Gujarat High Court Quashes Income Tax Reassessment Under Section 147 for Wrong Email Service

Many times, the department does not provide an opportunity for the taxpayer to present their side, and many times they do not even inform them before imposing the final penalty charge. In this case, the department also communicated to the company via a wrong email ID, which is a huge mistake.

A partnership firm named Shraddha Developers filed a writ petition in the Gujarat High Court, under Article 226 of the Constitution of India. Through this petition, the firm challenged an assessment order passed by the Income Tax Department under Section 147 read with Sections 144 and 144B of the Income Tax Act, in addition to a demand notice under Section 156, both dated 26.03.2022, for the Assessment Year (AY) 2013-14.

The dispute arose when the company received an email on December 29, 2022, from the Income Tax Department imposing a huge penalty of Rs. 27.26 crore, and they were asked to pay it within seven days. When the company checked the Income Tax e-filing portal, they got to know that an assessment order was already uploaded, raising a demand of more than Rs. 20.64 crore under Section 147/144/144B. Three separate penalty orders were also uploaded: Rs. 6.61 crore under Section 271(1)(c) (for concealing income), Rs. 40,000 under Section 271(1)(b) (for not complying with a notice), and Rs. 5,000 under Section 271F (for not filing a return on time).

The company replied to them on 03.01.2023, explaining that they had never received any prior notice hearing on their side before these orders were passed. The company called this a violation of natural justice. The company argued that it had not been served any notice before issuing the final assessment order or imposing the penalty. Additionally, the final recovery email was sent to the correct email, i.e., [email protected]. While all other important notices were sent completely on an unrelated email ID: [email protected]. This email does not belong to the company, its employees, partners, or auditors. So, they had no idea that any assessment was going on.

The additions made by the tax officer were also wrong because the project in question was completed in March 2012, and all sales were already accounted for in AY 2012-13, not AY 2013-14. The alleged sales figure of Rs. 21.40 crore was also factually incorrect.

In this context, the tax department argued that the firm could have filed an appeal under Section 249 within 30 days of receiving the order. All notices were uploaded on the Income Tax e-filing portal, and since the portal was accessible, the firm should have known. Also, for AY 2018-19, a notice was sent to the same email ID, and the firm responded by filing a return. So, they implied the email ID was valid.

After carefully hearing both sides, the court made the following observations and made the following decisions:

It was a fact that the initial notice issued on 31.03.2022 under Section 148 was sent to the wrong email address, i.e., [email protected]. The petitioner only became aware of the issue much later, when a correct notice was sent on 18.10.2022 to their proper email ID regarding a different year (AY 2018-19). The court highlighted the fundamental legal principle of “audi alteram partem,” which means “hear the other side.” This is a basic rule of fairness that, before passing the final order, an individual must be awarded a fair chance to represent his/her side. Since no proper notice was given to the petitioner, and the proceedings were carried out behind their back, the assessment order was legally invalid. Hence, the court quashed the assessment order dated 26.03.2022 for AY 2013-14 under Section 147 read with Sections 144 & 144B. The demand notice dated 26.03.2022 under Section 156 was also cancelled.