Search on 14.03.2022, however notice issued after Finance Act 2024

[Mukul Panpher]

Where a search under Section 132 of the Income-tax Act was conducted on 14.03.2022 in the case of a third party and certain documents allegedly pertaining to the assessee were found therein, the AO issued a notice under Section 148 dated 25.03.2025 to the Assessee.

On the date of issuance of the impugned notice, which Finance Act was in force. As Finance Act, 2024 came with effect from 01.09.2024 whereby Explanation 2 to Section 148 stood omitted. Consequently, the statutory deeming fiction treating third-party search material as “information suggesting escapement of income” was no longer available to the Assessing Officer. 

In the absence of the said deeming provision, proceedings against an “other person” could be initiated only after strict compliance with the mandatory procedure prescribed under Section 148A, including issuance of show-cause notice under Section 148A(b), grant of opportunity of hearing, and passing of a reasoned order under Section 148A(d). So is the notice dated 25.03.2025 legally valid ?

AI Summary

Deeming provision removal vs statutory saving: reassessment notice validity hinges on which regime governs prior searches.
The 2024 amendment omitted the deeming provision treating third party search material as information suggesting escapement of income, while an express saving clause preserves the pre-amendment reassessment regime for searches initiated in a specified earlier window; the central question is whether a reassessment notice issued after the amendment but based on a preserved-date search must follow pre-amendment procedures or the post-amendment pre-notice procedure introduced by the 2024 changes.