Validity of reopening of income-tax assessment where notice served on non-existent entity; notice held time-barred and assessment quashed

Validity of reopening of assessment examined in light of procedural compliance and limitation: notice issued without adhering to the prescribed 148A procedure and served on a non-existent entity was treated as procedurally infirm, requiring a speaking order which was not rendered, and therefore invalid; separately, the income escaping assessment was quantified below the legislative monetary threshold making the notice beyond the permissible period under the amended limitation rule, rendering the notice time-barred and the consequential assessment order quashed.

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Issues: (i) Whether the notice issued under section 148 dated 12.04.2022 is time-barred under section 149(1) of the Income-tax Act, 1961 and therefore invalid; (ii) Whether proceedings under section 147 can be sustained where the statutory procedure under section 148A was not complied with and the notice was not properly served.

Issue (i): Whether the notice under section 148 dated 12.04.2022 is beyond the limitation prescribed by section 149(1)(a)/(b) of the Income-tax Act, 1961.

Analysis: The assessment reopened pertains to A.Y. 2018-19. Section 149(1)(a) bars issuance of notice under section 148 after three years from the end of the relevant assessment year unless conditions of clause (b) apply. Clause (b) permits reopening up to ten years only where the Assessing Officer possesses books, documents or evidence showing escaped income amounting to or likely to amount to fifty lakh rupees or more. The draft assessment itself quantifies the escaped income at Rs. 47,82,983 which is below the threshold of Rs. 50,00,000. The AO contended that notice under section 148 was issued on 12.04.2022; even if that date is accepted, issuance after the three-year period without requisite evidence satisfying section 149(1)(b) renders the notice time-barred. The Tribunal examined the record and found no material to establish that the income escaping assessment met the statutory threshold for extended limitation.

Conclusion: The notice under section 148 dated 12.04.2022 is time-barred under section 149(1) and is invalid. This conclusion is in favour of the assessee.

Issue (ii): Whether the assessment proceedings under section 147 are sustainable where the procedure under section 148A was not followed and the notice was not served on the assessee (including issuance in the name of a non-existent entity).

Analysis: The substituted provisions (Finance Act, 2021) require compliance with section 148A prior to issuance of a section 148 notice. The assessee asserted non-service of the section 148 notice and non-initiation of the mandatory 148A(b) procedure; the DRP also noted defects including issuance in the name of a non-existent entity and directed the AO to pass a speaking order, which was not done. The Revenue did not place on record contrary evidence to rebut the assessee's factual assertions regarding non-service and procedural non-compliance. In absence of compliance with the statutory pre-conditions under section 148A and where the notice was not properly addressed/served, the proceedings suffer from jurisdictional infirmity.

Conclusion: The assessment proceedings under section 147 are unsustainable for failure to follow section 148A procedure and for lack of valid service; this conclusion is in favour of the assessee.

Final Conclusion: The impugned notice under section 148 and the consequential assessment order passed under sections 147/144 are quashed; the appeal is allowed and the assessment proceedings are set aside.

Ratio Decidendi: A notice under section 148 is invalid if issued beyond the limitation in section 149(1) and where the statutory procedural requirements of section 148A are not complied with; reopening beyond three years is permissible only if the Assessing Officer possesses material showing escaped income of Rs. 50,00,000 or more.

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