Patna High Court Quashes Reassessment Based On Bank's Wrong Reporting Of ₹12.50 Lakh FD As ₹12.50 Cr

The Patna High Court on 10 August quashed income tax reassessment proceedings against Satya Narayan Jha after Union Bank of India wrongly reported his fixed deposit of Rs. 12.50 lakh as Rs. 12.50 crore to the Income Tax Department, holding that the Department had relied on incorrect information.

A Division Bench of Justices Rajeev Ranjan Prasad and Ramesh Chand Malviya held that the notice issued under Section 148A(b) of the Income Tax Act, 1961, which requires the taxpayer to be given an opportunity to respond before reassessment, relied on the bank's incorrect information. The Bench observed:

“A bare reading of the statements made in the writ application, which are duly supported by the certificate (Annexure 'P/8'), would show that the very issuance of the notice under clause (b) of Section 148A of the Act of 1961 (Annexure 'P/1') is based on a wrong information. The Bank has confirmed that it was a technical error or system fault.”

Jha filed the writ petition challenging reassessment proceedings for Assessment Year 2015-16. The Income Tax Department initiated the proceedings after the bank reported that Jha had made a term deposit of Rs. 12.50 crore.

Union Bank of India subsequently issued a certificate confirming that Jha had an FDR of only Rs. 12.50 lakh during the relevant period. It admitted that it had reported the amount as Rs. 12.50 crore due to a “technical error or system fault”.

The Court examined whether the Department could reopen the assessment after the normal limitation period. It noted that where the escaped income is below Rs. 50 lakh, the normal three-year limitation period applies, while the extended limitation period applies in specified cases involving escaped income of Rs. 50 lakh or more.

The Income Tax Department did not dispute that it had issued the Section 148A(b) notice on the basis of incorrect information furnished by the bank. The Department's Senior Standing Counsel also fairly stated that, in view of the facts and the applicable legal position, the Department could not have issued the notice on 23 March 2022 for Assessment Year 2015-16.

Accordingly, the High Court set aside the reassessment proceedings and the orders passed in the matter. It also noted that Jha had suffered mental agony and monetary consequences while defending litigation caused by the bank's incorrect information. It directed Union Bank of India to pay Rs. 25,000 to Jha as litigation costs within six weeks.

Appearances: Aman Raja, Advocate for the Petitioner; Archana Sinha, Senior Advocate, along with Shilpi Keshri, Alok Kumar Shahi, Richa Rajiv Singh, Komal and Swarna Roy for the Income Tax Department (Respondent Nos. 1–3); Prashant Kumar, Nishant Kumar and Kritika Upadhya, Advocates for Union Bank of India (Respondent No. 4).