Notice under s.148 issued 29.07.2022 held time-barred as extended due date expired 28.06.2022; consequential reassessment quashed void ab initio

ITAT DELHI - AT held that the notice under s.148 issued on 29.07.2022 was time-barred because the extended due date for issuance expired on 28.06.2022 under the applicable extended limitation regime. Consequential reassessment proceedings were quashed as void ab initio. The assessee's appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether the notice issued under section 148 after substitution of section 148 w.e.f. 01.04.2021 is time-barred when an earlier notice under the pre-substitution provisions had been issued and subsequent 148A proceedings were carried out.

2. Whether the period excluded by virtue of judicially recognised "legal fiction" and the exclusions under the third proviso to section 149 (including the two-week period to reply to a show-cause and the period between deemed notice and supply of material) must be applied in computing the surviving limitation for issuing a fresh section 148 notice under the substituted regime.

3. Whether a notice under section 148 issued after the expiration of the surviving time limit (calculated by applying the above exclusions and the time remaining from the original pre-substitution notice) renders the reassessment proceedings void ab initio.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of post-substitution section 148 notice where an original pre-substitution notice existed

Legal framework: The statutory change to section 148 effective 01.04.2021 creates a new regime for issuance of reassessment notices; transitional and time-computation provisions (including section 149 and relevant extensions) govern surviving limitation. The procedural steps under section 148A (notice, reply, consideration, order under 148A(d)) must be observed before issuing a section 148 notice under the new regime.

Precedent treatment: The Court applied the controlling highest-court rulings that treated the pre-substitution notices as creating a legal fiction and directed exclusion of certain periods from limitation computation; those rulings also clarified that the clock for the assessing officer starts after receipt of the assessee's reply to the section 148A(b) show-cause and that the assessing officer must complete specified steps within the surviving limitation.

Interpretation and reasoning: The Tribunal examined the timeline: original pre-substitution notice date, issuance of section 148A(b), dates of replies, the date of order under 148A(d), and the date when the challenged section 148 notice was actually issued. Applying the judicially mandated exclusions (period from original deemed notice to supply of material; two-week reply period; and period between receipt of reply and the AO's decision), the Tribunal calculated the surviving limitation available to the AO. On the facts, the AO had only a truncated period remaining which expired before the impugned notice was issued.

Ratio vs. Obiter: Ratio - Where a pre-substitution section 148 notice was issued and subsequent 148A proceedings are required under the new statutory scheme, the surviving time limit (after excluding periods directed by the higher authority) governs the validity of any later section 148 notice; a notice issued after that surviving time limit is invalid. Obiter - Ancillary observations on the mechanics of counting days in particular calendar scenarios that reflect the tribunal's application to the fact pattern.

Conclusion: The post-substitution section 148 notice issued on the facts is time-barred. The Tribunal allowed the additional ground challenging assumption of jurisdiction under section 147 on limitation grounds.

Issue 2 - Application of exclusions (legal fiction and third proviso to section 149) in computing the surviving limitation

Legal framework: The third proviso to the provision governing limitation requires exclusion from computation of specified periods (including the period during which litigation about the validity of notices was pending and the short statutory reply period). The concept of a judicially created "legal fiction" treats the original notice as having continuing effect for purposes of limitation, necessitating exclusion of intervening periods where courts required supply of material and where assesses were granted time to respond.

Precedent treatment: The Tribunal followed the higher court's construction that (i) the period from issuance of the deemed old-regime notice until supply of material by the AO must be excluded; (ii) the two-week reply period under the proviso is excluded; and (iii) the clock for the assessing officer runs only after receipt of the assessee's reply to the 148A(b) notice, subject to the surviving limitation under section 149 and any statutory extensions in force.

Interpretation and reasoning: The Tribunal set out a step-by-step calendar computation: (a) date of original notice; (b) time remaining as at that date under the old regime (surviving days); (c) date of section 148A(b) notice; (d) assessee's reply dates; (e) accounting for the two-week exclusion and the exclusion of the period mandated by judicial decisions; and (f) the resulting "extended due date" by which any new section 148 notice had to be issued. The reasoning emphasises that the AO's obligations under section 148A(d) and the decision to issue section 148 must be completed within the truncated time that remained on the original limitation clock after exclusions.

Ratio vs. Obiter: Ratio - The excluded periods specified by judicial direction and the third proviso to section 149 must be subtracted before determining the residual period available to the AO to issue a reassessment notice under the new regime; procedural steps under section 148A must be completed within that residual period. Obiter - Examples and calendar illustrations used to demonstrate the application.

Conclusion: The exclusions under the judicially recognised legal fiction and the third proviso materially reduced the available time; applying them led to the conclusion that the AO's later notice was beyond the surviving time limit.

Issue 3 - Consequence of issuing a section 148 notice beyond the surviving time limit

Legal framework: If a reassessment notice under section 148 is issued after the expiry of the statutory limitation (after applying all relevant exclusions and statutory extensions), the reassessment lacks jurisdiction and is liable to be quashed as void ab initio.

Precedent treatment: The Tribunal applied authoritative precedent treating time-barred reassessment notices as jurisdictionally invalid and requiring quashing of consequent proceedings and orders where limitation has expired.

Interpretation and reasoning: Given the finding that the notice was issued after the surviving limitation expired, the Tribunal concluded that the reopening was jurisdictionally defective. The Tribunal also noted supporting reasoning from a jurisdictional High Court decision addressing identical legal questions and reaching similar conclusions on the necessity of completing section 148A processes within the available residual time.

Ratio vs. Obiter: Ratio - A notice under section 148 issued beyond the properly computed surviving limitation is barred by limitation and the reassessment proceedings founded on that notice are void ab initio. Obiter - Observations on interplay between various provisos and any monthly deadlines that do not relieve the AO from completing 148A steps within the residual limitation.

Conclusion: The reassessment was quashed on limitation grounds and the appeal was allowed; other grounds became academic and were left open.

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