Supreme Court: Writ Petitions can be entertained to examine whether conditions to issue Section 148 Notice are satisfied under Income Tax Act

Supreme Court: Writ Petitions can be entertained to examine whether conditions to issue Section 148 Notice are satisfied under Income Tax Act.

The Supreme Court by its division bench comprising of Justices Sanjiv Khanna and M.M. Sundresh set aside an order passed by the Punjab and Haryana High Court which had dismissed a writ petition filed by a petitioner/assessee- Red Chilli International Sales against a notice issued under Section 148A of the Income Tax Act, 1961 (hereinafter referred to as 'Act') for reopening assessment.

Earlier, the High Court had dismissed the petition on the ground that an alternative remedy exists. However, the Supreme Court disagreed with the High Court's approach and observed that writ petitions can be entertained to examine whether the conditions for the issuance of notice under Section 148 of the Income Tax Act have been satisfied.

The petitioner was served with notice under Section 148A(b) of the Act. The details of the information that led to the issuance of a notice under Section 148A(b) of the Act were also provided to the petitioner. The petitioner as a way of response raised several objections. The objections were taken up and an order was passed under Section 148 A(d) of the Act which takes about "issue of notice where income has escaped assessment."

Along with the order, the petitioner was also served with notice under Section 148. Both the order under Section 148A(d) and the notice issued under Section 148 of the Act were objected by the petitioner and contended that its response to the notice under Section 148A(b) was ignored.

The primary issued raised was, whether, at the stage of notice, the Court should venture into the merits of the controversy when Adjudicating Officer was yet to frame assessment/reassessment in the discharge of statutory duty cast upon him under Section 147 of the Income Tax Act.

The Punjab and Haryana High Court had observed that, where the proceedings have not even been concluded by the statutory authority, the writ court should not interfere at such a premature stage. Furthermore, it is not a case in which the authority can be held axiomatically to have grasped jurisdiction not vested in it based on a cursory reading of the notice. The correctness of the order under Section 148A(d) is being challenged on the factual premise that vested jurisdiction has been wrongly exercised. The distinction between jurisdictional error and error of law or fact within the jurisdiction is well established. For the rectification of errors, a statutory remedy has been provided.

The High Court was of the view that there was no reason to warrant interference in the exercise of the jurisdiction under Article 226 or 227 of the Constitution of India at the intermediate stage when the proceedings initiated are yet to be concluded by a statutory authority.

However, the Apex Court observed, that the provisions of reopening under the Income Tax Act, 1961 have undergone an amendment by the Finance Act, 2021, and consequently the matter would require a deeper and in-depth consideration keeping in view the earlier case law.

Accordingly, the bench set aside the observations made by the High Court and observed that the writ petition is not be maintainable in view of the alternative remedy, and stated that this issue should be examined in depth by the High Court if and when it arises for consideration. The special leave petition is disposed of. We clarify that the dismissal of the special leave petition would not be construed as a finding or observations on the merits of the case," the Court said.