Issue
Facts
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Reassessment Notice Issued: The Assessing Officer issued a notice under Section 148 on 07.04.2022 for Assessment Year 2015–16, which was beyond six years from the end of the relevant assessment year.
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Revenue’s Argument: The Revenue contended that the limitation period was extended by excluding the time allowed for replying to the show-cause notice under Section 148A(b), relying on the provisos to Section 149(1) inserted by the Finance Act, 2023.
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Assessee’s Contention: The assessee argued that the Finance Act, 2023 provisos were not applicable on the date the notice was issued (07.04.2022) and that no extension of time had been requested or sought by the assessee to respond to the Section 148A(b) notice.
Decision
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Non-Applicability of Retrospective Amendments: The provisos to Section 149(1) relied upon by the Revenue were inserted by the Finance Act, 2023 with effect from 01.04.2023 and were not on the statute book when the Section 148 notice was issued on 07.04.2022.
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No Exclusion of Time: Since the assessee never sought extra time to file a reply to the notice under Section 148A(b), no time period could be excluded when computing the limitation under Section 149(1).
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Final Verdict: The Section 148 notice dated 07.04.2022 was invalid for being time-barred, rendering the consequent reassessment order vitiated and void. The issue was decided in favor of the assessee.
Key Takeaways
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Prospective Application of Statutory Amendments: Amendments extending limitation periods inserted by later Finance Acts cannot be applied retroactively to validate reassessment notices issued before their effective date.
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Strict Conditions for Time Exclusion: Exclusion of time for calculating limitation under Section 149 applies only when the assessee explicitly requests and is granted additional time to respond to a Section 148A(b) notice.
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Consequence of Time-Barred Notice: Reassessment proceedings initiated through an invalid or time-barred Section 148 notice nullify any subsequent order passed under Section 147.
and MANJUNATHA G, Accountant Member
[Assessment year 2015-2016]
| (a) | Set aside the impugned order dated 24.12.2025 passed by the learned Commissioner of Income Tax (Appeals) under Section 250 of the Income-tax Act, 1961, insofar as it upholds the validity of initiation of reassessment proceedings; |
| (b) | Hold that the initiation of reassessment proceedings under Sections 147/148 read with Sections 148A, 149 and 151A of the Act is invalid, barred by limitation, and contrary to the statutory scheme governing faceless reassessment; |
| (c) | Consequently, quash the reassessment proceedings initiated for Assessment Year 2015-16 in entirety; |
| (d) | In the alternative and without prejudice, hold that the amounts received during the Financial Year 2014-15 constituted advance sale consideration in respect of a capital asset and that no income chargeable to tax arose in Assessment Year 2015-16 in view of Section 45 read with Section 2(47) of the Act; |
| (e) | Delete the consequential levy of interest under Sections 234A and 234B and initiation of penalty proceedings, if any; |
| (f) | Grant such other or further relief as this Hon’ble Tribunal may deem fit in the facts and circumstances of the case. |
“49. The first proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed under Section 149(1xb) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the
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| (a) | if three years have elapsed from the end of the relevant assessment year unless the case falls under clause (b), |
| (b) | if three years, that not more than ten years, have elapsed from the end of the relevant assessment yes unless the Assessing Officer has it his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of- |
| (i) | an asset |
| (ii) | expenditure in respect of a transaction or in relation to an event of occasion; or |
| (iii) | an entry or entries in the books of account, Which has escaped assessment amounts to or in likely to amount to fifty lakh rupees or more; |
Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1 day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C. as the case may be, as they stood immediately before the commencement of the Finance Act, 2021;
Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order er injunction of any court, shall be excluded:
Provided also that where immediately after the exclusion of the period referred to in the Immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A does not exceed seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.
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notice. This also ensures that the new time limit of ten years prescribed under Section 149(1)(b) of the new regime applies prospectively. For example, for the assessment year 2012-2013, the ten year period would have expired on 31 March 2023, while the six year period expired on 31 March 2019 Without the proviso to Section 149(1)(b) of the new regime, the Revenue could have had the power to reopen assessments for the year 2012-2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assessees.”
