An income tax notice can put a taxpayer in a difficult position, especially when it involves a large tax demand and the person is living abroad. But what happens when the income tax department gives a taxpayer less time than the law requires to respond to the notice?
The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) recently examined this issue in the case of a taxpayer living in Canada. The tribunal found that the Assessing Officer (AO) had failed to provide the minimum response period required under the law applicable to the notice and quashed the reassessment proceedings.
Keep on reading the article to find out what actually happened.
How did the ₹83.2 lakh tax dispute arise?
The case involved Mr Patil, a 70-year-old senior citizen taxpayer who had been living in Canada for several years. The dispute related to assessment year 2018-19.
“The Assessing Officer (‘AO’) alleged that he had transferred an immovable property and consequently brought Rs. 83.20 lakh to tax as short-term capital gains,” explains CA (Dr.) Suresh Surana.
To initiate reassessment proceedings, the AO issued a notice under Section 148A(b) of the Income-tax Act, 1961, on March 23, 2022, asking Mr Patil to respond by March 28, 2022. This gave him only five days to explain why his assessment should not be reopened.
Mr Patil disputed the addition, arguing that the Department had assumed a property transfer without conducting adequate enquiries. He also challenged the failure to consider the property's acquisition and improvement costs.
However, the central dispute before the ITAT concerned the validity of the reassessment notice itself, explains Surana.
Why did the taxpayer challenge the reassessment notice?
Under Section 148A(b), as applicable to the proceedings, the AO was required to provide at least seven days for the taxpayer to submit a response. By allowing only five days, the AO had provided less time than the law prescribed.
Despite this requirement, the AO proceeded with reassessment and passed the assessment order on 8 March 2024, explains Surana.
The taxpayer initially challenged the assessment before the Commissioner of Income Tax (Appeals) CIT(A), but his appeal was unsuccessful. He subsequently approached the ITAT, although he filed his appeal approximately 150 days late.
The taxpayer argued that this violated a mandatory statutory requirement and made the notice, as well as the subsequent reassessment proceedings, legally invalid.
He explained that he had been residing abroad, was unaware of the appellate proceedings because the authorities had sent notices to an email address different from the one provided in his appeal form, and learnt about the adverse order only after returning to India and consulting his tax adviser, explains Surana.
The ITAT accepted his explanation and condoned the delay, allowing his appeals to proceed.
What did the ITAT say about the five-day response period?
Before the Tribunal, Mr Patil argued that the Department's failure to provide the statutory seven-day response period made the notice legally invalid.
He relied on earlier Karnataka High Court decisions, including PCIT v. Smt. Komarla Yogendra Keertana and Panjos Builders Pvt. Ltd. v. ITO, which recognised the importance of complying with the prescribed response period.
According to Surana, the Tribunal also referred to the Bombay High Court's decision in Mukesh J. Ruparel v. ITO, which treated the minimum seven-day period as a mandatory requirement.
The Department argued that the shorter response period was merely a procedural irregularity that could be corrected under section 292B. It also pointed out that Mr. Patil had not submitted any response even after the five-day period expired.
The ITAT rejected both arguments. It held that the AO's obligation to provide at least seven days was mandatory, regardless of whether the taxpayer eventually submitted a reply.
The Department could not treat non-compliance with this statutory safeguard as a minor technical defect.
What happened to the ₹83.2 lakh addition and penalty?
The ITAT held that the notice issued under Section 148A(b) was invalid because it did not provide the minimum seven-day response period.
The ITAT quashed the notice under section 148A(b), the entire reassessment proceedings and the resulting assessment order.
Since the penalty under section 270A depended on that assessment, the Tribunal also cancelled the penalty and allowed both appeals. The Tribunal ruled in Patil’s favour in both the assessment and penalty appeals.
What does the ITAT ruling mean for taxpayers?
The ruling highlights the importance of checking whether the Income-tax Department has followed the procedure prescribed by law before reopening an assessment.
“Once you get notice, you must check whether minimum of seven days for a taxpayer to respond to a Section 148A(b) notice has been provided or not. Failure to provide the statutory seven-day period entirely invalidates the notice,” says r CA Ashish Niraj, Partner, A S N & Company, Chartered Accountants.
However, taxpayers should not assume that the seven-day requirement applies to every reassessment notice issued today. The applicable rules depend on when the notice was issued and which version of the law governed the proceedings.
According to Surana, it is pertinent to note that the mandatory minimum response period of seven days under the erstwhile Section 148A(b) was removed vide Finance (No. 2) Act, 2024 with effect from 1 September 2024.
Under the amended Section 148A(2) of the Income-tax Act, 1961, and the corresponding Section 281(2) of the Income-tax Act, 2025, taxpayers may submit their replies within the period specified in the notice.