If you receive an income tax reassessment notice, your first instinct may be to focus on proving that the tax demand is incorrect. But what if the notice itself is legally flawed?
A recent Income Tax Appellate Tribunal (ITAT) ruling shows that the validity of a reassessment can depend as much on the procedure followed by the Income Tax Department as on the tax issue itself.
The Income Tax Appellate Tribunal (ITAT), Pune Bench, has delivered an important ruling in the case of Sanjyot Jay Sheth vs Income Tax Officer (ITO) on July 2, 2026, providing significant relief to taxpayers facing reassessment proceedings.
The Tribunal quashed the reassessment initiated by the Income Tax Department after finding serious procedural lapses in the reopening process under Sections 148A and 148 of the Income-tax Act.
In Sanjyot Jay Sheth v. ITO, the Pune ITAT examined the validity of reassessment proceedings initiated for AY 2014–15. The taxpayer had not filed an original return but subsequently filed a return declaring income of Rs. 1.81 lakh in response to the reassessment notice. The reassessment ultimately resulted in substantial additions, including Rs. 3.45 crore under section 56(2)(vii)(b) and Rs. 15.42 lakh under section 69C.
The original notice under section 148 was issued on 23 June 2021 under the old tax regime during the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) period. Following the Supreme Court’s ruling in Union of India v. Ashish Agarwal, the notice was treated as a show-cause notice under section 148A(b) of the new reassessment regime. Accordingly, a notice under section 148A(b) was issued on 20 May 2022.
The section 148A(b) notice alleged that the taxpayer had sold an immovable property for Rs. 30 lakh and also referred to the sale of another property in Pune for Rs. 6.20 crore. The taxpayer denied having owned or sold the property referred to in the notice.
However, the order subsequently passed under section 148A(d) proceeded on an entirely different basis. It alleged the escapement of income of Rs. 3.70 crore, including a difference of Rs. 3.45 crore chargeable under section 56(2)(vii)(b), which broadly concerned the acquisition of property for inadequate consideration rather than the property sale initially mentioned in the show-cause notice.
The ITAT observed that there was a complete disparity between the allegation contained in the section 148A(b) notice and the basis adopted in the section 148A(d) order. The taxpayer had responded to the allegation concerning the sale of the specified property, but was never given an opportunity to address the materially different allegation eventually relied upon for reopening the assessment.
The Tribunal held that the purpose of a notice under section 148A(b) is to communicate the proposed allegation with sufficient particulars so that the taxpayer has a meaningful opportunity to respond.
Where the Assessing Officer seeks to proceed on a new or materially different basis, a fresh or revised notice under section 148A(b) must ordinarily be issued. The Assessing Officer could not introduce a new foundation for reopening directly in the section 148A(d) order. Consequently, the mismatch between the notice and the order vitiated the reassessment proceedings.
The Tribunal also found the notice to be barred by limitation. Since the original notice was issued on 23 June 2021, only seven days remained from that date until 30 June 2021. Applying the Supreme Court’s ruling in Union of India v. Rajeev Bansal, the Assessing Officer had seven days after receiving the taxpayer’s response on 6 June 2022 to complete the remaining reassessment procedure.
Accordingly, the section 148 notice should have been issued by 13 June 2022. Since the section 148A(d) order and section 148 notice were issued only on 26 July 2022, they were held to be time-barred.
The ITAT, therefore, quashed the reassessment proceedings on two independent jurisdictional grounds: first, the failure to confront the taxpayer with the actual basis of reopening; and second, the issuance of the notice beyond the permissible limitation period. As the reassessment itself was invalid, the Tribunal did not examine the substantive tax additions.
“The ruling is significant because it reinforces that compliance with sections 147, 148, 148A and 149 is not merely a procedural formality. The allegation communicated through the section 148A(b) notice forms the foundation of the reassessment. The Assessing Officer cannot substantially alter that foundation while passing the section 148A(d) order without first giving the taxpayer a proper opportunity to respond,” said CA (Dr.) Suresh Surana.
