148A (of Income Tax Act, 1961), which requires mandatory compliance before issuing Section 148 (of Income Tax Act, 1961) notices
• They cited multiple court decisions where similar notices were stayed for the same reason

Respondent’s (Tax Department) Arguments:

• The tax department’s lawyer couldn’t present any substantial arguments
• He simply asked for adjournment and couldn’t deny the allegations about Section 148A (of Income Tax Act, 1961) non-compliance
• The officer concerned asked for more time and couldn’t distinguish the precedent cases cited by the petitioner

Key Legal Precedents

The petitioner’s lawyer cited several important cases:

1. Armada D1 Pte. Ltd. Vs. Deputy Commissioner of Income Tax Int-Tax Circle 1(1) (2) & Ors. - WP (L) No.11766 of 2021 dated 3rd June, 2021 (Bombay High Court)
2. Tata Communications Transformation Services Limited Vs. Assistant Commissioner of Income Tax 14(1) (2), Mumbai & Ors. - WP No. 1334 of 2021 dated 5th July, 2021 (Bombay High Court)
3. Sahil International Vs. Assistant Commissioner of Income Tax, Circle-19(3) & Ors. - WP(L) No. 14687 of 2021 reported in [2021] 128 taxmann.com 161 (Bombay) dated 9th July, 2021
4. Mon Mohan Kohli Vs. Assistant Commissioner of Income Tax & Anr. - W.P. © 6176 of 2021 dated 7th July, 2021 (Delhi High Court)

In all these cases, the courts stayed Section 148 (of Income Tax Act, 1961) notices for non-compliance with Section 148A (of Income Tax Act, 1961) provisions .

Judgement

The court ruled in favor of Bagaria Properties:

Court’s Decision:

• The court stayed the proceedings based on the impugned notices
• Respondents were restrained from proceeding further on the basis of the notices dated 29th May, 2021, and 18th June, 2021
• The court directed the tax department to file an affidavit-in-opposition within six weeks
• Petitioners were given two weeks after that to file a reply
• The matter was listed for final hearing after eight weeks (September 9, 2021)

Legal Reasoning:

The court was influenced by the consistent pattern of decisions from Bombay and Delhi High Courts staying similar notices, and the tax department’s inability to deny non-compliance with Section 148A (of Income Tax Act, 1961).

FAQs

Q1: What is Section 148A (of Income Tax Act, 1961) and why is it important?

A: Section 148A (of Income Tax Act, 1961) contains mandatory procedural requirements that tax officers must follow before issuing reassessment notices under Section 148 (of Income Tax Act, 1961). It’s designed to prevent arbitrary reopening of tax cases.

Q2: What happens now that the court has stayed the notices?

A: The tax department cannot proceed with any action based on these notices until the court decides the case. They have to first prove they followed proper procedures.

Q3: Is this decision binding on other cases?

A: While this specific order applies only to this case, it adds to the growing trend of courts protecting taxpayers from procedurally defective notices.

Q4: What should taxpayers do if they receive similar notices?

A: They should check whether Section 148A (of Income Tax Act, 1961) procedures were followed and consider challenging the notices if there’s non-compliance, preferably with legal assistance.

Q5: Why couldn’t the tax department’s lawyer respond properly?

A: It appears the tax authorities were unprepared and couldn’t provide instructions or evidence showing they had complied with Section 148A (of Income Tax Act, 1961) requirements, which weakened their position significantly.

In this matter petitioners have challenged the impugned notices

dated 29th May, 2021 and 18th June, 2021 relating to assessment years 2014-15 and 2015-16 respectively under Section 148 (of Income Tax Act, 1961) on the ground that before issuing notice under Section 148 (of Income Tax Act, 1961), mandatory provisions of Section 148A (of Income Tax Act, 1961) which cast statutory obligation on the Assessing Officer to comply the provisions of the same before issuing any notice under Section 148 (of Income Tax Act, 1961) has not been complied with by the Assessing Officer.

Petitioners have also challenged the constitutional validity of the provisions of The Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Act, 2020.

Mr. Bag, learned Advocate appearing for the petitioners in support of his

contention has relied on two unreported decisions of the Hon’ble Bombay High

Court, one decision is in WP (L) No.11766 of 2021 dated 3rd June, 2021 in the case of Armada D1 Pte. Ltd. Vs. The Deputy Commissioner of Income Tax Int-Tax Circle 1(1) (2) & Ors. and unreported decision in WP No. 1334 of 2021 dated 5th July, 2021 in the case of Tata Communications Transformation Services Limited Vs. Assistant Commissioner of Income Tax 14(1) (2), Mumbai & Ors. He has also relied on one reported decision of Hon’ble Bombay High Court in WP(L) No. 14687 of 2021 in the case of Sahil International Vs. Assistant Commissioner of Income Tax, Circle-19(3) & Ors. reported in [2021] 128 taxmann.com 161 (Bombay) dated 9th July, 2021 and one unreported decision of Hon’ble Delhi High Court in W.P.(C) 6176 of 2021 in the case of Mon Mohan Kohli Vs. Assistant Commissioner of Income Tax & Anr. dated 7th July, 2021.

In all these aforesaid cases Hon’ble Courts have stayed the impugned

notices under Section 148 (of Income Tax Act, 1961) for non compliance of the provisions of Section 148A (of Income Tax Act, 1961). I had given an opportunity to Mr. Asok Bhowmik, learned Advocate appearing for the respondents to take instruction in the matter by my order dated 13th July, 2021. Today, when he was asked about the instruction pursuant to my aforesaid direction in this matter he simply made prayer for adjournment on the ground of learned Additional Solicitor General and could not submit anything about the aforesaid judgements relied on by the petitioners or on the facts of this case as to whether in this case before issuing notice under Section 148 (of Income Tax Act, 1961), provisions under Section 148A (of Income Tax Act, 1961) was complied with or not. Mr. Bhowmik says that officer concerned has asked for further time and was not able to deny the allegations of the petitioners that Section 148A (of Income Tax Act, 1961) provisions of the Income Tax Act, 1961 was not complied with in this case before issuing notice under Section 148 of the said Act and was not able to distinguish

the aforesaid unreported decisions.

Considering the submissions of the parties, I direct the respondents to file

affidavit-in-opposition within six weeks from date. Petitioners to file reply thereto, if any, within two weeks thereafter. List the matter after eight weeks ( i.e. 09.09.2021) for “Final Hearing.”

In the meanwhile, respondents are restrained from proceeding any further

on the basis of the aforesaid impugned notices dated 29th May, 2021 and 18th

June, 2021 being Annexures ‘P-4’ and ‘P-5’ to the writ petition.

(MD. NIZAMUDDIN , J.)