Facts of the Case

The petitioner challenged:

  • Notice dated 31.03.2021 issued under Section 148
  • Assessment order passed under Section 147 for AY 2017–18
  • Demand notice issued under Section 156 dated 31.03.2022

It was contended that the mandatory requirement of recording reasons to believe prior to issuance of notice under Section 148 was not fulfilled.

The record revealed that:

  • Reasons to believe were recorded on 22.04.2021,
  • Whereas the impugned notice was issued earlier on 31.03.2021.

Further, the Assessing Officer admitted issuing a second notice dated 24.05.2021 after obtaining proper approval.

Issues Involved

  1. Whether a notice under Section 148 is valid if issued prior to recording reasons to believe.
  2. Whether reassessment proceedings can survive when the statutory pre-condition is violated.
  3. Whether subsequent compliance (recording reasons later) cures the defect.

Petitioner’s Arguments

  • The notice dated 31.03.2021 is invalid as it was not preceded by recorded reasons to believe, which is mandatory.
  • The reasons were recorded after issuance of notice, rendering the entire reassessment proceedings void.
  • Such procedural lapse goes to the root of jurisdiction and cannot be cured later.

Respondent’s Arguments

  • The Assessing Officer stated that:
    • The approval form for the first notice was misplaced.
    • A second notice dated 24.05.2021 was issued after obtaining proper sanction.
  • It was clarified that the recorded reasons correspond to the second notice, not the first.

Court’s Findings / Order

The Delhi High Court held:

  • The notice dated 31.03.2021 under Section 148 is invalid, as it was issued without prior recording of reasons to believe, which is a mandatory jurisdictional requirement.
  • Consequently, the assessment order dated 31.03.2022 was also set aside.

However:

  • The Court allowed the Department to proceed with the second notice dated 24.05.2021, in accordance with law.
  • Reliance was placed on the Supreme Court judgment in:
    Union of India & Ors. vs Ashish Agarwal (2022 SCC OnLine SC 543).
  • The Court clarified that:
    • It has not expressed any opinion on merits,
    • Rights and contentions of parties remain open.

Important Clarification by Court

  • Recording of “reasons to believe” must precede issuance of notice under Section 148.
  • Any notice issued in violation of this condition is jurisdictionally defective and liable to be quashed.
  • Subsequent compliance cannot validate an invalid notice.

Sections Involved

  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice for Reassessment
  • Section 156 – Demand Notice
  • Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2218-DB/MMH02062022CW80152022_184451.pdf

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