Reassessment notice under section 148 quashed for being issued beyond statutory limitation period

ITAT Delhi quashed reassessment proceedings initiated under section 148 of the Income Tax Act. The tribunal held that the notice dated 26/07/2022 was issued beyond the limitation period specified under section 149. Following the Supreme Court judgment in Ashish Agarwal case, the extended time limit for issuing notice was 10/06/2022, but the actual notice was issued on 26/07/2022, making it time-barred. Consequently, the entire reassessment proceedings were quashed for being beyond the statutory limitation period.

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The core legal questions considered in this appeal primarily revolve around the validity and limitation of the reassessment notice issued under section 148 of the Income Tax Act, 1961, and the consequent reassessment proceedings. The issues include:

1. Whether the notice issued under section 148 of the Act is barred by limitation and hence illegal and without jurisdiction.

2. Whether the reassessment proceedings initiated comply with the provisions of sections 147 to 151A of the Act.

3. Whether the assessment order and additions made by the Assessing Officer (AO) are valid and sustainable in law.

4. Whether the notice under section 148 is invalid for lack of a Document Identification Number (DIN).

5. Jurisdictional competence of the Junior Assessing Officer (JAO) in initiating proceedings.

6. Legality of the assessment order passed without issuance of notice under section 143(2).

7. Compliance of the reassessment proceedings with section 144B of the Act.

8. Validity of the addition of Rs. 1,59,60,000/- made under section 69A on account of unexplained money.

9. Alleged violation of principles of natural justice by the CIT(A).

10. Whether the CIT(A) adjudicated the grounds of appeal on merit.

11. Whether the CIT(A) passed an ex-parte order unjustifiably.

Issue-wise Detailed Analysis:

1. Validity and Limitation of Notice under Section 148 of the Act

Legal Framework and Precedents: The limitation for issuance of notice under section 148 is governed by section 149 of the Income Tax Act. The Finance Act, 2021 substituted section 148 and amended section 149, effective from 01/04/2021. The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) further extended limitation periods due to the COVID-19 pandemic. The Supreme Court decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal provide authoritative interpretation on the interplay between the old and new provisions, the effect of TOLA, and the computation of limitation periods.

Court's Interpretation and Reasoning: The Court noted that the original notice under old section 148 was issued on 29/06/2021, beyond the expiry of the pre-amendment limitation period (31/03/2021). The Supreme Court in Ashish Agarwal held that such notices issued between 01/04/2021 and 30/06/2021 are to be treated as show cause notices under the new regime (section 148A(b)). The subsequent notice under section 148A(b) was issued on 26/05/2022, with the assessee's reply filed on 09/06/2022. The Court applied the Rajeev Bansal ruling to compute the surviving time available to the AO for issuing the reassessment notice under the new regime, considering the exclusions mandated by the Supreme Court (time during which the show cause notice was stayed and two weeks allowed for reply).

The Court found that the AO had only two days of surviving time (from 29/06/2021 to 30/06/2021) under the TOLA extension to issue the reassessment notice. The AO issued the notice under section 148 on 28/07/2022, which exceeded the surviving time by 32 days, thus rendering the notice barred by limitation.

Key Evidence and Findings: The timeline of notices, replies, and orders was meticulously tabulated. The Court relied on the Supreme Court's directions that the time for the assessee to respond and the period during which the show cause notice was stayed must be excluded from limitation computation.

Application of Law to Facts: The Court applied the statutory provisions and Supreme Court precedents to the facts, concluding that the reassessment notice was issued beyond the permissible period.

Treatment of Competing Arguments: The Revenue argued that the notice was within limitation as the AO had one month from the end of the month of reply under section 148A(d) to issue the notice. The Court rejected this, relying on the Delhi High Court decision in Ram Balram Buildhome (P.) Ltd. which held that the time for passing order under section 148A(d) is truncated by the limitation prescribed under section 149. The Court also dismissed the Revenue's reliance on the fourth proviso to section 149, which extends time to seven days if the remaining period is less than seven days, as the notice was issued well beyond even this extended period.

Conclusion: The notice dated 28/07/2022 under section 148 is void ab initio and bad in law. Consequently, the reassessment proceedings and assessment order based on such notice are quashed.

2. Compliance with Provisions of Sections 147 to 151A and Section 144B

Legal Framework: Sections 147 to 151A detail the procedure for reassessment, including issuance of notice, opportunity to the assessee, and time limits. Section 144B deals with faceless assessments and reassessments. The principles of natural justice and proper jurisdiction are embedded in these procedural safeguards.

Court's Reasoning: Since the foundational notice under section 148 is invalid, the reassessment proceedings initiated under sections 147 and 144B are also invalid. The Court did not find merit in the Revenue's contention that the reassessment complied with these provisions as the prerequisite notice was barred by limitation.

Conclusion: Reassessment proceedings initiated are contrary to the provisions of the Act and are liable to be quashed.

3. Validity of the Assessment Order and Additions under Section 69A

Legal Framework: Section 69A deals with unexplained money found during search or seizure operations. The addition of Rs. 1,59,60,000/- was made on this basis.

Court's Reasoning: The Court did not proceed to examine the merits of the addition since the reassessment proceedings themselves were quashed on limitation grounds. Therefore, the validity of the addition under section 69A was not adjudicated.

4. Validity of Notice for Lack of DIN

Legal Framework: Notices issued by the tax authorities are required to bear a Document Identification Number (DIN) as per procedural mandates to ensure authenticity and traceability.

Court's Reasoning: This ground was raised but not specifically adjudicated since the primary ground of limitation was sufficient to dispose of the appeal.

5. Jurisdiction of Junior Assessing Officer (JAO)

Legal Framework: Jurisdictional competence is essential for valid issuance of notices and initiation of proceedings.

Court's Reasoning: This ground was not elaborated upon in the judgment, likely rendered moot by the limitation issue.

6. Absence of Notice under Section 143(2)

Legal Framework: Section 143(2) requires issuance of notice for scrutiny assessment.

Court's Reasoning: This ground was not specifically addressed, as the reassessment notice under section 148 and its limitation was the dispositive issue.

7. Allegations of Violation of Natural Justice and Ex-Parte Order by CIT(A)

Legal Framework: Principles of natural justice require fair hearing and adjudication on merits.

Court's Reasoning: These grounds were not examined in detail due to the quashing of reassessment proceedings on limitation grounds.

Significant Holdings:

"We are of the considered view that the notice issued under section 148 of the Act on 28/07/2022 is barred by limitation period specified under section 149 of the Act. Accordingly, we are of the considered view that notice issued under section 148 of the Act on 28/07/2022 is void ab initio and bad in law. Therefore, the same is quashed. Consequently, the entire re-assessment proceedings and assessment order passed under section 147 r.w. section 144B of the Act are also quashed."

Core principles established include:

• The limitation period for issuance of notice under section 148 must be strictly adhered to, including the computation of surviving time under TOLA and exclusion of time allowed to the assessee to respond as per Supreme Court rulings.
• The legal fiction created by the Supreme Court in Ashish Agarwal requires treating notices issued under the old regime between 01/04/2021 and 30/06/2021 as show cause notices under the new regime, with consequential adjustment of limitation periods.
• The AO cannot rely on the extended time under section 148A(d) beyond the limitation prescribed under section 149.
• Failure to issue a notice within the prescribed limitation period invalidates the reassessment proceedings and all consequential orders.

Final determination on the core issue of limitation is that the reassessment notice dated 28/07/2022 is invalid and the reassessment proceedings and assessment order are quashed accordingly. Other grounds raised were not adjudicated in detail as they became infructuous.

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