2025 (6) TMI 1142 - HC - Income Tax

Income Tax Reassessment Notice Invalidated Due to Procedural Delay in Issuing Section 148 Notice Beyond Prescribed Timeframe

Samajwadi Party Versus Deputy Commissioner Of Income Tax Exemption Circle 1 (1)

The SC examined the validity of a reassessment notice under Section 148 of the Income Tax Act for AY 2014-15. The Court found the notice dated 31.08.2022 ... Reopening of assessment u/s 147 - period of limitation - HELD THAT:- As explained by the Supreme Court in the case of Union of India v. Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the period from the date of the issuance of the notice till 04.05.2022, the date on which the Supreme Court had rendered the decision in Union of India & Ors. v. Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] is required to be excluded. Additionally, the time provided till the date of providing the material, which should have accompanied a notice u/s 148A(b) of the Act, as well as the time available to the assessee to respond to the said notice was also required to be excluded by virtue of the Third Proviso to Section 149(1) of the Act, as applicable at the material time. In the present case, the AO had two (2) days to issue the notice under Section 148 of the Act after receipt of the reply of the Assessee. The said time expired on 16.06.2022. However, the impugned notice was issued on 31.08.2022, which is beyond the said period. Thus, the notice was beyond the period of limitation. Concededly, the said controversy is covered in favour of the Assessee by the decision of this court in Ram Balram Buildhome Pvt. Ltd [2025 (2) TMI 55 - DELHI HIGH COURT]. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:Whether the notice dated 31.08.2022 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2014-15 was issued within the prescribed period of limitation.Whether the initial notice under Section 148 issued on 28.06.2021 was valid, given the amendments to the reassessment procedure under the Income Tax Act effective from 31.03.2021, specifically the introduction of Section 148A.Whether the Supreme Court's directions in Union of India & Ors. v. Ashish Agarwal (2022) regarding the treatment of notices issued under Section 148 after 01.04.2021 but before the decision date (04.05.2022) have been correctly applied in the present case.Whether the period of limitation for issuance of the impugned notice should exclude the time from issuance of the initial notice to the Supreme Court's decision and the time allowed to the assessee to respond, as per the Third Proviso to Section 149(1) of the Act.Whether the impugned notice dated 31.08.2022 was issued beyond the extended period of limitation and therefore unsustainable.2. ISSUE-WISE DETAILED ANALYSISValidity of the initial notice under Section 148 issued on 28.06.2021The relevant legal framework includes the amendments to the Income Tax Act effective from 31.03.2021, which introduced Section 148A, prescribing a procedural safeguard before issuance of a reassessment notice under Section 148. Prior to these amendments, notices under Section 148 could be issued without the procedural steps now mandated under Section 148A.The Court referred to the precedent set by this Court in Mon Mohan Kohli v. Assistant Commissioner of Income Tax, where notices issued under Section 148 after 31.03.2021 without following Section 148A were struck down as unsustainable. Several other High Courts had adopted a similar stance.The Supreme Court in Union of India & Ors. v. Ashish Agarwal upheld the applicability of the amended provisions post 31.03.2021 and directed that notices issued under Section 148 after 01.04.2021 till 04.05.2022 would be treated as show cause notices under Section 148A(b). The Assessing Officers were ordered to provide the material relied upon within thirty days to enable the assessee to respond.In the present case, the initial notice dated 28.06.2021 was issued within the extended limitation period (extended to 30.06.2021 by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020). However, it was issued without following the procedure under Section 148A, thus rendering it unsustainable as per the legal precedents.Application of Supreme Court's directions in Ashish Agarwal to the present caseIn compliance with the Supreme Court's directions, the Assessing Officer provided the material to the assessee on 30.05.2022, who was granted two weeks to respond. The assessee responded on 11.06.2022. The AO then passed the order under Section 148A(d) on 31.08.2022.The Court examined whether the impugned notice dated 31.08.2022 was issued within the permissible period after excluding the time from issuance of the initial notice to the Supreme Court decision (04.05.2022), the time granted for providing material, and the time allowed to the assessee to respond, as per the Third Proviso to Section 149(1) of the Act.The Court noted that the period of six years from the end of AY 2014-15 expired on 31.03.2021, but was extended to 30.06.2021 by TOLA. The initial notice was issued on 28.06.2021, within the extended period. However, after excluding the period from issuance of the initial notice to the Supreme Court decision and the time allowed for response, the AO had only two days (until 16.06.2022) to issue the reassessment notice. The impugned notice was issued on 31.08.2022, beyond this permissible period.Limitation period and extension under TOLAThe Court relied on the statutory provisions of Section 149 of the Income Tax Act, which sets the limitation period for issuance of reassessment notices. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 extended the limitation period for AY 2014-15 to 30.06.2021. The initial notice was issued within this extended period, but subsequent procedural requirements and timelines must also be adhered to.Precedent and supporting decisionsThe Court relied on the recent decision of this Court in Ram Balram Buildhome Pvt. Ltd. v. Income Tax Officer, which held that notices issued beyond the prescribed limitation period, after accounting for exclusions as per the Third Proviso to Section 149(1), are invalid. This precedent supports the conclusion that the impugned notice dated 31.08.2022 is time-barred.Competing argumentsThe Revenue contended that the impugned notice was valid as the initial notice was issued within the extended limitation period and that the subsequent issuance was in compliance with the Supreme Court's directions. The Court, however, found that the time available to the AO for issuance of the impugned notice after excluding the excluded periods was only two days, which expired on 16.06.2022. The impugned notice issued on 31.08.2022 exceeded this period and was therefore beyond limitation.3. SIGNIFICANT HOLDINGSThe Court held:'The period from the date of issuance of the notice till 04.05.2022, the date on which the Supreme Court had rendered the decision in Union of India & Ors. v. Ashish Agarwal, is required to be excluded. Additionally, the time provided till the date of providing the material, which should have accompanied a notice under Section 148A(b) of the Act, as well as the time available to the assessee to respond to the said notice is also required to be excluded by virtue of the Third Proviso to Section 149(1) of the Act.'The Court concluded that the impugned notice dated 31.08.2022 was issued beyond the prescribed period of limitation and was therefore unsustainable.The Court set aside the impugned notice and all proceedings initiated pursuant thereto.