2025 (6) TMI 1627 - AT - Income Tax

Validity of notice issued u/s. 148 on account of being barred by limitation - Time limit for notice - purpose of first proviso to section 149 under the new regime - procedural requirements under section 148A introduced by the Finance Act 2021 - HELD THAT - The first proviso to Section 149 of the Act provides that no notice under Section 148 shall be issued at any point of time in a case for a relevant assessment year beginning on or before the 1 day of April 2021 if a notice under Section 148 could not have been issued at that time on account of being beyond the time limit specified under the provision of clause (b) of sub-section (1) of this Section as it stood immediately before the commencement of the Finance Act 2021. The purpose of the first proviso to Section 149 of the Act is consistent with the stated object of the government to make prospective amendments in the Act. Accordingly the proviso provides that up to Assessment Year 2021- 2022 (period before the amendment) the period of limitation as prescribed in the erstwhile provisions of Section 149(1)(b) of the Act would be applicable and only from Assessment Year 2022-2023 the period of ten years as provided in Section 149(1)(b) of the Act would be applicable. It is pertinent to take note of the observations and findings of the Hon ble Supreme Court in the case of Union of India and others vs. Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) wherein the first proviso to section 149(1)(b) has been deliberated in detail. In the present case notice issued u/s. 148 is dated 19.04.2022 which was issued pursuant to order passed u/s. 148A(d) which is also of the even date wherein it was held by the AO that it is a fit case to issue notice u/s. 148. The moot case of the controversy arisen in this case is on account of show cause notice issued u/s. 148A(b) which is dated 24.03.2022 and is prior to the date of 31.03.2022 when the limitation under the old regime expires. However the notice u/s. 148 is issued subsequent to this date i.e. on 19.04.2022. Thus the process of initiation of considering whether reopening is to be done or not was initiated within the limitation period available as per the old regime but it got concluded beyond the period of limitation. In this background from the perusal of provisions contained in section 149(1) we note that it states that no notice u/s. 148 shall be issued for the relevant Assessment Year prescribing the conditions and time limit. It does not refer to show cause notice/s.148A(b). The first proviso to section 149(1)(b) also carves out an exception to the limitation in respect of notice u/s. 148 and not under section 148A(b). In the case of Hexaware Technologies Ltd. 2025 (6) TMI 1494 - BOMBAY HIGH COURT has categorically held that if a notice u/s. 148 is not with the time prescribed under the first proviso to section 149(1)(b) then such period cannot be extended by fifth proviso and sixth proviso to the said section. Admittedly the undisputed fact in the present case is that impugned notice issued u/s. 148 is dated 19.04.2022 which is after the limitation expired on 31.03.2022 within the meaning of first proviso to section 149(1)(b). In view of the above stated deliberations on the factual matrix of the present case and the applicable law including the jurisprudence discussed above we hold that notice for Assessment Year 2015-16 issued on 19.04.2022 u/s. 148 of the new regime is barred by limitation and hence bad in law liable to be quashed resulting in impugned re-assessment proceedings as well as the impugned assessment order bad in law. Accordingly ground nos. 1 and 2 raised by the assessee are allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether the notice issued under section 148 of the Income-tax Act, 1961 (the Act) on 19th April 2022 for Assessment Year 2015-16 is valid or barred by limitation under the provisions of section 149 of the Act, as amended by the Finance Act, 2021.

2. Whether the Assessing Officer had jurisdiction to issue the notice under section 148 after the expiry of the six-year limitation period prescribed under the erstwhile provisions of section 149(1)(b) applicable to Assessment Years beginning on or before 1st April 2021.

3. Whether the procedural requirements under section 148A, introduced by the Finance Act, 2021, were complied with and their impact on the validity of the notice under section 148.

4. The applicability and interpretation of the first proviso to section 149(1)(b) of the Act, which restricts the retrospective operation of the extended limitation period introduced by the Finance Act, 2021, and its effect on notices issued for Assessment Years prior to 1st April 2021.

Issue-wise detailed analysis:

Issue 1: Validity of notice under section 148 issued on 19.04.2022 for AY 2015-16 in light of limitation under section 149

The relevant legal framework comprises section 149 of the Act, as amended by the Finance Act, 2021, which prescribes time limits for issuance of notices under section 148. The amendment introduced a new regime effective from 1st April 2021, reducing the general limitation period from six years to three years, with an extended period of up to ten years where escaped income exceeds fifty lakh rupees in the form of assets, expenditure, or entries in books of account.

However, the first proviso to section 149(1)(b) preserves the limitation under the old regime for Assessment Years beginning on or before 1st April 2021, barring issuance of notices beyond the time limits applicable under the erstwhile provisions.

