Section 148 notice issued beyond limitation period quashed after excluding COVID period under Section 149

The ITAT Delhi held that a notice under Section 148 issued on 23/07/2022 was barred by limitation. The original notice dated 23/06/2021 was deemed as a show cause notice under Section 148A(b) following the SC's Ashish Agarwal judgment. After excluding the period from 23/06/2021 to 10/06/2022 as per the third proviso to Section 149(1) and applying the SC's Rajeev Bansal ratio, only 7 days remained for issuing the final notice. Since the notice was issued beyond this period, the reassessment proceedings were quashed.

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The core legal questions considered in this appeal are:

1. Whether the ex-parte order dismissing the appeal for delay in filing without condoning the delay of 10 days by the Commissioner of Income Tax Appeals (CIT(A)) was legally valid and consistent with principles of natural justice.

2. Whether the notice issued under section 148 of the Income Tax Act, 1961 (the Act) dated 23/07/2022 was barred by limitation and thus invalid, particularly in light of the Supreme Court's decision in Union of India vs. Rajeev Bansal (2024).

3. Whether the reassessment proceedings and consequent additions under section 69C of the Act, based on alleged bogus purchases, were sustainable.

4. Whether the Assessing Officer (AO) had jurisdiction and valid grounds to reopen the assessment without proper inquiry or disposal of objections under section 148A of the Act.

5. Whether the procedural requirements under section 148A, including issuance of show cause notices and disposal of objections, were complied with.

6. Whether the approval of the specified authority under section 151 of the Act was obtained as required.

7. Whether the AO properly confronted the assessee with adverse material and allowed cross-examination.

8. Whether the multiple allegations regarding the same amount in the order under section 148A(d) were legally sustainable.

Issue-wise Detailed Analysis:

1. Validity of Ex-Parte Order Dismissing Appeal for Delay

The CIT(A) dismissed the appeal filed by the assessee with a delay of 10 days without condoning the delay. The assessee contended that the delay was due to bonafide reasons, including failure of the representative to inform about the assessment order in time. The Tribunal found that the CIT(A) erred in not condoning the delay, which was relatively short and supported by reasonable explanation. The principles of natural justice require that appeals not be dismissed in limine without considering such explanations. The Tribunal held that the CIT(A) should have condoned the delay and decided the appeal on merits.

2. Limitation and Validity of Notice under Section 148

This was the principal issue. The assessee challenged the notice under section 148 dated 23/07/2022 as barred by limitation under section 149 of the Act, particularly after the amendment by the Finance Act, 2021, and in light of the Supreme Court decision in Union of India vs. Rajeev Bansal (2024). The assessee argued that the notice was issued beyond the permissible time period, making the reassessment void ab initio.

The Tribunal examined the legal framework:

• Section 149(1) of the Act (post Finance Act, 2021 amendment) prescribes time limits for issuance of notice under section 148, generally 3 years from end of relevant AY, extendable to 10 years in specific cases involving escaped income of Rs. 50 lakhs or more.
• The Time Limit for Action (TOLA) Ordinance extended limitation periods falling between 20/03/2020 and 31/03/2021 to 30/06/2021 due to COVID-19 disruptions.
• The Supreme Court in Ashish Agarwal (2022) treated notices issued under the old section 148 regime (prior to 01/04/2021) as show cause notices under new section 148A(b), requiring supply of relevant material and time for response before issuance of fresh notice under section 148.
• The Rajeev Bansal judgment clarified that the time during which the show cause notice was stayed and the period allowed for response must be excluded from limitation computation, and the balance time must be calculated accordingly.

Applying these principles, the Tribunal found:

• The original notice under section 148 was issued on 23/06/2021, deemed as a show cause notice under section 148A(b).
• The assessee filed response on 10/06/2022.
• Excluding the period of stay and response time, the balance time for issuance of fresh notice under section 148 was only 2 days (till 30/06/2021 extended by TOLA).
• The notice under section 148 was actually issued on 23/07/2022, well beyond the permissible period.
• Even applying the provisos allowing extension to 7 days if less than 7 days remain, the notice was still beyond limitation.

The Tribunal also relied on the Delhi High Court decision in Ram Balram Buildhome (2025), which held that the AO must pass order under section 148A(d) within the limitation period available under section 149, and that the time allowed under section 148A(d) itself does not extend limitation beyond that period. The Tribunal rejected the Revenue's argument that the order and notice dated 28/07/2022 were within limitation.

Accordingly, the Tribunal held that the notice dated 23/07/2022 (and 28/07/2022) under section 148 was barred by limitation and void ab initio, rendering the reassessment proceedings and assessment order invalid.

3. Additions under Section 69C and Allegations of Bogus Purchases

The assessee challenged the addition of Rs. 1,35,21,188/- under section 69C on the ground that the purchases were not bogus and that no material was provided to justify reopening. The Tribunal did not delve into the merits of this issue because it quashed the reassessment proceedings on limitation grounds, rendering the additions unsustainable.

4. Jurisdiction and Compliance with Section 148A

The assessee contended that the AO failed to conduct proper inquiry under section 148A(a), issued two contradictory show cause notices under section 148A(b), and passed order under section 148A(d) without disposing of objections or applying mind. The Tribunal noted these contentions but did not examine them in detail due to the limitation ruling. The procedural lapses, if any, further reinforced the invalidity of the reassessment.

5. Approval under Section 151

The assessee argued that the AO did not obtain approval from the specified authority under section 151 before issuing notice under section 148. The Tribunal did not specifically address this issue on merits but the limitation ruling rendered this moot.

6. Confrontation of Adverse Material and Cross-Examination

The assessee claimed that adverse material was not confronted and cross-examination was denied. The Tribunal did not analyze this issue in detail given the dismissal of reassessment on limitation grounds.

7. Multiple Allegations in Section 148A(d) Order

The assessee pointed out that the order under section 148A(d) contained three different allegations regarding the same amount, which was argued to be legally untenable. The Tribunal did not adjudicate this issue in depth due to the primary finding on limitation.

Significant Holdings:

"The Ld. CIT(A) committed grave error in not condoning the delay of 10 days and dismissing the Appeal for delay in latches. The Ld. CIT(A) ought to have condoned the delay of 10 days and should have decided the appeal on its merit."

"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, the notice issued under section 148 of the Act on 28/07/2022 is void ab initio and bad in law."

"Consequently, the entire re-assessment proceedings and assessment order passed under section 147 r.w. section 144B of the Act are also quashed."

"The Tribunal is guided by the Supreme Court's decisions in Ashish Agarwal and Rajeev Bansal, which clarify the interplay of the amended limitation provisions, TOLA, and the exclusion of time during which show cause notices were stayed and response time allowed."

"The AO had only 2 days of surviving time to issue the notice under section 148 after receipt of the assessee's response, but issued it 32 days beyond that period."

"The time allowed under section 148A(d) does not extend the limitation period beyond that prescribed under section 149."

The Tribunal thus established the core principle that reassessment notices under section 148 must strictly comply with the limitation periods prescribed under section 149 as amended, including the application of TOLA and exclusion of time as mandated by the Supreme Court. Failure to do so renders the notice and consequent reassessment void ab initio.

On the procedural aspect, the Tribunal emphasized the necessity of condoning reasonable delay in filing appeals and adhering to principles of natural justice before dismissing appeals in limine.

In conclusion, the Tribunal allowed the appeal, quashed the notice under section 148 dated 23/07/2022, and set aside the reassessment proceedings and assessment order for the AY 2014-15 as barred by limitation and bad in law.

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