Reassessment Notice Issued Beyond Three Years Void As Embedded Income Failed Rs 50 Lakh Threshold

By | October 1, 2026
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Reassessment Notice Issued Beyond Three Years Void As Embedded Income Failed Rs 50 Lakh Threshold
Issue
Whether a reassessment notice under Section 148 issued beyond the 3-year limitation period is legally valid under Section 149(1)(b) when the actual income component embedded in gross contractual receipts is less than the statutory threshold of Rs. 50 lakhs.
Facts
  • The assessee-company did not file its return of income for Assessment Year 2013-14 owing to an internal management dispute.
  • Based on information in Form 26AS regarding gross contractual receipts deposited in the bank, the Assessing Officer issued a notice under Section 148.
  • Subsequently, the Assessing Officer passed an order under Section 148A(d) and issued a fresh notice under Section 148 on 18-07-2022, alleging that the income embedded in contractual receipts represented an asset exceeding Rs. 50 lakhs which had escaped assessment.
  • The Assessing Officer proceeded to complete the assessment by applying a net profit rate of 8% on the gross receipts to compute the addition.
  • The actual income element derived by applying the 8% net profit rate to gross contractual receipts was admittedly less than the statutory requirement of Rs. 50 lakhs.
Decision
  • Held, yes. Since the extended period of limitation under Section 149(1)(b) requires income chargeable to tax that has escaped assessment to be Rs. 50 lakhs or more, and the actual embedded income in gross receipts was below Rs. 50 lakhs, the statutory precondition was not fulfilled.
  • Held, yes. Consequently, the impugned notice issued under Section 148 beyond the normal 3-year limit was invalid and set aside in favor of the assessee.
Key Takeaways
  • Gross Receipts vs. Income Element: For invoking the extended limitation period under Section 149(1)(b), the criterion is the quantum of income escaping assessment, not the gross turnover or gross receipts.
  • Strict Threshold Compliance: The extended 10-year/6-year reassessment window under Section 149(1)(b) cannot be triggered unless the Revenue conclusively demonstrates that the actual taxable income escaping assessment meets or exceeds Rs. 50 lakhs.
  • Jurisdictional Defect: Reassessment notices issued after 3 years without satisfying the monetary threshold of Section 149(1)(b) are void ab initio for lack of jurisdiction.
HIGH COURT OF BOMBAY
Ruhaan Shelters (P.) Ltd.
v.
Income-tax Officer
B.P. COLABAWALLA and FARHAN P. DUBASH, JJ.
WRIT PETITION NO. 1038 OF 2026
SEPTEMBER  11, 2026
Devendra Jain for the Petitioner. Vikas T. Khanchandani for the Respondent.
ORDER
1. Rule. Respondents waive service. With the consent of the parties, Rule made returnable forwthwith and heard finally.
2. The above Writ Petition inter alia challenges the order dated 18th July 2022 passed under Section 148A(d) and Notice dated 18th July 2022 issued under Section 148 of the Income Tax Act, 1961 (“the Act”). The Assessment Year in question is Assessment Year 2013-14.
3. One of the many grounds on which the above Notice is challenged is that the Jurisdictional Assessing Officer had no jurisdiction to issue the impugned Notice and it was the Faceless Assessing Officer who had to issue the same. In support of this contention, the Petitioner relied upon the decision of this Court in the case of Hexaware Technologies Ltd. v. Asstt. CIT  464 ITR 430 (Bombay)/[Order dated 3d May2024passed in Writ Petition No. 1778 of2023].
4. Following the aforesaid decision in Hexaware Technologies Ltd. (supra), the present Writ Petition initially came to be allowed and the impugned Notice issued under Section 148 was set aside vide an order of this Court dated 27th January 2026. Since the challenge to the decision of this Court in the case of Hexaware Technologies Ltd. (supra) was pending before the Hon’ble Supreme Court, and in order not to burden the Revenue to approach the Supreme Court in every matter, we had, while disposing of the Writ Petition, granted an opportunity to the Revenue to revive the above Writ Petition in the event the decision in Hexaware Technologies Ltd. (supra) was set aside by the Hon’ble Supreme Court on this issue.
5. It now transpires that the issue in Hexaware Technologies Ltd. (supra) has been remanded to the High Court for a de novo consideration, especially taking into account the amendment introduced by the Legislature, namely the insertion of Section 147A, with effect from 1st April 2026, having retrospective effect. The Hon’ble Supreme Court also clarified that all the contentions raised before the Hon’ble Supreme Court as well as any other grounds to quash the impugned Notices could be urged before the High Court. It was further clarified that the Hon’ble Supreme Court had not expressed any opinion on the merits of the controversy. Accordingly, the above Writ Petition was restored to the file of this Court by another Division Bench vide its order dated 20th July 2026. This is how the matter has once again come up before us.
6. Mr. Jain, the learned Counsel appearing on behalf of the Petitioner submitted the factual matrix of the case to be as under :
6.1 The Petitioner is a company engaged in the business of real estate as RCC contractors (construction contracts). For Assessment Year 201314, the Petitioner could not file its return of income on account of dispute within the management of the Petitioner company. However, the TDS statement i.e. Form 26AS reflected the details/amounts of the contractual receipts (being Rs. 3,25,80,250/-) during the relevant Assessment Year.
6.2 Based on the entries as reflecting in Form 26AS [Exhibit A2] a Notice dated 21st April 2021 [Exhibit B] was issued under Section 148 of the Act for reassessing the income of the Petitioner for A.Y. 2013-14.This re-assessment proceeding was initiated based on the law of reopening as it stood upto 31st March 2021 (the erstwhile / old re-assessment regime).
