YELANDUR NARAYANA RAO NAGENDRA vs. UNION OF INDIA

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WP/23848/2026HC KarnatakaKAHC01052773202607 August 2026Bench: B M SHYAM PRASAD10 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court allowed the petition in part. The Court noted that the petitioner had attempted to bring material aspects to the Assessing Officer's notice, including the nature of NRE deposits and tax exemption of interest. The Court also observed that the Assessing Officer had corresponded with a bank which could not furnish an interest certificate for AY 2018-19 due to system limitations. Considering these circumstances, the limited time granted for adjournment leading to the notice under Section 148, and the petitioner's assertion of being able to demonstrate the source of deposits, the Court found it appropriate to provide another opportunity to the petitioner. Consequently, the Court quashed several notices and orders, including the assessment order (B1), computation sheet (B2), demand notice (B3), penalty orders (C1, C2, C3, C4), draft order (D), order under Section 148A(d) (E2), notice under Section 148 (E3), notice under Section 142(1) (F1), show cause notices (F2, F3), and notice under Section 143(2) (G). The Court reserved liberty for the petitioner to file a response to the show cause notice dated 12.08.2024 (Annexure-E1) with the fifth respondent by 05.10.2026, without further notice. The challenge to Section 147A was not decided on merits as it was not pursued.

What were the facts?

The petitioner, Yelandur Narayana Rao Nagendra, filed a writ petition challenging various notices and orders issued by the Income Tax Department, including the insertion of Section 147A of the Income Tax Act, 1961. The assessment year in question is 2018-19. The petitioner also challenged assessment orders, computation sheets, demand notices, penalty orders, and show cause notices issued by the Assistant Commissioner of Income Tax (Respondent No. 4) and another authority (Respondent No. 5). The petitioner initially questioned the constitutionality of Section 147A but later withdrew this challenge. The core of the dispute revolves around reassessment proceedings initiated by the department.

What were the issues?

1. Whether the insertion of Section 147A of the Income Tax Act, 1961, is illegal, arbitrary, unreasonable, void, unfair, and violative of Articles 14 and 265 of the Constitution of India? (Question of constitutional law) 2. Whether the assessment order dated 23.04.2026, computation sheet dated 23.04.2026, and demand notice dated 23.04.2026, passed by Respondent No. 4, are liable to be quashed? (Question of mixed law and fact, concerning reassessment proceedings) 3. Whether the penalty order dated 27.02.2026, computation sheet dated 27.02.2026, demand notice dated 27.02.2026, and penalty notice dated 27.02.2026, passed by Respondent No. 4, are liable to be quashed? (Question of mixed law and fact, concerning penalties) 4. Whether the penalty notice dated 24.04.2026, passed by Respondent No. 4, is liable to be quashed? (Question of mixed law and fact, concerning penalties) 5. Whether the draft order dated 12.03.2026, passed by Respondent No. 4, is liable to be quashed? (Question of mixed law and fact, concerning draft assessment) 6. Whether the notice dated 12.08.2024 under Section 148A(b), order dated 26.08.2024 under Section 148A(d), and notice dated 26.08.2024 under Section 148, issued by Respondent No. 5, are liable to be quashed? (Question of mixed law and fact, concerning initiation of reassessment) 7. Whether the notice dated 05.12.2025 under Section 142(1), show cause notices dated 03.03.2026, and notice dated 11.11.2024 under Section 143(2), issued by Respondent No. 4 and 5 respectively, are liable to be quashed? (Question of mixed law and fact, concerning procedural notices) Assessee's Contentions: The petitioner initially challenged the constitutionality of Section 147A. Subsequently, the petitioner's counsel stated that they would not pursue the challenge to Section 147A and would instead request a remand with an opportunity to show cause against the notice dated 12.08.2024 (Annexure-E1). The petitioner argued that they requested more time to file documents in response to the notice under Section 148A(b), but only a short extension was granted, leading to their inability to respond before the order under Section 148(d) was passed. The petitioner also claimed to be a non-resident for 40 years, with deposits being NRE and interest earned being tax-exempt, and having no NRO deposits or taxable income for AY 2018-19. The petitioner emphasized that the addition was only Rs. 45,80,308/-, making reassessment beyond three years impermissible. Revenue's Contentions: The judgment does not record specific contentions from the revenue for disposal of the petition, other than their appearance through learned standing counsels.

