Revenue cannot issue Section 148 notice after 6-year limitation period expires despite court directions

The Delhi HC held that a notice under Section 148 for reopening assessment was barred by limitation. The court ruled that prior to amendments, such notices could only be issued within 6 years from the end of the relevant assessment year per Section 149's first proviso. The Revenue's contention that the notice was valid under Section 153 due to prior court directions was rejected, as the Revenue must take proper legal steps within the limitation period. The court emphasized that failure to follow proper procedure cannot extend statutory limitation periods. The reassessment proceedings were consequently set aside in favor of the assessee.

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The core legal questions considered by the Court revolve around the validity and limitation period applicable to the issuance of a notice under Section 148 of the Income Tax Act, 1961, specifically for Assessment Year (AY) 2016-17. The primary issues include:

• Whether the impugned notice dated 15.04.2024 issued under Section 148 is barred by limitation under the relevant provisions of the Income Tax Act.
• The applicability and interpretation of the proviso to Section 149(1)(b) of the Act, particularly in light of amendments and judicial precedents.
• The effect of prior judicial orders, especially in relation to the contention that the notice issued pursuant to directions of the Court in a previous case is valid under Section 153 of the Act.
• Whether the time spent by the assessee in challenging earlier notices can be excluded or can extend the limitation period for issuance of the present notice.

Issue 1: Limitation Period for Issuance of Notice under Section 148

The relevant legal framework involves Sections 147, 148, 149, and 153 of the Income Tax Act, 1961. Section 148 empowers the Assessing Officer (AO) to issue a notice for reopening an assessment if there is reason to believe that income has escaped assessment. Section 149 prescribes limitation periods for issuance of such notices, which have undergone amendments introducing a new regime with extended time limits.

The Court referred extensively to the Supreme Court's ruling in Union of India & Others v. Rajeev Bansal, which clarified the interplay between the old and new regimes of limitation periods. The Supreme Court held that for assessment years beginning on or before 1 April 2021, no notice under Section 148 can be issued beyond the limitation period prescribed under the old regime, which is six years from the end of the relevant assessment year. The new regime's ten-year limitation period applies prospectively to assessment years beginning after 1 April 2021.

Applying this framework, the Court observed that the impugned notice dated 15.04.2024 for AY 2016-17 was clearly time-barred because the six-year period had expired, and the new extended limitation could not be applied retrospectively. This conclusion was supported by the earlier decision of the Delhi High Court in Manju Somani v. Income Tax Officer Ward-70(1) & Ors.

Issue 2: Validity of Notice Issued Pursuant to Court Directions and Section 153

The Revenue contended that the impugned notice was issued pursuant to directions and findings in Twylight Infrastructure Pvt. Ltd. v. Income Tax Officer Ward 25(3) Delhi & Ors., and therefore was valid under Section 153 of the Act, which deals with the time limit for completion of reassessment proceedings once a notice under Section 148 has been issued.

The Court rejected this contention, relying on the decision in Abhinav Jindal v. Assistant Commissioner of Income Tax Circle 52, which clarified that the time spent by the assessee in challenging a notice does not extend or exclude the limitation period prescribed under Section 149. The Court emphasized that the Revenue must take all necessary steps within the stipulated limitation period and that failure to follow mandatory procedural requirements (such as obtaining competent authority approval) cannot be used to justify extension of limitation.

The Court reasoned that the prior success of the assessee in challenging the earlier notice does not operate as a legal impediment or court order preventing issuance of a fresh notice within the limitation period. Therefore, the limitation period for issuing the impugned notice was not extended by the pendency of earlier litigation.

Issue 3: Application of Law to Facts and Treatment of Competing Arguments

The Court applied the statutory provisions and binding precedents to the facts, noting that the impugned notice was issued beyond the six-year limitation period applicable to AY 2016-17. The Revenue's argument that the notice was valid due to prior court directions and Section 153 was found to be legally untenable. The Court underscored the principle that limitation periods are mandatory and procedural lapses or litigations do not justify extending these periods.

The Court also highlighted the protective intent of the proviso to Section 149(1)(b), which prevents retrospective application of extended limitation periods, thereby safeguarding the interests of taxpayers against reopening of assessments beyond prescribed timelines.

Conclusions

The Court concluded that the impugned notice dated 15.04.2024 issued under Section 148 for AY 2016-17 is barred by limitation and, therefore, invalid. The reassessment proceedings initiated pursuant to the notice were set aside. The Court also disposed of pending applications accordingly.

Significant Holdings

The Court's crucial legal reasoning includes the following verbatim excerpts:

"...a notice under Section 148 of the new regime cannot be issued at any time for an assessment year beginning on or before 1 April 2021... the proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assesses."

"...the time spent by the petitioner in pursuing the challenge can neither be excluded nor can be claimed as resulting in extension of the period of limitation... The Revenue is required to take all necessary steps for initiation of the assessment proceedings within the period of limitation... The fact that the Revenue had not taken the steps in accordance with law cannot possibly be construed as a factor in favour of the Revenue for extending the limitation as stipulated under Section 149 of the Act."

The core principles established are:

• The limitation period for issuance of notices under Section 148 for AYs prior to 1 April 2021 remains governed by the old regime's six-year limit, notwithstanding amendments introducing a ten-year limit for later AYs.
• The proviso to Section 149(1)(b) prevents retrospective application of extended limitation periods to protect taxpayers.
• Time spent in litigation challenging earlier notices does not extend or exclude the limitation period for issuance of fresh notices.
• Procedural non-compliance by the Revenue, such as failure to obtain competent authority approval, cannot justify extending limitation periods.
• Notices issued beyond the prescribed limitation period are invalid and subject to being set aside.

Accordingly, the Court set aside the impugned notice and the reassessment proceedings initiated thereunder, affirming the strict adherence to limitation periods and procedural requirements under the Income Tax Act.

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