Limitation for reassessment failed when reopening was based on inflated cash deposits and the notice was issued beyond the lawful period.

Reassessment under section 148 based on an inflated cash-deposit figure was held invalid because the Assessing Officer acted on incorrect facts. The bank statements showed actual cash deposits of only Rs. 19,50,000, so the matter fell within the lower limitation threshold under section 149(1)(b), requiring reopening within three years from the end of the relevant assessment year. As the notice under section 148 was issued beyond that period, it was time-barred, and the consequential order under section 148A(d) also failed because the foundational notice was defective. The reassessment proceedings were therefore set aside in favour of the assessee.

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Issues: Whether the notice under section 148 of the Income-tax Act, 1961 and the consequential order under section 148A(d) were barred by limitation when the reassessment was initiated on an incorrect and inflated figure of cash deposits, whereas the actual cash deposits reflected in the bank statements were below the statutory threshold.

Analysis: The additional legal grounds were admitted because the challenge went to the root of jurisdiction and could be decided on the existing record. The reassessment machinery was triggered on the basis of information showing cash deposits in excess of Rs. 50 lakhs, but the bank statements produced by the assessee showed that the actual cash deposits were only Rs. 19,50,000. The material placed before the Assessing Officer was not properly examined, and the impugned notices and order proceeded on incorrect and non-existing facts. On the correct facts, the case fell within the lower threshold under section 149(1)(b), so the reopening could be made only within three years from the end of the relevant assessment year. Since the notice under section 148 was issued beyond that period, the reopening was time-barred. The defect in the foundational notice vitiated the reassessment order as well.

Conclusion: The notice under section 148 and the consequential reassessment proceedings were invalid and liable to be set aside. The issue was decided in favour of the assessee.

Ratio Decidendi: Limitation for reassessment must be computed on the basis of the correct and actual material available on record, and a notice issued on an inflated or non-existent factual foundation cannot be saved by treating the case as falling within the extended limitation regime.

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