“53. The position of law which can be derived based on the above discussion may be summarized thus (1) Section 140(1) of the new regime is not prospective. It also applies to past assessment years; (4) The time limit of four years is now reduced to three years for all situations. The Revenue can issue notices under Section 148 of the new regime only if three years or less have elapsed from the end of the relevant assessment year, (iii) the proviso to Section 149(1)(b) of the new regime stipulates that the Revenue can issue reassessment notices for past assessment years only if the tune limit survives according to Section 149(1)(b) of the old regime, that is, six years from the end of the relevant assessment year, and (iv) all notices issued invoking the time limit under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.”
Time limit for notice.
149. (1) No notice under section 148 shall be issued for the relevant assessment year;
| (a) | if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); |
| (b) | if four years, but nor more than six years, have elapsed trees the end of the relevant assessment year unless the chargeable to tax which has escaped assessment amounts or is likely to amount to one lakh rupees or more for that year. |
| (c) | if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any city) located outside India, chargeable to tax, has escaped assessment. |
Explanation in determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.
(3) If the person on whom a notice under section 148 is to be treated as the agent of a non-resident under section 163 and the assessment, reassessment or re-computation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year.
Explanation for the removal of doubt, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1 day of April, 2012.
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“15. The validity of a notice must be judged on the basis of the law existing as on the date on which the notice is issued under Section 148 of the Act, which in the present case is 31st July 2022, by which time the Finance Act, 2021 is already on the statute and in terms thereof, no notice under Section 148 of the Act for AY 2014-15 could be issued on or after” April 2021 based on the first proviso to Section 149 of the Act. Therefore, the fifth proviso cannot apply in a case where the first proviso applies because, if a notice under Section 148 of the Act could not be issued beyond the time period provided in the first proviso, then the fifth proviso could not save such notices The fifth proviso can only apply where one has to determine whether the time limit of three years and ten years in Section 149(1) of the Act are breached.
16. The sixth proviso to Section 149 of the Act has no impact as it only provides a situation where after exclusion of the time period referred to in the fifth proviso, the time available with the Assessing Officer for passing an order under Section 148A(d) of the Act is less than 7 days, then the remaining time frame shall be extended to 7 days and limitation also stands extended by 7 days”
“12. In this case, as it pertains to Assessment Year 2017-18, six years period would have expired on 31 March 2024 whereas notice under Section 148 of the Act itself came to be issued on 1 May 2024. Mr. Siddharth Bapna, counsel for Revenue, made an attempt to argue that fifth and sixth provisos to Section 149(1)(b) of the Act would save the period of limitation for issuing notice under Section 148 of the Act. We are afraid we do not agree with him. Same argument was raised in Hexaware Technologies Lid (supra) and was rejected. The Court held, with respect to applicability of fifth and sixth provisos to Section 149(1)(b) of the Act for extension of limitation for issuing notice under Section 148 of the Act, fifth and sixth provisos are only applicable with respect to the period of limitation prescribed under Section 149(1) of the Act i.e., three years or ten years, as the case may be. The Court also held that fifth and sixth provisos extend limitation for issuing notice under Section 149 of the Act, however, first proviso is an exception to the period of limitation and provides for a restriction on the notices under Section 148 of the Act being issued for assessment years up to 2021-22 (in thes case, it is Assessment Year 2017-18) beyond a certain date. Therefore, the way the section would operate, is to first decide whether a notice issued under Section 148 of the Net is within the period of limitation under Section 149(1)(2 (b) of the Act. To decide whether the notice is within the period of limitation under Section 149(1)(a) or (b) of the Act, the extension of time as prescribed in fifth and/or sixth proviso would be considered. The Court further held once, the notice is otherwise within the period of limitation. thereafter