The Income Tax Appellate Tribunal, Delhi, has held that an ex-parte reassessment under Section 147 read with Section 144 of the Income Tax Act, 1961, cannot stand if the assessee was not properly served with notices due to a change in address. The Tribunal emphasized procedural fairness and restored the matter for a fresh assessment, allowing the assessee to present new evidence.
Background & Facts
The Dispute
The appellant, Vandana Singh, an individual and home tutor, was subjected to a reassessment for Assessment Year 2015-16 based on financial transactions detected through the Insight portal by the Directorate of Income Tax (System), CBDT. The Assessing Officer (AO) initiated reassessment proceedings under Section 147 and issued notices under Sections 148, 142(1), and 144, but the appellant did not respond. The AO passed an ex-parte reassessment order on 28.03.2023, making additions of Rs. 1,36,45,500/- under Sections 69 and 69A of the Act, treating the purchase of a residential property and cash deposits as unexplained income.
Key Facts
- The appellant had not filed a return of income for A.Y. 2015-16.
- Financial transactions flagged by CBDT during F.Y. 2014-15 included:
- Purchase of immovable property: Rs. 1,06,80,000/
- Time deposit: Rs. 12,00,000/
- Cash deposit with Kotak Mahindra Bank: Rs. 8,65,500/
- Cash deposits with Yes Bank: Rs. 4,00,000/ and Rs. 5,00,000/
- Total unexplained amount: Rs. 1,36,45,500/
- The appellant’s address had changed from C-6.86, Janta Flat, Sector-31, Noida, U.P.-201301 to Flat No. 302, Abhinav Apartments, Vasundhra Enclave, Delhi-110096.
- All notices from the AO were sent to the old Noida address, which the appellant no longer occupied.
- The appellant claimed she received no notices and was unaware of the proceedings.
- The appellant is a home tutor with income below the taxable limit and contends she had no liability to file a return or pay advance tax.
- The appellant submitted that the property was purchased to prevent auction of a family asset mortgaged to a bank, with funds arranged from relatives.
Procedural History
- 28.03.2022: AO issued notice under Section 148 to old Noida address.
- 16.02.2023: AO issued show cause notice under Section 144 to old Noida address.
- 28.03.2023: AO passed ex-parte reassessment order under Section 144 read with Section 147.
- 04.01.2024: CIT(A) dismissed the first appeal under Section 249(4)(b) on grounds that the appellant had not paid advance tax.
- 12.03.2026: Appeal filed before ITAT Delhi.
- 18.03.2026: Judgment pronounced and signed.
The Parties' Positions
For the Appellant
- Notices were not received due to change of address.
- No taxable income; no obligation to file return or pay advance tax.
- Additions are based on disputed transactions; the property purchase was a bonafide effort to save family assets from bank auction.
- New evidence (Paper Book Pages 3-77) was not considered by AO or CIT(A).
- Relied on Laxmanji Khodaji Solanki v. ITO (ITA No. 1626/Ahd/2024) to support procedural fairness.
For the Respondent (Department)
- Notices were issued as per records and the appellant failed to respond.
- Non-filing of return and non-payment of advance tax justified dismissal under Section 249(4)(b).
- However, the Department’s counsel conceded that the matter should be restored for fresh assessment to consider the new evidence.
Relief Sought
The appellant sought:
- Quashing of the reassessment order dated 28.03.2023.
- Setting aside of the CIT(A)’s order dated 04.01.2024.
- Restoration of the case to the AO for fresh reassessment with opportunity to present evidence.
- Clarification that no adverse inference should be drawn from non-filing of return.
The Legal Issue
The central question was whether an ex-parte reassessment under Section 147 read with Section 144 can be sustained when the assessee was not served with notices at her current address, and whether the CIT(A) was justified in dismissing the appeal under Section 249(4)(b) for non-payment of advance tax when the assessee had no taxable income and disputed the additions.
Arguments Presented
For the Appellant
The appellant’s counsel argued that the reassessment proceedings were vitiated by non-service of notices at the correct address, violating the principles of natural justice. The appellant had no obligation to file a return or pay advance tax as her income was below the taxable limit. The additions were based on transactions that were explained as bonafide family transactions to prevent auction of mortgaged property. The appellant had filed fresh evidence before the Tribunal, which was not considered by the lower authorities. Reliance was placed on Laxmanji Khodaji Solanki v. ITO, where ITAT held that procedural lapses cannot be ignored even in ex-parte assessments.
For the Respondent
The Department contended that notices were duly issued and the appellant’s failure to respond justified the ex-parte order. The CIT(A) correctly applied Section 249(4)(b), which allows dismissal of appeals where advance tax is not paid. However, the Department’s counsel conceded that the new evidence submitted before the Tribunal warranted a fresh opportunity and agreed that the matter should be restored to the AO for reconsideration.
The Court's Analysis
The Tribunal observed that the appellant had changed her address and that all notices were sent to the old Noida address, which she no longer occupied. The Tribunal noted that the Department had no evidence of actual receipt of notices by the appellant. The Tribunal held that the failure to serve notices at the correct address rendered the reassessment proceedings fundamentally flawed.
"The assessee has now come forward with additional evidences to support her contentions... These additional evidences go to the root of the matter but need verification, scrutiny and enquiry by the authorities below."
The Tribunal further held that the CIT(A) erred in dismissing the appeal under Section 249(4)(b) on the ground of non-payment of advance tax. The appellant had no taxable income and was not liable to pay advance tax. The additions were disputed and could not form the basis of advance tax liability. The Tribunal emphasized that Section 249(4)(b) cannot be invoked to deny a hearing on merits when the underlying liability itself is contested and unsubstantiated.
The Tribunal relied on the principle of fairness and the precedent in Laxmanji Khodaji Solanki, holding that justice requires that the appellant be given a fair opportunity to substantiate her claims. The Tribunal clarified that it had not expressed any opinion on the merits of the additions or the bonafides of the transaction.
The Verdict
The appeal was allowed for statistical purposes. The Tribunal set aside the reassessment order dated 28.03.2023 and the CIT(A)’s order dated 04.01.2024. The matter was restored to the file of the Assessing Officer for fresh reassessment in accordance with law. The AO was directed to conduct a de novo assessment, scrutinize the new evidence submitted by the appellant (Paper Book Pages 3-77), and provide a full opportunity of hearing. The appellant was directed to cooperate fully; failure to do so would permit the AO to pass an order on merits. All contentions and issues were kept open.
What This Means For Similar Cases
Service of Notice Is Mandatory, Not Formal
- Practitioners must verify the assessee’s current address before issuing notices under Sections 148, 142(1), or 144.
- Mere posting to an old address does not satisfy the requirement of due process under natural justice.
- If the assessee proves non-receipt due to address change, the reassessment order is void ab initio.
Advance Tax Liability Cannot Be Imposed Without Taxable Income
- Section 249(4)(b) cannot be used to dismiss appeals where the assessee has no taxable income or disputes the basis of the addition.
- Advance tax liability arises only on income chargeable to tax; disputed additions cannot trigger advance tax obligations.
- CIT(A) must examine the substantive claim of non-taxability before invoking procedural bars.
Fresh Evidence Must Be Considered in Restoration
- When new evidence is produced before the Tribunal that was not before the AO or CIT(A), the case must be restored for fresh consideration.
- The Tribunal’s role is not to adjudicate on merits in the first instance but to ensure procedural fairness.
- Practitioners should always file additional documents before the Tribunal with a prayer for restoration, not merely for quashing.
