Limiting the Scope of Section 148A(d) Orders to Information in Section 148A(b) Notices

Introduction

J.G.'s Departmental Store v. Income Tax Officer Ward 60(1) & Ors. (Delhi High Court, 15 April 2025) addresses a pivotal procedural safeguard in income‐tax law: the requirement that any order under Section 148A(d) of the Income Tax Act, 1961 must strictly remain within the bounds of the “information” disclosed in the prior show‐cause notice under Section 148A(b). The writ petition under Article 226 was filed by a partnership firm operating retail outlets in Delhi (the “Assessee”), aggrieved by notices and an order reopening its assessment for AY 2017-18 on the ground of allegedly escaped income.

At the heart of the dispute was the Assessing Officer’s reliance on an audit objection and statistical comparison of cash‐deposit patterns during the 2016 demonetization period—an argument never even hinted at in the Section 148A(b) notice. The High Court set aside the impugned order under Section 148A(d) and the subsequent notice under Section 148, holding that the scope of the reopening could not exceed the contours of the information furnished in the show-cause notice.

Summary of the Judgment

1. The Assessee filed its return for AY 2017-18 on 30 October 2017, declaring income of ₹26.31 lakhs. Its case was selected for scrutiny, leading to an assessment under Section 143(3) on 21 December 2019, which accepted the bulk of its cash‐sale explanations and made minor disallowances.

2. Four years later, on 1 and 14 February 2024, the AO issued show-cause notices under Section 148A(b), relying on three strands of “information”: (a) discrepancies in Tax Collected at Source under Section 206CA; (b) cash deposits during the demonetization window; and (c) a time‐deposit of ₹10 lakhs under PM-GKY.

3. The Assessee responded in detail, demonstrating that the TCS related to liquor purchases, the time deposit was part of a declared PM-GKY deposit, and the cash deposits were routine retail receipts far exceeding the figures in the AO’s data.

4. On 19 March 2024, however, the AO passed an order under Section 148A(d), for the first time comparing cash deposits during 9 November–31 December 2016 with the corresponding period of the previous year, finding a 618.25% spike and treating it as escaped income over ₹50 lakhs.

5. The High Court held that the AO’s fresh allegation of “disproportionate cash‐deposit spike” was never part of the Section 148A(b) notice—denying the Assessee an opportunity to explain that very comparison—and thus vitiated the statutory scheme. The order under Section 148A(d) and the consequent Section 148 notice were set aside and the matter was remanded for fresh consideration strictly within the information provided earlier.

Analysis

Precedents Cited

Although the judgment under review primarily applies statutory interpretation, it aligns with established precedents on reopening assessments:

K.P. Varghese v. ITO (1981) 131 ITR 597 – It held that an assessment under Section 147 requires “information” that suggests escapement of income and that such information must be communicated to the taxpayer before reopening.
CIT v. Kelvinator of India Ltd. (1981) 128 ITR 294 – It reaffirmed that reopening is permissible only on the basis of new tangible material, not a mere change of opinion, and that the taxpayer must be given the materials and grounds for reopening.
Padhmanabha Rao v. ITO (1989) 178 ITR 319 – It underscored that the obligation to disclose the basis of reopening in the show-cause notice is fundamental to ensure procedural fairness.

Legal Reasoning

The Court’s reasoning unfolds in two steps:

Statutory Text and Scheme
Section 148A(b) requires the AO to furnish “information” suggesting escapement of income and invite explanation. Section 148A(d) permits a final order on that same information. The statute contemplates a single loop: notice → explanation → order. Any new line of allegation in the order, not disclosed earlier, breaks that loop.
Application to Facts
The Section 148A(b) notices cited aggregate cash deposits but did not allege any disproportionate surge relative to the prior year. By contrast, the Section 148A(d) order rested on a 618% spike comparison—an analysis beyond the original data. Since the Assessee never had a chance to meet that specific charge, the order contravenes the requisites of fair hearing and statutory consistency.

Impact

This decision cements a crucial procedural safeguard:

AO’s Liability to the Show-Cause Notice: Any reasoning or information on which the reopening rests must be fully disclosed at the Section 148A(b) stage. Post-notice, the AO cannot expand its own case in the final order.
Enhanced Certainty for Taxpayers: Assessees can now insist on strict mapping between the notice and the order, reducing the risk of surprise allegations at the disposal stage.
Guidance for Lower Authorities: Tax authorities will need to compile all material on escaped income before issuing the Section 148A(b) notice, ensuring a cohesive case record.

Complex Concepts Simplified

Section 148 vs. Section 148A: Section 148 is the old power to reopen assessments; Section 148A (introduced in 2021) adds safeguards—a show-cause notice (148A(b)) and reasoned order (148A(d))—before issuing the formal reopening notice under Section 148.
Explanation 1 to Section 148: Defines “income escaping assessment,” including income not disclosed that exceeds ₹50 lakhs. The AO must satisfy this threshold strictly based on credible information.
Tax Collected at Source (TCS): A seller of specified goods collects tax at the point of sale. TCS entries alone do not prove undisclosed income if properly accounted in the books.
Pradhan Mantri Garib Kalyan Yojana (PM-GKY) Deposit: A scheme allowing taxpayers to deposit unaccounted cash with reduced levy. Such deposits, if declared, cannot form the basis for escapement allegations.

Conclusion

J.G.'s Departmental Store v. ITO Ward 60(1) reaffirms the principle that the scope of a reopening order under Section 148A(d) cannot outstrip the information communicated in the preceding show-cause notice under Section 148A(b). By insisting on a one-to-one correspondence between notice and order, the Delhi High Court has fortified procedural fairness in tax assessments, ensuring that taxpayers are never ambushed by fresh allegations at the final stage. This precedent will guide authorities and assessees alike to maintain transparency, coherency, and respect for statutory safeguards in the reopening of past assessments.