one has to see whether the said limit is within the prescribed restriction provided in first proviso or not. If the netice is beyond the restriction period, the notice is invalid, and the fifth and/or the sixth proviso cannot apply at this stage to extend the period of restriction as per first proviso. Hence, if a notice is not within the time prescribed under first proviso to Section 149(1) of the Act, then such period cannot be extended by fifth or sixth proviso. In Hexaware Technologies Ltd. (supra), the Court had relied upon another judgment of Bombay High Court in Godrej Industries Lid. v. Assistant Commissioner of Income-tax (2024) 160 tasmann.com 13 (Bombay)/(2024) 338 CTR (Bom) 25, which was also authored by one of us (the Chief Justice), where paragraph No.15 reads as under:
“15 The validity of a notice must be judged on the basis of the law existing as on the date on which the notice is issued under Section 148 of the Act, which in the present case is 31″ July 2022, by which time the Finance Act, 2021 is already on the statute and in terms thereof, no notice under Section 148 of the Act for AY 2014-15 could be issued on or after 1″ April 2021 based on the first proviso to Section 149 of the Act. Therefore, the fifth proviso cannot apply in case where the first proviso applies because, if a notice under Section 148 of the Act could not be issued beyond the time period provided in the first proviso, then the fifth proviso could not save such notices. The fifth proviso can only apply where one has to determine whether the time limit of three years and ten years in Section 149(1) of the Act are breached.”
“1. On perusal of the assessment order u/s 143(3), it is seen that addition made of Rs.40,00,00,000/- on unexplained cash credits with regard to shares allotment to M/s. Cancer Treatment Services Hyderabad Pvt. Ltd. However, AO added only Rs.40,00,000/- instead of Rs.40,00,00,000/- in the computation of total income. This amounts to short addition made of Rs.39,60,00,000/- having tax effect of Rs.30,59,10,000/- excluding interest.
2. From the tax audit report in Farm 3CD, it is observed that the assessee’s company has not paid employees contribution to PF within the due dates prescribed under the acts. In view of the same, the same has to be disallowed u/s 36(1)(va) of the Act. The AO has not made any disallowance u/s 35(1)(va). Hence, an amount of Rs.6,35,949/- shall be disallowed u/s 36(1)(va). Tax effect (excluding interest) of disallowance u/s 36(1)(va) is Rs.2.20,089/-
3. As verified from 3CD report, assessee was shown the an amount of Rs. 78,26,412/- additions to the block of assets. During the assessment proceedings, assessee has not given details and supporting evidences about additions to the block of assets. Hence, the AO has not verified the genuineness of the additions to the block of assets. Hence, the depreciation claimed of Rs. 78,26,412/-is not allowable and the same has to be added to the total income of the assessee. The tax effect of disallowing depreciation is Rs.27,08,565/-”
“5.1. The assessee requested that the claim of the assessee is found to be in order towards belated payments of ESVEPF amounting to Rs.6,35,949, However, in recent judgement passed by Apex court in the case of Mis Checkmate Services (P) Ltd v. CIT (791 SC 2022) hell that it is an essential condition for the deduction of employees contribution that such amounts are deposited on or before the due dates defined by the respective statues Therefore contention of the assessee is not in order.
5.2. Further, the assessee furnished partial bills/vouchers towards additions made to fixed assets for the Y 2016-17 relevant to A.Y 2017-18. Since the volumes of the information furnished the same needs to be verified further with third party confirmations, Therefore, the depreciation claimed by the assessee amounting to Rs. 78,26,412 is still stand unexplained with proper evidence.”
“4. Having heard learned counsel appearing on behalf of the respective parties and having gone through the impugned judgment and order passed by the High Court, we are of the opinion that the High Court has committed serious error in observing and holding that the notice under section 154 was invalid as the same was beyond the period of limitation as prescribed/provided under section 154(7) of the Act. It is required to be noted that the proceedings under section 154 of the Act were not the subject-matter before the High Court. Nothing was on record that, in fact, the notice under section 154 of the Act was withdrawn on the ground that the same was beyond the period of limitation prescribed under section 154(7) of the Act. In the absence of any specific order of withdrawal of the proceedings under section 154 of the Act, the proceedings initiated under section 154 of the Act can be said to have been pending.
