In its September 21, 2026, order, the tribunal ruled that the department had failed to establish valid service of notice. (Image for representative purpose only)
A man who says he worked as an office boy for Rs 3,500 a month found himself facing an income-tax assessment of nearly Rs 1.47 crore after the tax department linked him to a pharmaceutical business and transactions recorded in its bank account. His defence was that he had never run the business and that his former employer had allegedly misused his signatures and identity documents. The Income Tax Appellate Tribunal (ITAT), Mumbai, did not decide whether those allegations were true. Instead, it examined a more fundamental question: had the Income Tax Department validly served the notice that allowed it to reopen his assessment in the first place? In its September 21, 2026, order, the tribunal ruled that the department had failed to establish valid service and quashed the reassessment. The additions made in the proceedings consequently could not survive.
What the case is about
The Income Tax Department initiated reassessment proceedings against a man after receiving information about transactions associated with a pharma company, described in the information available to the tax authorities as the man's proprietary concern. The bank account records showed debit entries of Rs 1,27,62,500 and credit entries of Rs 18,85,000. The Assessing Officer treated the debit amount as unexplained expenditure under Section 69C of the Income Tax Act and the credit amount as unexplained income under Section 68. The assessment was completed under Sections 144 and 147, and the AO pegged the man's total income at Rs 1,46,57,500. The assessee disputed the department's case on several fronts. According to his submissions, he had worked as an office boy for an employer from September 2009 for approximately 18 months, earning Rs 3,500 a month. He said he had provided signatures and KYC documents believing they were required for employment and security purposes. He alleged that the employer had used those documents to obtain another PAN without his knowledge. The man maintained that he had neither operated the pharma company nor undertaken the transactions in question. These remained his allegations; the tribunal did not establish that his former employer had misused his documents. The immediate legal dispute concerned a notice issued under Section 148 on March 27, 2019, which the man said he had never received.
Why ITAT ruled in favour of the ex-office boy
The tribunal examined the department's records and found that the notice sent to an address in Bandra East had remained unserved. The department subsequently relied on affixture, or pasting the notice on a premises in Bhiwandi. The problem was that the department had not established any connection between the man and the locked room where the notice was pasted. Its own records indicated that he did not reside at the Bhiwandi address. The tribunal observed: “Affixture on the door of any locked room, without establishing that it was the residence or business premises of the assessee, cannot constitute service upon him merely because a departmental officer had gone there and pasted a notice.” The department eventually obtained the man's Vile Parle address and email details through enquiries from TransUnion CIBIL. A show-cause notice sent on November 22, 2019, reached him, and he responded five days later, disputing the PAN and denying knowledge of the company. The tribunal noted: “The final show-cause notice dated 22.11.2019 was thus the first communication which, on the basis of the material before us, is shown to have actually reached the assessee.” The man had raised objections before the assessment was completed. The tribunal held that his subsequent cooperation could not retrospectively cure the failure to serve the original notice. It stated: “Participation after raising a timely objection cannot retrospectively convert affixture at an unrelated premises into valid service.” The judges concluded that valid service of the notice was essential for the department to assume jurisdiction over the reassessment. Their order stated: “The assessment order passed under section 144 read with section 147 is, therefore, invalid and is hereby quashed.”
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The additions of Rs 1,27,62,500 and Rs 18,85,000 consequently fell with the reassessment. The appeal was allowed. The tribunal expressly left undecided the alleged misuse of the man's PAN, signatures and KYC documents, as well as the genuineness of the underlying transactions, because the reassessment was invalid on the jurisdictional ground.
