2025 (7) TMI 1900 - AT - Income Tax

Notice under Section 148 held time-barred as extended due date expired; reassessment void ab initio, Section 147/148 jurisdiction challenge allowed

ITAT, DELHI AT held the notice issued under section 148 on 23.07.2022 was time-barred because the extended due date for issuance expired on 26.06.2022 per ... Validity of assumption of jurisdiction u/s 147 - As argued notice u/s 148 is barred by limitation - scope of TOLA - HELD THAT:- As in view of the observation of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the extended due date for issuance of notice u/s 148 of the Act expired on 26.06.2022 and since, the notice u/s 148 of the Act is issued on 23.07.2022, the said notice is to be treated as barred by limitation and consequentially reassessment proceedings would be liable to be quashed as void ab initio. This issue was also subject matter of consideration in the case of Ram Balram Build home [2025 (2) TMI 55 - DELHI HIGH COURT]. We hold that the notice issued u/s 148 on 23.07.2022 is barred by limitation. Accordingly, ground No. 1 raised by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the assumption of jurisdiction under section 147 read with section 148 of the Income-tax Act is valid where the original section 148 notice was issued prior to 01.04.2021 but subsequent proceedings/notice under the substituted section 148 were issued after 01.04.2021-specifically, whether the later notice is barred by limitation. 2. Whether the periods to be excluded in computing limitation for issuance of a reassessment notice under the substituted scheme include (a) the period between issuance of the deemed/earlier notice and delivery of material by the assessing officer following judicial directions, and (b) the statutory period allowed to the assessee to reply to the show-cause/148A(b) notice, thereby affecting the 'surviving' time available to the assessing officer to issue the new s.148 notice. 3. Consequence of a time-barred notice under section 148 on subsequent reassessment proceedings and assessment framed under section 147. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of re-issued/reassessment notice under the substituted section 148 where original notice issued under old regime Legal framework: The substituted statutory scheme for reassessment (w.e.f. 01.04.2021) introduces procedures under Chapter/sections dealing with issuance of show-cause notices (section 148A(b)/(d) etc.) and provides for computation of limitation under section 149 read with transitional provisions and time-extension notifications. Time-limit computation must account for exclusions expressly provided (including those arising from judicial directions and time allowed to assessee to reply). Precedent treatment: The Court relied on binding pronouncements of the Supreme Court which treated the earlier notices as creating a legal fiction for the purpose of stopping the limitation clock, directed exclusion of the period from issuance of the deemed/old notice till supply of relevant material, and required exclusion of the time granted to the assessee to reply to the show-cause notice; it explained that the assessing officer's limited 'surviving' time (after exclusions) must be used to complete the procedural steps and issue the reassessment notice under the new regime. Interpretation and reasoning: The Court reconstructed the timeline: original notice dated 28.06.2021; two days remaining to 30.06.2021 under the extension regime; notices under section 148A(b) issued in May/June 2022; assessee's reply filed 24.06.2022; assessing officer issued section 148 notice on 23.07.2022. Applying the principles that (i) the period from deemed/old notice through supply of material is excluded, (ii) the two-week period allowed for reply under the proviso is excluded, and (iii) the assessing officer must complete required actions within the surviving time available under section 149, the Court computed the extended due date for issuance of the section 148 notice as 26.06.2022. The actual notice dated 23.07.2022 thus fell beyond the surviving limitation period. Ratio vs. Obiter: The holding that a re-issued section 148 notice issued after the surviving limitation expires (calculated by excluding the periods mandated by the transitional and judicial directions) is time-barred is ratio of the decision. The Court's timeline example and reference to how the 'clock starts ticking' after receipt of reply, as articulated in the Supreme Court guidance, are applied as binding ratio. Conclusion: The subsequent notice issued under section 148 on 23.07.2022 is barred by limitation and therefore invalid; the reopening under section 147 based on that notice is vitiated. Issue 2 - Application of statutory exclusions (judicially directed exclusions and the reply period) and effect on the assessing officer's obligations under section 148A/148/149 Legal framework: Section 149 (limitation) read with transitional law and relevant notifications (extensions under TOLA) prescribes the time available to issue a section 148 notice. The substituted provisions require the assessing officer to serve a show-cause notice (section 148A(b)), consider the assessee's reply (section 148A(c)), and record reasons (section 148A(d)) before issuing a notice under the substituted section 148. The statutory third proviso (and judicial directions) require exclusion of certain periods from limitation computation. Precedent treatment: The controlling judicial exposition established that (a) the period from issuance of the old/ deemed notice until material is supplied and procedural steps are complied with must be excluded; (b) the two-week period allowed for reply is to be excluded; and (c) the assessing officer's duties under section 148A must be completed within the surviving time available to issue the section 148 notice. Interpretation and reasoning: The Court accepted that where only a short surviving period remained (two days in the illustrated facts, and twenty-nine days in related High Court reasoning), the assessing officer could not rely on calendar allowances under the substituted provisions to expand the time beyond the surviving limitation. The order under section 148A(d) and the consequent section 148 notice must be passed within the truncated period available; the 'end of the next month' or similar computative arguments cannot override the statutory limitation calculus requiring completion within the surviving time. Ratio vs. Obiter: The determination that procedural time limits under section 148A are subject to the overall surviving limitation under section 149 and cannot be used to extend that surviving period is part of the ratio. Observations on specific day counts applied to the facts are illustrative but reinforce the legal principle. Conclusion: The statutory exclusions (legal-fiction exclusion and assessee's reply period) reduce the surviving time for the AO to complete section 148A steps and issue a section 148 notice; failure to issue the notice within that surviving period renders the notice time-barred. Issue 3 - Consequences of time-barred notice and effect on reassessment/assessment under section 147 Legal framework: A notice issued beyond the prescribed limitation period under section 149 is void; if the foundational notice under section 148 is invalid, consequential reassessment under section 147 cannot stand. Precedent treatment: The Court followed higher judicial authority and a jurisdictional High Court decision that set aside orders and notices issued beyond the limitation period and quashed consequent assessments framed pursuant to such notices. Interpretation and reasoning: Having held the section 148 notice to be barred by limitation, the Court concluded that the entire reassessment exercise founded on that notice lacks jurisdiction and is void ab initio. The Court treated adjudication of other substantive grounds as academic, given the jurisdictional defect. Ratio vs. Obiter: The conclusion that a time-barred section 148 notice renders consequent proceedings and assessments void ab initio is ratio. Statements leaving other grounds open for consideration are obiter in the sense that they do not affect the outcome. Conclusion: Reassessment proceedings and assessment framed pursuant to the time-barred section 148 notice are quashed; the appeal is allowed on this jurisdictional ground and other grounds are left open as academic. Cross-references See Issue 1 and Issue 2 for interlinked reasoning on computation of surviving limitation and procedural obligations under section 148A; the conclusion in Issue 3 flows directly from the rulings in Issues 1-2.