Taxation Law | Reassessment Based on False Premises and Unsupported Information Is Void: Patna High Court

"Issuance of Notice Based on Incorrect Information and Without Supporting Material Vitiates Entire Proceedings” - In a landmark decision Patna High Court quashed reassessment proceedings initiated against the petitioner on the ground that the notice issued under Section 148A(b) was based on incorrect information and was not supported by any material evidence. The Division Bench comprising Justice Rajeev Ranjan Prasad and Justice Ashok Kumar Pandey declared that "where initiation of proceedings is founded on wrong facts and absent material, the entire reassessment is rendered invalid."

High Court Condemns "Non-Application of Mind" by Income Tax Department

Setting the tone of the judgment, the Court noted that the very basis for issuing the notice against Ankit Agarwal was that he had allegedly not filed his Income Tax Return for Assessment Year 2015-16, when in fact he had duly filed his return disclosing an income of ₹7,99,950 along with exempt Long-Term Capital Gains of ₹25,04,808.

The Court sternly observed that "it is evident from annexures that the Assessing Officer had information under the Insight Portal, but the said information was palpably incorrect." Further criticizing the Department's conduct, the Bench stated, "The very foundation of the notice is wrong and unsupported by any material."

Justice Rajeev Ranjan Prasad emphasized that there was a "complete non-application of mind" and that even the submissions by the Revenue during the proceedings "cannot be taken as an appropriate explanation."

Reassessment Proceedings Cannot Survive If Based on Factual Errors, Rules Court

The Patna High Court held that in light of the petitioner's undisputed filing of returns, the Income Tax Department could not sustain reassessment proceedings on false grounds. The Court declared that "proceedings initiated based on incorrect information furnished in the notice under Section 148A(b) and unsupported by any material cannot stand the test of law."

Additionally, the Court found that the Department attempted to artificially inflate the alleged escaped income to above ₹50 lakh to extend the limitation period beyond three years under the amended provisions of Section 149(1)(b). The Court stated in unequivocal terms that "limitation could not have been stretched artificially by inflating income figures to circumvent statutory barriers."

Issuance of Notice Without Providing Material Evidence is Fatal to Reassessment

Highlighting a critical procedural violation, the Court held that the Department failed to supply the petitioner with material evidence forming the basis of the alleged reassessment, thus breaching the mandatory procedural safeguards.

Quoting from the judgment, the Court remarked, "Non-supply of material and relying merely on incorrect data constitutes a jurisdictional error which vitiates the reassessment from inception." The Court relied heavily on the decisions of the Supreme Court in Ashish Agarwal and Rajeev Bansal, underscoring that post-2021, compliance with Section 148A is not a mere formality but a substantive safeguard.

The Bench stressed, "The entire reassessment notice suffers from incurable defects going to the root of the jurisdiction, and is thus liable to be quashed."

Patna High Court Quashes Reassessment, Declares Notices and Demand Illegal

In a sweeping relief to the petitioner, the Court quashed the reassessment order, the notice under Section 148A(d), and the consequent demand notice dated 30 March 2023.

The Court concluded:

"In view of the discussions hereinabove, we are of the considered opinion that the proceeding initiated against the petitioner was based on incorrect information furnished in the notice under Section 148A(b) which was not supported by any material, therefore, the very initiation of the proceeding by issuing Section 148 notice on 06.04.2022 would stand vitiated."

Thus, the High Court decisively protected the petitioner’s rights against arbitrary exercise of reassessment powers, reinforcing the inviolability of procedural safeguards under the Income Tax Act.

Date of Decision: 18 April 2025