Time-barred notice under Income Tax Act invalidated; court rules in favor of petitioner

The court held that the notice issued under Section 148 of the Income Tax Act for reopening the assessment for the assessment year 2014-15 was time-barred and without jurisdiction. The court found that the notice and consequential order were beyond the permissible time limit, as clarified by the Supreme Court's decision in Union of India vs. Ashish Agarwal. As a result, the court quashed the notice and set aside all consequential actions, ruling in favor of the petitioner and making the rule absolute.

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Issues Involved:

1. Legality of the notice issued under Section 148 of the Income Tax Act for reopening the assessment for the assessment year 2014-15.
2. Applicability of the limitation period for issuing such notice under both the old and new regimes of the Income Tax Act.
3. Impact of the Supreme Court's decision in Union of India vs. Ashish Agarwal on the present case.

Summary:

Issue 1: Legality of the Notice under Section 148

In the present petition filed under Article 226 of the Constitution, the petitioner challenged the notice dated 27.07.2022 issued by the respondent-assessing officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2014-15. The petitioner also challenged the order dated 26.07.2022 passed under Section 148A(d) of the Act. The petitioner contended that the notice and the consequential order were barred by limitation, having been issued after the passage of six years from the end of the relevant assessment year.

Issue 2: Limitation Period for Issuing Notice

The court revisited the legal provisions under both the old regime (prior to the Finance Act, 2021) and the new regime (post-Finance Act, 2021). Under the old regime, Section 149 allowed the issuance of a notice under Section 148 within four/six years from the end of the relevant assessment year. The Finance Act, 2021, which came into effect on 01.04.2021, introduced Section 148A and recast Section 149, reducing the time limit to three years, extendable to ten years under certain conditions. The court noted that the First Proviso to Section 149 of the new regime stipulated that no notice could be issued if it was time-barred under the old regime as of 01.04.2021.

Issue 3: Impact of Supreme Court Decision in Ashish Agarwal

The Supreme Court in Union of India vs. Ashish Agarwal held that all notices issued under Section 148 between 01.04.2021 and 30.06.2021 would be deemed to have been issued under Section 148A and treated as show-cause notices under Section 148A(b). However, the Supreme Court also clarified that all defenses available under Section 149 and other rights and contentions would continue to be available to the assessees. The court in the present case relied on this decision and the Division Bench's decision in Keenara Industries Pvt. Ltd. to conclude that the notice issued for the assessment year 2014-15 was time-barred and therefore without jurisdiction.

Conclusion:

The court held that the impugned notice dated 27.07.2022 and the order dated 26.07.2022 were beyond the permissible time limit and thus illegal and without jurisdiction. Consequently, the notice and all consequential actions were quashed and set aside. The petition was allowed, and the rule was made absolute.

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