Notice under section 148 issued after extended due date held time-barred; notice quashed as void ab initio, reassessment set aside

ITAT DELHI - AT held that, following SC precedent, the extended due date for issuing a notice under s.148 expired on 17-06-2022; a notice issued on 30-08-2022 was therefore time-barred. The notice under s.148 was quashed as void ab initio and consequent reassessment proceedings were set aside. Appeal of the assessee allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the assessment notice issued under section 148 of the Income-tax Act is barred by limitation in view of the new reassessment regime introduced by section 148A and the intervening judicial developments.

2. Whether the assessing officer's failure to supply relevant information/materials relied upon under section 148A(b) affects the commencement of time for issuing a notice under section 148.

3. Whether an order under section 148A(d) and a subsequent notice under section 148 issued after the period extended by the legal fiction and exclusions (including the period pending the supply of material and the assessee's response) is void ab initio.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Time-bar of notice under section 148 in the context of section 148A regime

Legal framework: Section 147 read with section 148 and the newly inserted section 148A establish the procedure and timelines for reopening assessments; Section 149(1) prescribes limitation for issuance of notice under section 148; statutory notifications (TOLA/other pandemic extensions) create a legal fiction extending limitation for specified periods.

Precedent treatment: The Court follows and applies the Supreme Court decisions in Ashish Agarwal and in Union of India v. Rajeev Bansal regarding (a) requirement to supply relevant information/materials with a section 148A(b) notice and (b) the effect of that requirement on the running of limitation for issuance of a section 148 notice. The decision of the jurisdictional High Court (Ram Balram Buildhome) is also considered and followed on analogous facts.

Interpretation and reasoning: Where an initial notice under the pre-148A regime was issued between 1 April 2021 and 30 June 2021, the legal fiction makes the show-cause notice deemed to have been issued in that period. However, by virtue of Ashish Agarwal and Rajeev Bansal, the show-cause notice remains stayed until the assessing officer supplies the relevant information/materials relied upon; time for the assessing officer to issue a section 148 notice under the new regime begins to run only after such supply and the assessee's response. The Court applied the Rajeev Bansal arithmetic to the facts: shortfall of days remaining from the original issuance, date of last reply by assessee, and computed the extended due date for issuance of section 148 notice; the actual notice issued later fell beyond that extended due date.

Ratio vs. Obiter: Ratio - The legal effect of Ashish Agarwal and Rajeev Bansal on the running of limitation for issuance of a section 148 notice under the section 148A regime is binding and decisive: time begins to run only after supply of material and the assessee's response; notices issued after the computed extended date are time-barred. Observational statements in the comparative factual discussion are obiter insofar as they apply to other fact patterns not before the Tribunal.

Conclusion: The section 148 notice issued on the later date is barred by limitation as the extended due date (calculated under the principles in Ashish Agarwal and Rajeev Bansal) had expired prior to issuance.

Issue 2 - Effect of non-supply of documents/materials under section 148A(b) and the assessee's response timing

Legal framework: Section 148A(b) requires that the assessing officer provide the relevant information/materials on which the show-cause notice is based; Ashish Agarwal directed assessing officers to provide such information within thirty days of the judgment, failing which the show-cause notice is not effectively issued; Rajeev Bansal clarified that the period between the deemed issuance and actual supply is excluded for limitation calculations.

Precedent treatment: Followed Ashish Agarwal for the proposition that supply of materials is a prerequisite for an effective section 148A(b) show-cause notice and Rajeev Bansal for the consequential effect on limitation; earlier holdings inconsistent with these principles are not followed.

Interpretation and reasoning: The Tribunal notes repeated requests by the assessee for the supply of documents/materials and that the AO did not furnish such material after the first section 148A(b) letter. The AO thereafter issued further section 148A(b) communications and ultimately proceeded to pass an order under section 148A(d) and issue a fresh section 148 notice without having complied with the supply requirement in substance. Under the settled law, until the material is supplied and the assessee has had the stipulated time to respond, the period does not run for issuance of section 148 notice.

Ratio vs. Obiter: Ratio - Non-supply of the materials relied upon with a section 148A(b) notice suspends the effective commencement of the limitation period for issuance of a section 148 notice; issuance of further notices without material supply does not cure the defect. Observations about specific correspondence chronology beyond what affects limitation are obiter.

Conclusion: The failure to supply relevant material meant the section 148A(b) notice remained stayed and the limitation window for issuing section 148 did not commence until supply and the assessee's response; the AO's subsequent actions did not revive a time-barred opportunity to reopen.

Issue 3 - Validity of order under section 148A(d) and reassessment framed after the extended limitation period

Legal framework: Section 148A(d) requires the AO to consider the assessee's response to the section 148A(b) show-cause notice and pass a reasoned order before issuing a section 148 notice; Section 149(1) constrains the period within which a section 148 notice may be issued, and the time available for section 148A(d) actions is effectively truncated by the remaining limitation.

Precedent treatment: The Tribunal relies on Rajeev Bansal and the jurisdictional High Court decision (Ram Balram Buildhome) which held that the AO was required to complete section 148A(d) action within the period available for issuing the section 148 notice under Section 149(1) and that failure to do so led to issuance of notice beyond limitation and consequent quashing.

Interpretation and reasoning: Applying the above principles, the Tribunal computed the remaining days left to the AO on the date of the initial notice and concluded that the AO was required to pass the section 148A(d) order within that truncated period; the AO passed the section 148A(d) order and issued section 148 notice after the computed expiry. As a consequence, the Tribunal treats the reassessment notice and proceedings as barred by limitation and void ab initio.

Ratio vs. Obiter: Ratio - Orders under section 148A(d) and notices under section 148 issued after the expiration of the extended limitation period (taking into account legal fiction, exclusions for the period until supply of material and assessee's reply) are without jurisdiction and void ab initio. Ancillary remarks on procedural fairness and timing are obiter.

Conclusion: The order under section 148A(d), the subsequent section 148 notice, and the reassessment framed pursuant thereto are held to be time-barred and quashed as void ab initio; grounds challenging assumption of jurisdiction are allowed. Other substantive grounds are left open as academic.

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