Reassessment held invalid for Late Income Tax Notice

Fact of the Case

An individual filed her income tax return for the 2015–16 assessment year, showing ₹22.29 lakh as total income. But the tax department got some intel suggesting she’d been using accommodation entries, mostly through players like SPS Share Brokers. That’s when they reopened her case under Section 148.

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The Assessing Officer dug in and found that she traded in illiquid stocks and derivatives—a lot of these trades ended with her making profits every time, while the other side kept losing. To the officer, the pattern looked fishy—like these transactions were pre-arranged and not genuine, probably routed through shell companies. So, he added ₹1.64 crore to her income as “unexplained money” under Section 68, taxed it under Section 115BBE, and didn’t let her set off any of her previous losses. The assessee wasn’t happy and went to the CIT(A), saying the whole reassessment was invalid because the department didn’t follow the faceless assessment process in Section 151A.

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Issue of the Case

The main issue was whether the reassessment proceedings were legally valid, especially since the CIT(A) knocked them down for procedural lapses, instead of examining the matter on merits.

Tribunal Observation

When the case reached the Income Tax Appellate Tribunal (ITAT), the judges pointed out that the Bombay High Court had already tossed out the reassessment in this very case. The tax office never issued the required notices through the faceless system, as Section 151A demands. What’s more, the notice under Section 148 was also late, breaking the deadline the Supreme Court had set in the Rajeev Bansal case. When the foundation (the reassessment proceedings) is invalid, nothing built on top—like the assessment order or added taxes—holds up. With that, there was no need to even look at the details about the addition or the loss set-off.

JUDGEMENT

The Tribunal agreed with the CIT(A), tossed out the tax department’s appeal, and made it clear: because the reassessment itself didn’t stand, everything else just collapsed.

Key Highlights of the Judgement

“Once the very foundation of the reassessment proceedings is held to be invalid… all consequential proceedings including the assessment order cannot survive”