Rajasthan High Court Rules against Income Tax Scrutiny Order

Rajasthan High Court Rules against Income Tax Scrutiny Order

In a recent ruling, the Rajasthan High Court has granted partial relief to M/s Mittal Pigments Pvt. Ltd. (petitioner) by declaring the scrutiny assessment order and demand notice as ineffective and inoperative in law. The Court found that the assessment order issued on March 24, 2022, did not align with the judgment of the Supreme Court in the case of Union of India Vs. Ashish Agarwal [LQ/SC/2022/586], rendering it legally invalid.

The present petition involved an assessment order and demand notice issued under Section 147 of the Income Tax Act. The petitioner also challenged a notice issued under Section 148 of the Act, which reopened the assessment. The petitioner contended that the respondent initially issued a notice under Section 148, and subsequently, after the Supreme Court's order in the case of Union of India vs. Ashish Agarwal, treated it as a notice under Section 148A(b) of the Act. Consequently, the impugned order was issued on July 26, 2022. The petitioner argued that receiving another notice under Section 148 after the reassessment was impermissible under the law.

The Division Bench of Justices Manindra Mohan Shrivastava and Praveer Bhatnagar observed that the notice issued under Section 148 of the Income Tax Act was generated on March 31, 2021, and served on the assessee on April 1, 2021, via the ITBA system. In accordance with the Supreme Court's decision in the case of Union of India Vs. Ashish Agarwal, this notice should be treated as a notice under Section 148A (b) of the Act. Consequently, all further proceedings were required to be conducted in compliance with the provisions of Section 148A, which were introduced through an amendment effective from April 1, 2021.

The order passed on July 26, 2022, under Section 148A (d) of the Act explicitly stated that considering the Supreme Court's judgment, no scrutiny assessment could be conducted based on the show cause notice, rendering the scrutiny assessment order passed by the Assessing Officer ineffective.

As a result, the Bench declared the scrutiny assessment order dated March 24, 2022, and the demand notice as ineffective and inoperative. The only valid and surviving order was the one passed under Section 148A(d) on July 26, 2022, which aligned with the amended provisions of the Income Tax Act.