“The decision also provides important guidance for taxpayers covered by legacy reassessment notices issued during the TOLA period. Such notices must satisfy the “surviving limitation” principle laid down by the Supreme Court in Rajeev Bansal. If the section 148 notice under the new regime is issued after the surviving period expires, the reassessment may be without jurisdiction, irrespective of the merits of the proposed addition,” Surana further added.
Income tax reassessment: Know your legal rights
Based on the given case law and the relevant assessment year, before issuing a reassessment notice under section 148, the Assessing Officer must have specific information indicating that income has escaped assessment.
The officer must disclose the relevant information to the taxpayer through a show-cause notice under section 148A(b) and provide a reasonable opportunity to respond. After considering the taxpayer’s reply and supporting documents, the officer must pass a reasoned order under section 148A(d) with the approval of the specified authority.
The final basis for reopening should correspond with the allegation communicated in the show-cause notice. Any materially different issue should first be put to the taxpayer.
The reassessment notice must also be issued within the limitation period prescribed under section 149. Failure to provide a proper hearing, obtain the required approval, disclose the actual allegation or comply with the limitation period may invalidate the reassessment proceedings.
Under what circumstances is the Income Tax Department required to issue a fresh Section 148A(b) notice?
The Income Tax Department is required to issue a fresh section 148A(b) notice where the Assessing Officer proposes to reopen the assessment on a materially different ground from the one stated in the original show-cause notice.
This may arise where there is a change in the transaction, property, amount, source of income or nature of the proposed addition.
“A fresh notice may also be necessary where the original notice contains incorrect or incomplete particulars that prevent the taxpayer from understanding and responding to the actual allegation. Similarly, if new information subsequently becomes the principal basis for reopening, that information should first be disclosed to the taxpayer and a reasonable opportunity to respond should be provided,” stated Surana.
However, a fresh notice may not be required for a minor clarification that does not alter the fundamental allegation. In all cases, the fresh notice and subsequent proceedings must comply with the applicable limitation period and approval requirements.
Thus, an Assessing Officer cannot introduce an entirely new basis for reopening directly in the section 148A(d) order without first confronting the taxpayer with that basis.
How should taxpayers respond to a reassessment notice?
A taxpayer should not ignore a reassessment notice merely because it contains incorrect or unrelated facts.
A detailed response should be filed within the prescribed time, clearly identifying each factual error and expressly denying any transaction that does not belong to the taxpayer. Relevant documents such as sale deeds, bank statements, ownership records, income-tax returns or other supporting evidence should be enclosed.
The taxpayer should also request the Assessing Officer to provide the information and supporting material relied upon and, where appropriate, withdraw or correct the notice. If additional time is required, an extension should be sought before the response deadline. Copies of the notice, reply, attachments and filing acknowledgements should be preserved.
“If the officer nevertheless proceeds on incorrect facts, introduces a new allegation without issuing a fresh notice or passes an order without properly considering the response, the taxpayer may evaluate the available legal remedies with professional advice. The ruling in Sanjyot Jay Sheth reinforces that reassessment cannot validly proceed on a materially different basis without first giving the taxpayer a meaningful opportunity to respond,” Surana commented.
Key takeaway for ordinary taxpayers
Taxpayers should therefore not ignore any assessment notice. They should carefully verify the property, transaction, amount, and assessment year mentioned, promptly point out any incorrect or unrelated facts and submit a detailed response supported by relevant documents. They should also retain copies of all notices, replies and filing acknowledgements.
The ruling confirms that the Department cannot ask the taxpayer to explain one allegation and subsequently reopen the assessment on an entirely different basis without providing a fresh opportunity to respond. However, relief will depend on the facts and timeline of each case; therefore, timely professional advice may be appropriate where substantial amounts or jurisdictional issues are involved.
Disclaimer: This article is based on a recent ITAT Pune ruling in a specific case. Judicial decisions are fact-specific, and their applicability depends on individual circumstances. Taxpayers should seek professional advice before relying on this ruling for their own cases.
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