Which sections of the Income-tax Act were involved?

Section 147A,Section 147,Section 144C(3),Section 156,Section 272A(1)(d),Section 271AAC(1),Section 144C(1),Section 148A(b),Section 148A(d),Section 148,Section 142(1),Section 143(2)

AI-generated summary — verify with the full judgment below

- 1 - HC-KAR IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7TH DAY OF AUGUST, 2026 BEFORE THE HON'BLE MR. JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 23848 OF 2026 (T-IT) BETWEEN:

YELANDUR NARAYANA RAO NAGENDRA SON OF B. K. NARAYANA RAO, AGED ABOUT 75 YEARS, 694A, 17TH CROSS, 26TH MAIN, JP NAGAR - III PHASE, BANGALORE 560078. …PETITIONER (BY SRI. ANNAMALAI S., ADVOCATE) AND:

1.

UNION OF INDIA THROUGH THE SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, GOVERNMENT OF INDIA, KARTAVYA BHAVAN -1, NEW DELHI-110 001.

2.

MINISTRY OF FINANCE, THROUGH THE SECRETARY, DEPARTMENT OF REVENUE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI-110 001.

Digitally signed by VANAMALA N Location: HIGH COURT OF KARNATAKA

- 2 - HC-KAR

3.

CENTRAL BOARD OF DIRECT TAXES, THROUGH THE CHAIRMAN, MINISTRY OF FINANCE, NORTH BLOCK, NEW DELHI-110 001.

4.

ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE 1(2), BMTC BUILDING, 80 FEET ROAD, 6TH BLOCK, KORAMANGALA, BANGALORE 560095.

…RESPONDENTS (BY SRI.NIRMAL MATHEW., CGSC FOR R1 TO R3; SRI. E.I. SANMATHI, ADVOCATE A/W. SRI. NIRMAL MATHEW., ADVOCATES FOR R4 & R5)

THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO I) HOLD THAT THE IMPUGNED INSERTION OF SECTION 147A OF THEACT IN ANNEXURE A IS ILLEGAL, ARBITRARY, UNREASONABLE, VOID,UNFAIR AND VIOLATIVE OF ARTICLES 14 AND 265 OF CONSTITUTION OF INDIA AND QUASH THE IMPUGNED SECTION 147A OF THE ACT ENCLOSED AS ANNEXURE A; II) QUASHING THE ASSESSMENT ORDER U/S 147 RWS144C(3) DATED 23/04/2026, BEARING DIN AND ORDER NO ITBA/AST/S/147/2026-27/1088614341(1), PASSED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE B1; III) QUASHING THE COMPUTATION

- 3 - HC-KAR SHEET DATED 23/04/2026,BEARING DIN AND DOCUMENT NO ITBA/AST/S/183/2026- 27/1088614348(1), ISSUED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE B2; IV) QUASHING THE DEMAND NOTICE U/S 156 VIDE DATED 23/04/2026, BEARING DIN AND NOTICE NO ITBA/AST/S/156/2026-27/1088614351(1), ISSUED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE B3; V) QUASHING THE PENALTY ORDER U/S 272A(1)(D) DATED 27/02/2026 BEARING DIN ITBA/PNL/F/272A(1)(D)/2025-26/1086687333(1), PASSED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE C1; VI) QUASHING THE COMPUTATION SHEET DATED 27/02/2026 BEARING DIN AND ORDER NO ITBA/PNL/S/272A(1)(D)/2025-26/1085259862(1), ISSUED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE C2; VII) QUASHING THE DEMAND NOTICE U/S 156 DATED 27/02/2026 BEARING DIN AND NOTICE NO ITBA/PNL/S/156/2025- 26/1086687322(1), ISSUED BY THERESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE C3; VIII) QUASHING THE PENALTY NOTICE U/S 271AAC(1) DATED 24/04/2026 BEARING DIN AND NOTICE NO ITBA/PNL/S/271AAC(1)/2026-27/1088625318(1), ISSUED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE C4; IX) QUASHING THE DRAFT ORDER U/S 144C(1) VIDE DATED 12/03/2026, BEARING DIN AND ORDER NO ITBA/AST/F/144C/2025-

