Company Blindsided by Income Tax Notices Sent to Auditor: High Court Steps In & Quashes Entire Proceedings

The Court decided to set aside all the impugned income tax orders and notices. The matter has been officially remanded to the initial stage, allowing the petitioner to reply to the show-cause notice under Section 148A(b) of the Income Tax Act, 1961. The court directed the petitioner to appear before the assessing officer on May 18, 2026.

Facts Of The Case

The Karnataka High Court took into account the severe financial implications of finalising these orders without giving the petitioner a chance to explain the payments made to contractors.

The dispute started when the Income Tax Department sent a notice under section 148A(b) of the Income Tax Act, 1961. asking the company to explain certain payments they have made to contractors. However, the company had not filed its income tax return for that period and also did not respond to the notice. According to the company, the notices were actually sent to their auditor, but the auditor never informed them. Because of this communication gap, they remained unaware and couldn’t participate in the proceedings. The company has submitted that it is the fault of the auditor, as he has not made the communication to the company regarding the same, and all the notices were only received by the auditors, and the company remained unaware of the fact.

Issue Involved In This Case

Whether the tax orders passed without hearing the company should be cancelled, and whether the case should be started again, since the company says it did not get a proper chance to explain its side due to a communication gap with its auditor?

Decision of the Court

The High Court of Karnataka took into account the severe financial implications of finalising these orders without giving the petitioner a chance to explain the payments made to contractors. The Court decided to set aside all the challenged orders and notices (Annexures A to K). The matter was officially remitted to the initial stage, allowing the petitioner to reply to the show-cause notice under Section 148A(b) of the Income Tax Act, 1961. The court directed the petitioner to appear before the assessing officer (respondent No. 2) on May 18, 2026, without waiting for any further notice. The Court kept all arguments regarding the actual merits of the tax case open and disposed of the writ petition.

The decision was mainly taken up by the court on the basis that if the taxpayer is denied presenting their case before passing the reassessment order, it is a violation of the principle of natural justice, audi alteram partem.