Reopening notices under section 148 issued between April-June 2021 were time-barred and illegal due to six-year limitation period

The Gujarat HC held that reopening notices under section 148 for assessment years 2013-14 and 2014-15 issued between 01.04.2021 to 30.06.2021 were time-barred and illegal. The court ruled that the old regime's six-year limitation period from the end of the relevant assessment year continued to apply, and notices issued beyond this prescribed timeline lacked jurisdiction. Following the SC decision in Ashish Agarwal and the Division Bench ruling in Keenara Industries, the court determined that secondary legislation could not extend time limits that were otherwise barred under the principal Finance Act provisions.

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Issues Involved:
1. Challenge to the notices issued for reopening of assessment under Section 148 and orders under Section 148A(d) of the Income Tax Act, 1961.
2. Bar of limitation for the notices issued beyond the prescribed time limit.

Summary:

Issue 1: Challenge to Notices and Orders Under Section 148 and Section 148A(d)

Both Special Civil Applications challenged the notices issued for reopening assessments for the years 2013-14 and 2014-15 under Section 148 and the orders passed under Section 148A(d) of the Income Tax Act, 1961. The petitions were heard together and treated for disposal by a common judgment.

Issue 2: Bar of Limitation for Notices Issued Beyond Prescribed Time Limit

The petitioners argued that the notices and consequential orders were barred by limitation, as they were issued after the passage of six years from the end of the relevant assessment year. This argument was supported by the Division Bench decision in Keenara Industries Pvt Ltd. vs. The Income Tax Officer, which established that notices under Section 148 could only be issued within six years from the end of the relevant assessment year, as per the old regime before the Finance Act, 2021.

The Court revisited the development of the law and the applicable provisions under both the old regime and the new regime introduced by the Finance Act, 2021. It was noted that under the old regime, the time limit for issuing notices under Section 148 was four/six years, depending on the amount of income that escaped assessment. The Finance Act, 2021, amended Section 149 to reduce the time limit to three years, with a provision to extend it to ten years if the escaped income exceeded Rs. 50 lakhs.

However, the First Proviso to Section 149, as introduced by the Finance Act, 2021, stipulated that no notice under Section 148 could be issued for assessment years before 01.04.2021 if it was already time-barred under the old regime. This was upheld by the Supreme Court in Union of India vs. Ashish Agarwal, which clarified that all defenses available under Section 149 and the Finance Act, 2021, would continue to be available.

The Court in Keenara Industries Pvt. Ltd. held that notices issued after the expiry of six years from the end of the relevant assessment year were barred and without jurisdiction. This was further supported by the Allahabad High Court in Rajeev Bansal vs. Union of India, which held that the relaxation/extension under the Taxation and Other Laws Act, 2020, could not be applied to extend the time limit for issuing such notices.

Conclusion

In light of the above legal principles, the Court concluded that the impugned notices for the assessment years 2013-14 and 2014-15 were beyond the permissible time limit and thus illegal and without jurisdiction. Consequently, the notices and orders under Section 148 and Section 148A(d) were set aside, and the petitions were allowed.

Order

(i) Notice dated 01.07.2022 under Section 148 and Order dated 01.07.2022 under Section 148A(d) of the Income Tax Act for Assessment Year 2013-14 are set aside.

(ii) Notice dated 31.07.2022 under Section 148 and Order dated 30.07.2022 under Section 148A(d) of the Income Tax Act for Assessment Year 2014-15 are set aside.

Both petitions are allowed, and Rule is made absolute in each petition.

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