- 4 - HC-KAR 26/1087283974(1), ISSUED BY THE RESPONDENT NO. 4, HEREIN MARKED AS ANNEXURE D; X) QUASHING THE NOTICE U/S 148A(B) DATED 12/08/2024, BEARING DIN AND NOTICE NO ITBA/AST/F/148A(SCN)/2024-25/1067570371(1), ISSUED BY THE RESPONDENT NO. 5, HEREIN MARKED AS ANNEXURE E1; XI) QUASHING THE ORDER U/S 148A(D) DATED 26/08/2024, BEARING DIN AND NOTICE NO ITBA/AST/F/148A/2024-25/1067979581(1), PASSED BY THE RESPONDENT NO. 5, HEREIN MARKED AS ANNEXURE E2; XII) QUASHING THE NOTICE U/S 148 DATED 26/08/2024, BEARING DIN AND NOTICE NO ITBA/AST/S/148-1/2024-25/1067979688(1), ISSUED BY THE RESPONDENT NO. 5, HEREIN MARKED AS ANNEXURE E3; XVII) QUASHING THE NOTICE U/S 142(1) VIDE DATED 05/12/2025 BEARING DIN AND NOTICE NO ITBA/AST/F/142(1)/2025- 26/1083364552(1), ISSUED BY THERESPONDENT NO. 4, ENCLOSED AND MARKED AS ANNEXURE F1; XIII) QUASHING THE SHOW CAUSE NOTICE DATED 03/03/2026 BEARING DIN AND NOTICE NO ITBA/AST/F/147(SCN)/2025- 26/1086813992(1), ISSUED BY THE RESPONDENT NO. 4, ENCLOSED AND MARKED AS ANNEXURE F2; XIV) QUASHING THE SHOW CAUSE NOTICE DATED 03/03/2026 BEARING DIN AND NOTICE NO ITBA/AST/F/147(SCN)/2025- 26/1086813761(1) ISSUED BY THE RESPONDENT NO.4 HEREIN MARKED AS ANNEXURE F3; XV) QUASHING

- 5 - HC-KAR THE NOTICE U/S 143(2) VIDE DATED 11/11/2024 BEARING DIN ITBA/AST/F/143(2)-4/2024- 25/1070247558(1), ISSUED BY THE RESPONDENT NO. 5, HEREIN MARKED AS ANNEXURE G.

THIS PETITION, COMING ON FOR ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD

ORAL ORDER

The petitioner has called in question the following Notices and Orders apart from calling in question the constitutionality of Section 147A of the Income Tax Act, 1961 [for short, 'the Act']. Sl. No. Notices/ Orders Date Provisions of Income Tax Act, 1961 Annexures 1 Order 23.04.2026 147 r/w. 144C[3]

B1 2 Computation Sheet 23.04.2026

B2 3 Demand Notice 23.04.2026 156 B3 4 Order 27.02.2026 272A[1][d] C1 5 Computation Sheet/Order 27.02.2026

C2 6 Demand Notice 27.02.2026 156 C3 7 Notice 27.02.2026 271AAC[1] C4 8 Draft Order 12.03.2026 144C[1] D

- 6 - HC-KAR 9 Notice 12.08.2024 148A[b] E1 10 Order 26.08.2024 148A[d] E2 11 Notice 26.08.2024 148 E3 12 Notice 05.12.2025 142[1] F1 13 Show Cause Notice 03.03.2026

F2 14 Show Cause Notice 03.03.2026

F3 15 Notice 11.11.2024 143[2] G

However, Sri S Annamalai, the learned counsel for the petitioner, is categorical in stating that the petitioner will not pursue the grievance with the constitutionality of Section 147A of the Act and he would request for a remand with opportunity to show cause to the Notice dated 12.08.2024 [Annexure-E1] issued under Section 148A[b] of the Act.

