Facts of the Case

The assessee, an agriculturist, sold agricultural land during the relevant Assessment Year 2011-12. The assessee contended that the land sold was situated beyond 8 kilometers from municipal limits and therefore the transaction was not liable to capital gains tax.

The Assessing Officer observed that the assessee had not filed a return of income declaring the sale of the immovable property. Consequently, a notice under Section 148 of the Income Tax Act, 1961 was issued on 26.03.2018 for reopening the assessment.

The assessee allegedly failed to respond to the notices issued by the Assessing Officer. Therefore, the Assessing Officer completed the assessment under Section 144 read with Section 147 of the Income Tax Act and made an addition of ₹35,81,667 as Long Term Capital Gain on sale of land.

Issues Involved

  1. Whether reassessment proceedings under Section 147 are valid when the mandatory notice under Section 148 of the Income Tax Act was not served on the assessee.
  2. Whether the assessment order passed without proper service of notice under Section 148 is legally sustainable.

Petitioner’s Arguments (Assessee)

The assessee contended that the notice issued under Section 148 of the Income Tax Act was never served upon him.

It was argued that the notice under Section 142(1) dated 25.09.2018 was incorrectly issued in the name of “Ravinder, Village Shikohpur, District Bagpat,” whereas the assessee was actually residing in Village Rampura, District Gurgaon, Haryana.

The Inspector of the department attempted to serve the notice at Village Shikohpur but reported that no such person matching the assessee’s identity could be identified. Consequently, the notice was returned unserved.

The assessee further submitted that after transfer of the case to the Income Tax Officer, Ward 3(5), Gurgaon, no fresh notice under Section 148 was issued nor were the reasons recorded for reopening the assessment communicated to him.

Therefore, the assessment order passed under Section 144/147 without proper service of mandatory notice under Section 148 was illegal and without jurisdiction.

Respondent’s Arguments (Revenue)

The Departmental Representative supported the assessment order and the order of the CIT(A).

It was argued that the assessee had sold land but failed to disclose the capital gains arising from the sale and did not file the return of income even after issuance of notice under Section 148.

Further, the assessee did not appear before the Commissioner of Income Tax (Appeals). Accordingly, the Revenue contended that the appeal of the assessee should be dismissed.

Court Findings

The Tribunal examined the records and noted that the notice issued under Section 142(1) was addressed to an incorrect address, namely Village Shikohpur, District Bagpat.

The Inspector of the department had reported that no person named Ravinder matching the identity of the assessee could be located at that address and therefore the notice remained unserved.

Subsequently, the Assessing Officer realized the error and transferred the case to the jurisdictional officer at Gurgaon. However, no fresh notice under Section 148 was issued to the assessee after the transfer of jurisdiction.

The Tribunal observed that reassessment proceedings under Section 147 require mandatory service of notice under Section 148. In the present case, the Assessing Officer proceeded with the reassessment without ensuring service of such mandatory notice.

Important Clarification

The Tribunal relied on the decision of the Supreme Court in CIT vs Laxman Das Khandelwal (108 taxmann.com 183) which held that Section 292BB of the Income Tax Act does not cure the complete absence of notice under Section 148.

Where there is no service of notice under Section 148, reassessment proceedings become invalid.

Court Order

The ITAT held that since the mandatory notice under Section 148 of the Income Tax Act was never served upon the assessee and the reasons for reopening were not communicated, the reassessment proceedings were without jurisdiction.

Accordingly, the assessment order passed under Section 144 read with Section 147 of the Income Tax Act was quashed and the appeal of the assessee was allowed.

Sections Involved

  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice for Reassessment
  • Section 142(1) – Inquiry Before Assessment
  • Section 144 – Best Judgment Assessment
  • Section 292BB – Notice deemed valid in certain circumstances

 Link to download the order -  https://itat.gov.in/public/files/upload/1735634777-dKNbuT-1-TO.pdf

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