5. In that view of the matter, during the pendency of the proceedings under section 154 of the Act, it was not permissible on the part of the Revenue to initiate the proceedings under section 147/148 of the Act pending the proceedings under section 154 of the Act. The High Court has erred in presuming and observing that the proceedings under section 154 were invalid because the same were beyond the period of limitation.”
“6. We heard the parties and perused the material on record. In assessee’s case, the AO issued the original notice under section 148 dated 29.06.2021 for AY 2015-16 and consequent to the directions given by the Hon’ble Supreme Court in the case of Ashish Agrawal (supra), the said notice was deemed as notice issued under section 148A(b). The Assessing Officer after passing the order under section 148A(d) issued the notice under section 148 dated 29.07.2022. The contention of the assessee is that the said notice is barred by limitation as per the first proviso to the un-amended provisions of section 149(1) as has been confirmed by the decision of the Hon’ble Supreme Court in the case of Rajeev Bansal (supra). The relevant observations of the Hon’ble Supreme Court reads as under-
19. Mr N Venkataraman, learned Additional Solicitor General of India, made the following submissions on behalf of the Revenue:
(a) to (c)****
(f). The Revenue concedes that for the assessment year 2015-16, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA;
46. The ingredients of the proviso could be broken down for analysis as follows:
(i) no notice under section 148 of the new regime can be issued at any time for an assessment year beginning on or before 1 April 2021;
(ii) if it is barred at the time when the notice is sought to be issued because of the “time limits specified under the provisions of 149(1)(b) of the old regime.
Thus, a notice could be issued under section 148 of the new regime for assessment year 2021-2022 and before only if the time limit for issuance of such notice continued to exist under section 149(1)(b) of the old regime.
49. The first proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed under section 149(1)(b) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed under section 149(1)(b) of the new regime applies prospectively. For example, for the assessment year 20122013, the ten year period would have expired on 31 March 2023, while the six year period expired on 31 March 2019. Without the proviso to Section 149(1)(b) of the new regime, the Revenue could have had the power to reopen assessments for the year 2012-2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assesses.
7. This issue of notice under section 148 issued for 2015-16 being time barred is considered by the coordinate bench in the case of Pushpak Realities Pvt. Ltd. (supra) and it is held that
*****For the A.Y.2015-16, the Revenue itself has contended before the Hon’ble Supreme Court as noted above, all the notices issued on or after 01/04/2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA. Here notice w/s. 148 for the A.Y. 2015-16 has been issued on 28/07/2022 which is admittedly barred by limitation under the new provision of Section 149(1) and it is not covered under TOLA. Accordingly, all the notices are quashed being barred by limitation on the reasons given above and we are not going on the reasons given by the Id. CIT (A) for quashing the notice.”
8. A combined reading of the above observations of the Hon’ble Supreme Court and the findings of coordinate bench makes it clear that the test for checking the validity of notices issued under section 148 under new regime for AYs 2021-22 or prior years is whether the period of six years has expired at the time of issue of such notice and in that case the notice under section 148 becomes invalid. These observations also makes it clear that the time limit of ten years as per the amended provisions of section 149(1)(b) can be applied only prospectively. In assessee’s case when we apply this test for AY 2015-16, the period of six years has expired on 31.03.2022 and therefore the notice dated 29.07.2022 under section 148 of the Act for AY 2015-16 is invalid since it is barred by limitation. Accordingly the assessment completed under section 147 of the Act is liable to be quashed.
9. Since we have already quashed the order under section 147 based on the legal contention of notice being time barred the other legal contentions raised by the assessee in the CO have become academic not warranting any adjudication. Accordingly the CO is partly allowed.
10. We have quashed the order of re-assessment for AY 201516 considering the legal contentions raised by the assessee in the C.O. therefore the appeals of the revenue for AY 2015-16 contending the relief granted by the CIT(A) on the merits of the issues have become infructuous. Accordingly, the appeals of the revenue are dismissed.”