The Court noted that the Assessment Year in question, 2015-16, falls under the old regime where the limitation period was six years from the end of the relevant Assessment Year, i.e., up to 31 March 2022. The notice under section 148 was issued on 19 April 2022, clearly beyond the six-year period.

The Court relied heavily on the authoritative interpretation by the Supreme Court in Union of India vs. Rajeev Bansal, which clarified that the first proviso to section 149(1)(b) restricts the retrospective application of the extended ten-year limitation period, thereby protecting assessees from notices issued after expiry of the old six-year period for Assessment Years prior to 1 April 2021.

The Supreme Court held that no notice under section 148 of the new regime can be issued for Assessment Years beginning on or before 1 April 2021 if the notice would have been barred by limitation under the old regime at the time of issuance.

The Court also examined the Bombay High Court's decision in Hexaware Technologies Ltd., which emphasized that the phrase "at that time" in the first proviso refers to the date of issuance of the notice under section 148, and that the limitation period under the first proviso cannot be extended by other provisos to section 149.

Applying these principles, the Court held that the notice issued on 19 April 2022 was beyond the limitation period prescribed under the first proviso to section 149(1)(b) and was therefore invalid and bad in law.

Issue 2: Jurisdiction of the Assessing Officer and compliance with procedural requirements under section 148A

Section 148A, introduced by the Finance Act, 2021, mandates a procedural safeguard before issuing a notice under section 148. It requires the Assessing Officer to issue a show cause notice under section 148A(b), allow the assessee an opportunity to reply, and then decide on the fitness of issuing a notice under section 148 by passing a reasoned order under section 148A(d).

In the instant case, the Assessing Officer issued a show cause notice under section 148A(b) on 24 March 2022, which was within the limitation period under the old regime. The assessee did not respond. Subsequently, the Assessing Officer passed an order under section 148A(d) on 19 April 2022, concluding that it was a fit case to issue a notice under section 148, which was issued the same day.

The Court noted that section 149 and its provisos regulate the limitation period for issuance of notices under section 148, but do not regulate the issuance or limitation period for show cause notices under section 148A(b). Therefore, the initiation of the proceedings under section 148A(b) within the limitation period does not validate the issuance of the notice under section 148 beyond the prescribed limitation period.

Thus, while the procedural requirements under section 148A were followed, the limitation prescribed under section 149(1)(b) and its first proviso govern the validity of the notice under section 148 itself.

Issue 3: Interpretation and effect of the first proviso to section 149(1)(b)

The first proviso to section 149(1)(b) was introduced to prevent retrospective application of the extended limitation period of ten years introduced by the Finance Act, 2021, for Assessment Years prior to 1 April 2021. It provides that no notice under section 148 shall be issued for such years if it would have been barred under the old regime's limitation period at the time of issuance.

The Court analyzed the language and legislative intent behind this proviso, concluding that it protects assessees from reopening of assessments beyond the six-year period applicable under the old regime.

The Court emphasized that the proviso acts as an exception to the extended limitation period and cannot be overridden or extended by other provisos that allow extension of limitation in certain circumstances under the new regime.

Therefore, for Assessment Year 2015-16, the six-year limitation expired on 31 March 2022, and issuance of notice on 19 April 2022 was barred by limitation under the first proviso to section 149(1)(b).

Issue 4: Treatment of competing arguments and conclusion

The Revenue contended that since the show cause notice under section 148A(b) was issued within the limitation period, the subsequent issuance of notice under section 148 beyond the limitation period should be valid. The Court rejected this argument, holding that the limitation period applies strictly to the issuance of the notice under section 148, not to the show cause notice under section 148A(b).

The Court also rejected the Revenue's interpretation that the first proviso to section 149(1)(b) applies only to Assessment Years where limitation had expired on 1 April 2021, holding that such interpretation would render the proviso redundant and otiose, contrary to the principle of harmonious construction of statutes.

Accordingly, the Court held that the notice under section 148 issued on 19 April 2022 for Assessment Year 2015-16 was barred by limitation and invalid. Consequently, the reassessment proceedings and the assessment order passed pursuant to the said notice were also bad in law and liable to be quashed.

Significant holdings include the following verbatim excerpts and core principles:

"The first proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed under Section 149(1)(b) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed under Section 149(1)(b) of the new regime applies prospectively."

"If a notice is not within the time prescribed under the first proviso to Section 149(1) of the Act, then such period cannot be extended by fifth proviso and sixth proviso."

"The notice for Assessment Year 2015-16 issued on 19.04.2022 under section 148 of the new regime is barred by limitation and hence bad in law, liable to be quashed, resulting in impugned reassessment proceedings as well as the impugned assessment order bad in law."

The Court's final determination was to allow the assessee's appeal, quashing the notice under section 148 and the consequent reassessment order, on the ground of limitation under the first proviso to section 149(1)(b).