2025 (5) TMI 722 - HC - Income Tax

Section 148 notices must be issued within Section 149(1) time limit including entire Section 148A process

Gurpreet Singh Versus Deputy Commissioner of Income Tax, (earlier Assistant Commissioner of Income Tax, Circle (1), Panaji, Central Board of Direct Taxes, National Faceless Assessment Centre, Through Principal Chief Commissioner of Income tax, Delhi.

Gurpreet Singh Versus Deputy Commissioner of Income Tax, (earlier Assistant Commissioner of Income Tax, Circle (1), Panaji, Central Board of Direct Taxes, ... The core legal questions considered by the Court pertain to the validity and legality of the re-opening of income tax assessment proceedings initiated against the Petitioner for the Assessment Year (AY) 2013-14, specifically focusing on whether the reassessment notice issued under Section 148 of the Income Tax Act, 1961 (IT Act), after the substitution of Sections 147 to 151 by the Finance Act, 2021, was time-barred. The issues also encompass the interpretation and application of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), the effect of the Supreme Court's judgments in Union of India vs. Ashish Agarwal and Rajeev Bansal vs. Union of India, the procedural compliance under Sections 148A and 149 of the IT Act, and the validity of the assessment order passed pursuant to the reassessment notice.Issue-wise detailed analysis is as follows:1. Legality and Time-Bar of Reassessment Notice under Section 148The legal framework involves the substituted Sections 147 to 151 of the IT Act effective from 1 April 2021, the TOLA which extended various time limits due to the COVID-19 pandemic, and the principles laid down by the Supreme Court in Ashish Agarwal and Rajeev Bansal. The Court examined whether the reassessment notice dated 29 July 2022 was issued within the permissible time under the amended law.The Supreme Court in Ashish Agarwal held that notices issued under the pre-substituted Section 148 between 1 April 2021 and 30 June 2021 were illegal but, as a one-time measure under Article 142, were to be treated as notices under Section 148A(b) of the new regime. The Court also clarified that the time allowed to the assessee to respond to such notices is excluded from the limitation period under the third proviso to Section 149. Rajeev Bansal further clarified that the time limit for reassessment notices is governed by the combination of the IT Act and TOLA, with the surviving time limit being the balance period after excluding the stay and response periods.Applying these precedents, the Court noted that the initial notice dated 29 June 2021 fell within the extended time limit under TOLA (extended to 30 June 2021). The period during which the notices were stayed and the time allowed to the Petitioner to respond (including extensions) were excluded from the limitation calculation. After all exclusions, only two days remained for the Assessing Officer to complete the reassessment procedure and issue the notice under Section 148. However, the impugned notice and order dated 29 July 2022 were issued beyond this surviving period, rendering them time-barred.The Respondents argued that the order under Section 148A(d) passed on 29 July 2022 was within one month from the end of the month in which the last reply was received (28 June 2022), thus within the permissible timeline. The Court rejected this contention, clarifying that Section 148A(d) prescribes the timeline for passing the order but does not extend or affect the overall limitation under Section 149(1). The entire reassessment process, including issuance of notice under Section 148, must be completed within the time limit prescribed by Section 149(1). Therefore, the order and notice dated 29 July 2022 were invalid for being beyond the statutory limitation.2. Compliance with Procedural Requirements under Sections 148A and 149The Court considered whether the procedural safeguards introduced by the substituted Sections 148A and 149 were complied with, including the issuance of reasons for reopening, supply of relevant material, opportunity to the assessee to reply, and passing of the order under Section 148A(d) before issuance of notice under Section 148.The Petitioner contended that the order under Section 148A(d) was passed without proper application of mind, without considering objections, and violated principles of natural justice. Additionally, objections were raised regarding non-supply of documents, absence of prior approval under Section 151, and non-grant of personal hearing. The Respondents countered that all procedural requirements were met, including prior approval by the Principal Commissioner of Income Tax, supply of material, and opportunity to reply, supported by the affidavits and notices issued.The Court, however, emphasized that procedural compliance cannot cure the fundamental defect of time-bar. Since the reassessment notice was issued beyond the surviving limitation period, the procedural compliance became immaterial. The Court did not delve deeply into the merits of procedural objections given the primary finding on limitation.3. Effect of Supreme Court Decisions and TOLA NotificationsThe Court extensively analyzed the impact of the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal, and the various notifications issued under TOLA extending timelines for completion of assessment proceedings due to the COVID-19 pandemic. It was clarified that TOLA's extensions apply only to the extent that the original limitation period falls within the specified period (20 March 2020 to 31 March 2021). The surviving time for reassessment notices is calculated after excluding the stay period and response time allowed to the assessee.The Court also noted that several High Court decisions quashing reassessment notices on similar grounds were upheld by the Supreme Court, reinforcing the principle that reassessment notices issued beyond the surviving limitation period are invalid.4. Treatment of Conflicting Judicial OpinionsThe Respondents referred to judgments such as Hexaware Technologies Ltd. and others which took a different view on limitation. The Court observed that these decisions were either rendered before the Supreme Court's ruling in Rajeev Bansal or were under challenge before the Supreme Court. Consequently, the Court declined to follow these conflicting precedents and relied on the binding Supreme Court rulings.5. Conclusion on Validity of Assessment OrderSince the reassessment notice dated 29 July 2022 was held to be time-barred, the consequent assessment order dated 29 May 2023 passed under Section 147 was also invalid and without jurisdiction. The Court quashed both the notice and the assessment order.Significant holdings include the following verbatim excerpts from the judgment:'A notice issued under Section 148 of the IT Act which is beyond the time line stipulated under Section 149 (1) is non-compliant and invalid.''Section 148A (d) does not govern the computation of time as contemplated in terms of Section 149 of the IT Act... to suggest that Section 148A (d) extends the time limit under Section 149 (1) and/or has a bearing on the time under Section 149 (1) is a submission which is misconceived and lacks legal sanctity.''Applying the ratio of the decisions in Ashish Agarwal and Rajeev Bansal... the notice under Section 148 dated 29/07/2022 is time barred.'Core principles established are:The substituted provisions of the IT Act, post 1 April 2021, govern reassessment proceedings and must be read in conjunction with TOLA extensions.The limitation period for issuance of reassessment notices is to be computed after excluding periods during which notices were stayed and time allowed to the assessee to respond, per the third proviso to Section 149.Procedural compliance under Sections 148A and 149 cannot cure the defect of issuance of notice beyond the prescribed limitation period.Notices issued under pre-substituted Section 148 after 1 April 2021 are to be treated as notices under Section 148A(b), with the reassessment process governed by the substituted provisions.Judicial precedents inconsistent with the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal are not to be followed.Final determinations on the issues are:The reassessment notice dated 29 July 2022 under Section 148 of the IT Act is time-barred and invalid.The assessment order dated 29 May 2023 passed pursuant to the said notice is quashed and set aside.Procedural objections raised by the Petitioner need not be examined in detail due to the fundamental defect of limitation.