2025 (9) TMI 1296 - AT - Income Tax

Reassessment notice under section 149(1)(b) invalid as issued beyond six-year limit; notice served outside statutory timeline

Ranjit Thakur Versus Income Tax Officer, Jaipur

ITAT JAIPUR - AT held the reassessment notice invalid because, under pre-amendment Section 149(1)(b), reassessment beyond six years is impermissible. For ... Reopening of assessment - notice within the six-year period - HELD THAT:- Undisputedly, Section 149(1)(b), as it stood prior to the introduction of the amendments by way of Finance Act, 2021 prescribed that no notice under Section 148 shall be issued if four years “but not more than six years” have elapsed from the end of the relevant assessment year. Thus, the period of six years stood erected as the terminal point, which, when crossed would have rendered the initiation of reassessment impermissible in law. Therefore, the impugned notice when tested on the anvil of the pre-amendment Section 149(1)(b) to be sustained would have to meet the prescription of ‘six years’. Undisputedly, that period in respect of AY 2011-12 came to an end on 31 March 2018. We thus find ourselves unable to sustain the impugned action of reassessment which was commenced pursuant to the notice dated 11.04.2018, because as it is very much clear that the alleged notice dated 28.03.2018 had not been served as per the timeline given in the Act. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the reassessment proceedings initiated by issuance of notice under section 148 could be sustained where the notice dated within the six-year period was not served on the assessee and a subsequent service occurred after the six-year terminal point prescribed by pre-amendment section 149(1)(b). 2. Whether the Assessing Officer's completion of assessment under section 144 r.w.s. 147 is void ab initio for lack of valid service of notice under section 148. 3. Whether the Commissioner of Income Tax (Appeals) erred in passing an ex parte appellate order without giving adequate opportunity of hearing where the appeal was filed manually and the assessee's PAN was not registered on the ITBA portal. 4. Whether additions as unexplained investments for purchase of shares and bonds can be sustained where the assessee contends transactions were through banking channels, funded by a loan/advance from a third party, supported by confirmations, bank statements, broker ledger and contract notes. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 - Validity of reassessment notice under section 148 and consequence for assessment under section 144 r.w.s. 147 Legal framework: Prior to the Finance Act, 2021 amendments, section 149(1)(b) prescribed that a notice under section 148 could be issued within a period not more than six years from the end of the relevant assessment year. Section 148 triggers reassessment proceedings; assessment in absence of compliance may be completed under section 144. Precedent treatment: No earlier decisions were relied upon by the Tribunal in the judgment; the Court applied the statutory time bar in pre-amendment section 149(1)(b) as a jurisdictional limitation on initiation of reassessment. Interpretation and reasoning: The Tribunal examined the timeline: the relevant terminal date for AY 2011-12 was 31 March 2018. Although a notice dated 28.03.2018 was issued, the record (including an internal communication dated 11.04.2018) established that the purported notice of 28.03.2018 was not served and was returned. The actual service occurred only by a communication dated 11.04.2018, i.e., after the expiration of the six-year period. The Tribunal held that the statutory six-year limit under the pre-amendment section 149(1)(b) is a terminal point for issuing a valid notice; service after that terminal date cannot cure lack of service within the permissible period. Consequently, initiation of reassessment pursuant to the belatedly served notice was impermissible and the resultant assessment completed under section 144 r.w.s. 147 was vitiated for want of jurisdiction to reassess. Ratio vs. Obiter: Ratio - The initiation of reassessment by notice under section 148 must be validly served within the six-year period prescribed by pre-amendment section 149(1)(b); failure of service within that period renders subsequent reassessment invalid and assessment under section 144 r.w.s. 147 void ab initio. Obiter - Observations stressing that the six-year period is the 'terminal point' emphasize the jurisdictional nature of the time limit. Conclusion: Ground No. 1 (challenge to validity of reassessment/notice and consequent assessment) is allowed. The reassessment proceedings and the assessment completed under section 144 r.w.s. 147 are quashed for lack of valid service of the section 148 notice within the statutory period. As the Tribunal decided on this technical jurisdictional ground, remaining grounds became infructuous. Issue 3 - Alleged denial of opportunity of hearing before the CIT(A) (ex parte appellate order) Legal framework: Principles of natural justice and appellate procedure require that a party be given adequate opportunity of hearing; procedure and notices may be effected through the departmental ITBA portal where registration exists, but manual filing may require physical notice if portal notices are not effective. Precedent treatment: No specific precedential rule was applied by the Tribunal; the issue was rendered moot by the Tribunal's decision on jurisdictional ground (Issue 1). Interpretation and reasoning: The assessee submitted that the appeal before the CIT(A) was filed manually and the PAN was not registered on the ITBA portal; hence portal notices were not effectively served. The Tribunal noted these contentions but did not adjudicate them on merits because it allowed the technical jurisdictional ground (invalid reassessment notice). The Tribunal therefore treated this issue as rendered infructuous. Ratio vs. Obiter: Obiter - The Tribunal did not lay down a binding principle on adequacy of hearing or portal notice service because it disposed of the appeal on jurisdictional grounds. Conclusion: Grounds alleging denial of opportunity before the CIT(A) are not adjudicated on merits and are rendered infructuous by allowance of the jurisdictional ground. Issue 4 - Sustenance of additions as unexplained investments in shares and bonds where assessee placed bank payments, third-party confirmations and broker records on file Legal framework: Additions as unexplained investments require the revenue to establish the investment and, where established, the assessee may explain source of funds; evidentiary burden before AO and appellate tribunal follows statutory and settled principles (burden shifts in specified circumstances but ultimate proof of source and genuineness rests on material). Precedent treatment: The Tribunal did not apply or distinguish any precedents on the quantum or sufficiency of evidence because the primary jurisdictional defect disposed of the matter. Interpretation and reasoning: The assessee produced documentary evidence in the appellate proceedings - loan/advance confirmation by a third party, bank statement showing payment for bond, bank entries showing repayment, broker ledger and contract notes reflecting share transactions - asserting that investments were made through proper banking channels and funded by an advance/loan. The AO made additions on the basis of ITS data showing aggregate investments and the assessee's failure to file return; AO treated source as unexplained and added the amounts to income. The CIT(A) upheld those additions noting absence of documentary proof from the assessee in the appellate record. The Tribunal observed these contentions and materials were placed on record but did not decide the merits of the additions because the reassessment itself was quashed on the jurisdictional ground. Ratio vs. Obiter: Obiter - The Tribunal did not express a conclusive finding on whether the proffered documents sufficed to discharge the assessee's burden to explain the source of investments; that issue remains open in view of quashing of reassessment. Conclusion: Grounds challenging additions of Rs. 5,87,200 (shares) and Rs. 5,00,000 (bonds) are rendered infructuous by allowance of the jurisdictional ground and therefore were not decided on merits; the additions cannot stand in the present proceedings because the reassessment and assessment have been quashed. Final Disposition The Tribunal allowed the appeal on the jurisdictional ground that the notice under section 148 was not served within the six-year period prescribed by pre-amendment section 149(1)(b), thereby rendering the reassessment proceedings and the consequent assessment under section 144 r.w.s. 147 void ab initio; other grounds were treated as infructuous and not adjudicated on merits.