2.

In elaboration, Sri S Annamalai submits that when the petitioner was served with the Notice dated 12.08.2024 under Section 148A[b] of the Act, he has filed Response on 22.08.2024 making a request for two weeks' time to file documents, but on the same day, the petitioner is informed that time is granted only till 23.08.2024 [the next day] and as

- 7 - HC-KAR such, the petitioner has not responded before the Order dated 26.08.2024 under Section 148(d) of the IT Act. The learned counsel submits that when subsequently Notice is issued on 11.11.2024 under Section 143[2] of the Act, the petitioner has responded stating that [a] he is a non-resident for the last forty years having settled in Hongkong, [b] all his deposits are NRE deposits and the interest earned on NRE deposits are exempted from tax, and [c] the petitioner has no NRO deposits or 'taxable income' in India for the Assessment Year 2018-19.

3.

Sri S Annamalai emphasizes that the addition is only in a sum of Rs.45,80,308/- and therefore the very assumption of jurisdiction for reassessment beyond three years is impermissible, but the petitioner will respond to the Notice under Section 148A[b] of the Act and file documents to demonstrate the source of the deposits referred to in such Notice. Sri E I Sanmathi and Sri Nirmal

- 8 - HC-KAR Mathew, the learned standing counsels who accept notice for the respondents, are heard for disposal of the petition.

4.

This Court is of the view that the petitioner has endeavoured to bring to the Assessing Officer’s notice the material aspects such as that the deposits are in NRE account, that the interest earned are from the deposit amounts in such accounts, that he has no NRO deposits or income for the relevant assessment year furnishing bank details. The Assessing Officer has also corresponded with one of the Banks which has informed that because the system does not generate Interest Certificate for the assessment year 2018-19, a Certificate cannot be furnished.

5.

These circumstances, the fact that the petitioner is permitted, when requested for an adjournment, a few days leading to the notice under

- 9 - HC-KAR Section 148 of the IT Act and further proceedings as also the categorical assertion that the petitioner can file documents to show source of deposits to demonstrate to this Court’s satisfaction that there must be another opportunity to the petitioner. As such, this Court is of the view that there must be interference quashing the Orders and Notice starting from the Order under Section 148A[d] of the Act with liberty to the petitioner to file a response to the Show Cause Notice dated 12.08.2024 without further notice with the fifth respondent. Hence, the following ORDER [a] The petition is allowed-in-part; [b] The following Orders/Notices are quashed. Notices/ Orders Date Provisions of Income Tax Act, 1961 Annexures Order 23.04.2026 147 r/w. 144C[3]

B1 Computation Sheet 23.04.2026

B2 Demand Notice 23.04.2026 156 B3

- 10 - HC-KAR

Order 27.02.2026 272A[1][d] C1 Computation Sheet/Order 27.02.2026

C2 Demand Notice 27.02.2026 156 C3 Notice 27.02.2026 271AAC [1] C4 Draft Order 12.03.2026 144C [1] D Order 26.08.2024 148A[d] E2 Notice 26.08.2024 148 E3 Notice 05.12.2025 142[1] F1 Show Cause Notice 03.03.2026

F2 Show Cause Notice 03.03.2026

F3 Notice 11.11.2024 143[2] G

[c] The petitioner is reserved with liberty to file Response to the Show Cause Notice dated 12.08.2024 [Annexure-E1] without further notice with the fifth respondent by 05.10.2026.

Sd/- (B M SHYAM PRASAD) JUDGE

AN/-

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