Kerala HC: SCN Response Time of 4 Days is Considered Invalid as Per IT Act’s Provision

In a significant legal case, the Kerala High Court invalidated the reassessment order, citing a violation of the mandatory provision under the Income Tax Act, of 1961. This violation pertained to the insufficient four-day period allowed for responding to the show cause notice (SCN). Representing the petitioner, Mr S Arun Raj served as counsel, while Mr Christopher Abraham acted as the Standing Counsel for the Department.

The applicant, Koyambrath Puthiyapurayil Mohammed Kunhi, is a Non-Resident Indian employed in Oman. The first respondent issued a notice to the petitioner under Section 148A(b) of the Income Tax Act, 1961, for the Assessment Year 2018-19.

This notice informed the petitioner that their income for that assessment year had escaped assessment due to the acquisition of immovable properties totalling Rs. 1 crore, Rs. 70 lakhs, and Rs. 2 crore, as well as the purchase of a vehicle for Rs. 69 lakhs, all of which had not been reported in their tax returns. Consequently, the sources of cash used for these acquisitions remained unexplained.

The petitioner did not know about the issuance of the income tax notice under Section 148A(b) of the Income Tax Act, and as a result, they were unable to respond to it. In the petitioner’s absence, the assessment order was finalized ex parte on March 30, 2022, under Section 148A(d) of the Act.

This order concluded that the petitioner had not filed their income tax returns and that the source of cash used for purchasing the immovable properties and vehicle remained unexplained.

The applicant later asserted that they were unaware of both the issuance of the order under Section 148A(d) and the notice under Section 148 of the Act. In the interim, on March 26, 2023, an assessment order was issued under Section 147, in conjunction with Sections 144 and 144B of the Act, adding Rs. 4,39,00,000/- to the petitioner’s income.

The argument presented was that there had been a violation of the statutory requirement of a seven-day notice under Clause (b) of Section 148A of the Income Tax Act. Specifically, the notice and the petitioner were granted time to upload a response to the show cause notice on the Department’s e-portal until March 24, 2022.

It was emphasized that Section 148A mandates a specific procedure involving an inquiry and the provision of an opportunity before issuing a notice under Section 148. Strict adherence to these steps is essential; otherwise, the notice under Section 148 would be deemed illegal.

Notably, Sub-clause (b) of Section 148A explicitly states that a show cause notice must be delivered to the petitioner, affording them an opportunity to be heard within a timeframe spanning no less than seven days and no more than thirty days from the issuance of such notice.

Related: Delhi HC Rejects Income Tax Notice U/S 148A Due to No Minimum Time Given

The single judge, Justice Dinesh Kumar Singh, observed that only a mere four days had been granted to the petitioner to respond to the show cause notice under Section 148A(b) of the Income Tax Act.

In granting the petition, the court nullified the assessment order and directed the respondents to issue a fresh notice under Section 148A(b). This new notice must provide the petitioner with a period of at least seven days, but not exceeding thirty days, as stipulated in Section 148A(b), to submit their reply and participate in the hearing.