2025 (5) TMI 831 - HC - Income Tax

Reopening of assessment u/s 147 - notice u/s 148A(b) beyond period of limitation - HELD THAT - In the present case the period of six years from the end of the assessment year for issuing a notice u/s 148 of the Act expired on 31.03.2021. Thus in terms of Section 149 of the Act a notice under Section 148 of the Act could not be issued. However the said period was extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 TOLA . Consequently the time limit for issuing such a notice was extended to 30.06.2021. The original notice u/s 148 of the Act was issued on 30.06.2021 which was the last day before the expiry of the period of limitation. The said notice was deemed to be a notice under Section 148A (b) of the Act by virtue of the decision of the Supreme Court in Union of India Ors. v. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT . The Supreme Court also granted further time to provide the material which was required to accompany such a notice. As explained in the case of Union of India v. Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) the period from the date of the issuance of the notice till 04.05.2022 the date on which the Supreme Court had rendered the decision in Union of India Ors. v. Ashish Agarwal (supra) is required to be excluded in terms of the fifth proviso to Section 149 (1) of the Act. Additionally the time provided till the date of providing the material which should have accompanied a notice under Section 148A (b) of the Act as well as the time available to the assessee to respond to the said notice was also required to be excluded by virtue of the third Proviso to Section 149(1) of the Act as applicable at the material time. Since the initial notice u/s 148 of the Act subsequently construed as a notice u/s148A (b) of the Act was issued on the last date of the limitation; there was no time available for the AO to issue a notice under Section 148 of the Act after the petitioner had furnished its reply to the said notice. Thus in terms of sixth proviso to Section 149 (1) AO had seven days to issue the notice under Section 148 of the Act which expired on 13.06.2022. The impugned notice was issued on 23.07.2022 which is after the period for issuing such a notice had expired. Concededly the said controversy is covered in favour of the Assessee by the decision of this court in Ram Balram Buildhome Pvt. Ltd. 2025 (2) TMI 55 - DELHI HIGH COURT

1. ISSUES PRESENTED and CONSIDERED

- Whether the notice issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2014-15 was barred by limitation?

- Whether the initial notice issued on 30.06.2021, which was deemed to be a notice under Section 148A(b) of the Act pursuant to the Supreme Court's directions, complied with the procedural and limitation requirements as per the amended statutory regime?

- Whether the subsequent notice under Section 148 issued on 04.11.2022 was valid and within the prescribed time limits set out under Section 149 of the Act, considering the extensions and provisos introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and judicial pronouncements?

- The validity and effect of the exclusion of certain periods from the limitation calculation under the provisos to Section 149(1) of the Act, as interpreted by the Supreme Court in related cases.

2. ISSUE-WISE DETAILED ANALYSIS

Limitation for issuance of notice under Section 148 of the Income Tax Act

The legal framework governing the limitation for issuance of a notice under Section 148 is primarily contained in Section 149 of the Act. The limitation period is six years from the end of the relevant assessment year, subject to extensions and exclusions under various provisos. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended the limitation period for certain AYs, including 2014-15, to 30.06.2021.

In this case, the initial notice under Section 148 was issued on 30.06.2021, the last permissible day under the extended limitation period. However, this notice was issued under the pre-31.03.2021 regime and was thus unsustainable after the introduction of Section 148A, which prescribes a mandatory preliminary procedure before issuance of a notice under Section 148.

Effect of Supreme Court rulings on procedural compliance and limitation

The Court relied extensively on the Supreme Court's decision in Union of India & Ors. v. Ashish Agarwal, which held that notices issued post 31.03.2021 without following the Section 148A procedure should be treated as notices under Section 148A(b). The Supreme Court granted time to the Assessing Officer (AO) to supply the material on which the notice was based, and the period from issuance of the notice till the Supreme Court's decision was to be excluded from the limitation calculation under the fifth proviso to Section 149(1).

Further, the time taken to provide material and the time allowed to the assessee to respond were also to be excluded under the third proviso to Section 149(1). The Court also referred to the decision in Union of India v. Rajeev Bansal, which clarified the application of these provisos.

Application of limitation provisos to the facts

The initial notice dated 30.06.2021 was deemed to be a notice under Section 148A(b) as per the Supreme Court's direction. The AO provided the relevant material on 21.05.2022, and the assessee responded on 06.06.2022. The AO was then required, under the sixth proviso to Section 149(1), to issue the notice under Section 148 within seven days from the date of the assessee's response, i.e., by 13.06.2022.

However, the impugned notice under Section 148 was issued on 23.07.2022, well beyond the seven-day period. The Court found that this issuance was therefore beyond the prescribed limitation period and invalid.

Treatment of competing arguments and precedents

The respondents contended the validity of the impugned notice, presumably relying on the extended limitation period and procedural compliance. However, the Court relied on the binding precedents, including the decision in Ram Balram Buildhome Pvt. Ltd. v. Income Tax Officer, which held that issuance of notice beyond the stipulated period under the provisos to Section 149(1) is invalid.

The Court emphasized that the exclusion periods under the provisos must be strictly adhered to, and the AO's failure to issue the notice within the seven-day window after the assessee's response rendered the notice invalid.

3. SIGNIFICANT HOLDINGS

"Since the initial notice under Section 148 of the Act - subsequently construed as a notice under Section 148A (b) of the Act - was issued on the last date of the limitation; there was no time available for the AO to issue a notice under Section 148 of the Act after the petitioner had furnished its reply to the said notice. Thus in terms of sixth proviso to Section 149 (1) of the Act, the AO had seven days to issue the notice under Section 148 of the Act, which expired on 13.06.2022. The impugned notice was issued on 23.07.2022, which is after the period for issuing such a notice had expired."

The Court established the core principle that the procedural safeguards and limitation periods under the amended reassessment regime, including the exclusions under the provisos to Section 149(1), must be strictly complied with. Any notice issued beyond the prescribed limitation period, including the seven-day window post-assessment of the assessee's response, is invalid.

The final determination was that the impugned notice dated 04.11.2022 was barred by limitation and consequently all proceedings initiated pursuant thereto were set aside.

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