Section 148A of 1961 Act (now Section 281 under the 2025 Act) lays down the procedure to be followed by the AO before issuing a notice under Section 280 (earlier Section 148).
This duty is twofold.
First, the AO must provide the assessee with the incriminating material and information on which reliance is placed.
Second, the AO must grant the assessee opportunity to respond and demonstrate that the information relied upon is incorrect or not applicable. Until both these requirements are fulfilled, a notice for reopening cannot be issued.
In a search-related case reported in [2025] 171 taxmann.com 657 (Delhi), it so happened that the original show cause notice alleged bogus purchases from M/s ZMEPL. In response, the assessee clarified that the correct entity was M/s ZIEPL and submitted supporting documents for purchases made from that entity.
Subsequently, the AO conducted a fresh physical verification and concluded that no such entity existed, treating the contractor as a non-existent and bogus entity. Based on this, the AO passed an order under Section 148A(d) and issued a notice under Section 148 without providing any further opportunity to the assessee.
The Delhi High Court held that the assessee had been deprived of an opportunity to explain the existence or otherwise of the entity. It emphasized that the provision casts a duty on the AO to furnish all incriminating material and information gathered during pre- or post-search inquiries to the taxpayer before issuing a notice under Section 148 (now Section 280).
The Supreme Court dismissed the Revenue’s Special Leave Petition (SLP) vide order dated 25 March 2026.
Accordingly, the courts set aside both the order under Section 148A(d) and the notice under Section 148 in this case.
