Notice under Section 148 held time-barred; reassessment void ab initio as TOLA extension inapplicable with income below Rs 50 lakh

ITAT (Kolkata) held the notice issued under section 148 was time-barred and the reassessment proceedings void ab initio. The bench found TOLA's extension applied only where the compliance deadline fell between 20 Mar 2020 and 30 Jun 2021; here the assessee replied on 03.06.2022 and total income was below Rs 50 lakhs, so the six-year limitation could not be extended. Relying on higher-court precedent, the appeal by the assessee was allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a notice under section 148 issued on 27.07.2022 for assessment year 2018-19 is time-barred under the new reassessment time limits introduced with effect from 01.04.2021 (section 149), when the alleged escaped income is below the Rs. 50 lakh threshold.

2. Whether the proviso to section 149(1)(b) and the Supreme Court's interpretation in the Rajib Bansal line of cases (as summarized in paragraphs reproduced in the record) preclude issuance of a section 148 notice after the shorter three-year period where the notice is issued after 01.04.2021 but the escaped income falls below Rs. 50 lakhs.

3. Whether the statutory extension of limitation periods related to the COVID-19 period (time-limit extension up to 30.06.2021 for compliances falling between 20.03.2020 and 30.06.2021) affects the computation of the three-year limitation for issuance of the section 148 notice in the present facts.

4. If the section 148 notice is held time-barred, whether the consequent reassessment proceedings are void ab initio and must be quashed without determination of merits.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Time-barred nature of section 148 notice issued on 27.07.2022 under the new regime

Legal framework: Section 149 prescribes time limits for issuance of reassessment notices under section 148. The post-1 April 2021 ("new regime") reduced the ordinary reassessment period from four years to three years and raised the extended threshold for longer reassessment periods from Rs. 1 lakh to Rs. 50 lakhs (and extended the maximum period from six to ten years subject to proviso limiting retrospectivity).

Precedent treatment: The judgment in the Rajib Bansal line (as reproduced and applied by the Court) holds that notices must be judged by the law on the date of issuance; for AY 2018-19 the three-year period under the new regime expired on 31.03.2022 if a notice is issued after 01.04.2021. The decision also explains that the proviso to section 149(1)(b) preserves the old shorter extended periods for years where the old regime's six-year cut-off had already expired, thus preventing retrospective application of the new ten-year limit.

Interpretation and reasoning: The Tribunal applied the textual operation of section 149 and the Supreme Court's guidance: since the notice in question was issued on 27.07.2022 (i.e. after 01.04.2021) the three-year ordinary limit applies. For AY 2018-19, three years from the end of that assessment year expired on 31.03.2022. The alleged escaped income in the present case was below Rs. 50 lakhs; hence the extended 10-year limit (which requires escaped income exceeding Rs. 50 lakhs) does not become available to the Revenue. Accordingly, issuance on 27.07.2022 is outside the three-year window and therefore time-barred.

Ratio vs. Obiter: Ratio - Notices under section 148 issued after 01.04.2021 must satisfy the three-year ordinary limitation unless the escaped income meets the Rs. 50 lakh threshold for extended reassessment; if the escaped income is below the threshold, a notice issued after the three-year cut-off is invalid. The Tribunal's application of the Rajib Bansal reasoning to these facts is binding in result. No obiter on alternate grounds was relied upon.

Conclusion: The section 148 notice dated 27.07.2022 is time-barred under the new regime inasmuch as the alleged escaped income is less than Rs. 50 lakhs, and therefore the notice is invalid.

Issue 2 - Operation of proviso to section 149(1)(b) and limits on retrospectivity

Legal framework: The proviso to section 149(1)(b) limits retrospectivity of the new regime's extended time limits by ensuring that where the six-year period under the old regime has already expired for earlier assessment years, the new ten-year period cannot be invoked retrospectively to revive the Revenue's power to reopen.

Precedent treatment: The Supreme Court has interpreted the proviso as protective of assessee interests and as limiting the retrospective operation of the new extended time limit (ten years) so that it does not revive opportunities to reopen years for which six-year old regime period already expired at the date of issuance.

Interpretation and reasoning: The Tribunal noted that the proviso's purpose is to prevent retroactive expansion of reassessment power and confirmed that the new longer time limit (ten years) is available only prospectively and only where the escaped income threshold is met. In the instant facts, the escaped income allegation (below Rs. 50 lakhs) does not activate the extended period, and the proviso does not operate to assist the Revenue in any event.

Ratio vs. Obiter: Ratio - The proviso prevents retrospective application of the extended time limit and reinforces that the availability of extended reassessment depends both on the date of notice and on the monetary threshold of escaped income.

Conclusion: The proviso does not aid the Revenue; the extended periods are not applicable in the present case and the section 148 notice remains invalid.

Issue 3 - Effect of COVID-period time-limit extension on computation of limitation for issuance of section 148 notice

Legal framework: Temporary extensions of time for compliance (covering the period 20.03.2020 to 30.06.2021) were provided for certain tax compliances (the record refers to extension up to 30.06.2021); the relevance is whether such extensions affect the computation of the three-year reassessment limitation.

Interpretation and reasoning: The Tribunal observed that the assessee replied on 03.06.2022 and that the time-limit extension provisions (TOLA as referred in the record) only operate where the original compliance deadline fell within the specified COVID window. The three-year limitation for AY 2018-19 expired on 31.03.2022 and the temporary extension up to 30.06.2021 (for deadlines falling between 20.03.2020 and 30.06.2021) does not extend the three-year computation beyond 31.03.2022 in a manner that would validate the 27.07.2022 notice.

Ratio vs. Obiter: Ratio - The COVID-period extensions as described did not revive or extend the three-year limitation applicable to the issuance of the section 148 notice in this matter; they do not validate a notice issued after 31.03.2022 where the three-year period has already expired.

Conclusion: The temporary extension provisions do not cure the limitation defect; the section 148 notice remains time-barred.

Issue 4 - Consequence of timeliness defect: voidness of reassessment proceedings and scope of disposal

Legal framework: A reassessment initiated by a notice under section 148 that is invalid by reason of being time-barred is without jurisdiction; proceedings founded on such notice are void ab initio and cannot be sustained.

Interpretation and reasoning: Applying the foregoing conclusions that the section 148 notice was invalid, the Tribunal held that the entire reassessment proceeding based on that notice is void ab initio. Because the decision was founded on the legal question of limitation and jurisdiction, the Tribunal declined to go into adjudication on merits of the additions (accommodation entries and disallowance of interest) and disposed of the appeal by quashing the reassessment.

Ratio vs. Obiter: Ratio - Where a reassessment notice is invalid for being issued after the statutory limitation, the consequent assessment proceedings are void ab initio and must be set aside without adjudication on substantive grounds.

Conclusion: The reassessment proceedings are void ab initio; the appeal is allowed on the legal issue of limitation and no further discussion on merits is necessary.

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