6.3 However, subsequently, pursuant to the order dated 4 th May 2022 of the Hon’ble Supreme Court in the case of UOI v. Ashish Agarwal   (SC)/[(2022) SCC Online SC 543]. The said re-assessment proceedings were directed to be continued under the new reassessment regime i.e. the provisions of reopening as submitted vide the Finance Act, 2021.
6.4 Accordingly, a letter dated 23rd May 2022 [Exhibit D1] was issued stating that the Notice earlier issued under Section 148 dated 21st April 2021 was to be deemed as a Show Cause Notice issued under Section 148A(b) of the Act.
6.5 Thereafter, Respondent No.1 passed an order dated 18th July 2022 under Section 148A(d) of the Act [Exhibit E] and issued the impugned Notice dated 18th July 2022 under Section 148 of the Act [Exhibit F1].
6.6 In these circumstances, on 3rd October 2022, the Petitioner filed Writ Petition No. 4813 of 2022 before this Court challenging the said order and Notice dated 18th July 2022. This Court vide order dated 23rd July 2024 [Exhibit G] quashed and set aside the order under Section 148A(d) and Notice under Section 148 of the Act.
6.7 Being aggrieved, the Revenue then filed Special Leave Petition against the said order of this Court before the Hon’ble Supreme Court, which was disposed of vide order dated 6th January 2025 [Exhibit H3] in terms of the judgment rendered in UOI v. Rajeev Bansal [2024]  469 ITR 46 (SC)/[Order dated 3rd October 2024 passed in Civil Appeal No. 8629 of2024]
6.8 . Pursuant to the directions of the Hon’ble Supreme Court in Rajeev Bansal (supra), Respondent No. 3 proceeded with the assessment proceedings by issuing an intimation dated 17th December 2025 for completion of assessment under Section 144B of the Act along with a Notice under Section 142(1) of the Act dated 18th December 2025.
6.9 Thereafter, the Respondent issued several other Notices. On 8th January 2026, a Notice [Exhibit I-2] was issued calling upon the Petitioner to show cause as to why net profit at the rate of 8% should not be applied on the alleged contractual receipts of Rs. 3,25,80,250/-, and thereby a sum of Rs. 26,06,420/- be assessed as income under the head “‘Income from Business or Profession” for the year under consideration.
6.10 The Petitioner filed their Reply requesting for an adjournment on the ground that it was in the process of filing a Writ Petition before this Court. Accordingly, the present Writ Petition was filed on 17th January 2026.
6.11 Respondent No. 1 rejected the request for adjournment and passed the final Assessment Order dated 22nd January 2026 under Section 147 read with Section 144 read with Section 144B of the Act, making an addition of Rs. 26,06,420/- to the income of the Petitioner under the head “Income from Business or Profession”. The income was estimated at the rate of 8% of the gross contractual receipts of Rs. 3,25,80,250/-. This order was quashed in this very Writ Petition vide the order of this Court dated 27th January 2026 by following the Judgment of this Court in Hexaware Technologies Ltd. (supra). As mentioned earlier, the Judgment in Hexaware Technologies Ltd. (supra) was set aside and the matter was remanded to the High Court for a de novo consideration, especially taking into account the insertion of Section 147A of the Act. It is on this basis that the above Writ Petition was restored to the file of this Court vide order dated 28th July 2026 and has now come up for consideration before us.
7. In the aforesaid factual background, Mr. Jain, the learned counsel for the Petitioner raised several grounds challenging the re-assessment proceedings. The primary ground urged before us is that the impugned Notice under Section 148 is barred by limitation under Section 149(1)(b) of the Act. It was submitted that :
i. Section 149(1)(b) of the Act mandates that for issuance of a Notice under Section 148 beyond three years from the end of the relevant Assessment Year, the alleged income escaping assessment must be represented in the form of an asset and must amount to or be likely to amount to Rs. 50,00,000/- or more. Both these conditions are cumulative and mandatory. Thus, only when both these jurisdictional conditions are fulfilled – the Notice under Section 148 can be issued;
ii. Respondent No.1 himself, in the order dated 18th July 2022 passed under Section 148A(d) of the Act, had stated that “‘.the income embedded in contractual receipts of Rs. 3,25,80,250/- deposited, in bank represents asset exceeds Rs. 50,00,000/- and has escaped assessment within the meaning of provision of Section 149(1)(b) of the I. T Act, 1961.” This clearly demonstrates that Respondent No. 1 himself acknowledges that the alleged escaped income was not the entire gross receipts of Rs. 3,25,80,250/-, but only the income/profit element embedded therein;
iii. Respondent No.1, in the Show Cause Notice dated 8th January 2026 and in the final Assessment Order dated 22nd January 2026, has himself estimated the profit element at 8% of the gross receipts as reflected in Form 26AS, and made a final addition of only Rs. 26,06,420/-. Thus, the alleged escaped income, even as quantified by the Assessing Officer himself, is only Rs. 26,06,420/-, which is far below the statutory threshold of Rs. 50,00,000/- prescribed under Section 149(1)(b) of the Act;
iv. In the Petitioner’s own case for the Assessment Year 2014-15 (i.e., for the subsequent Assessment Year), the Assessing Officer had passed an order dated 28th December 2018 under Section 144 read with Section 147 wherein profit at the rate of 8% was applied on the contractual receipts appearing in Form 26AS. This decision of Respondent No.1 was upheld by the Commissioner of Income Tax (Appeals), NFAC vide appellate order dated 16th December 2024. Thus, the consistent practice of the Revenue itself has been to estimate the income at 8% of the gross receipts and not treat the entire gross receipts as income;
v. The entire gross receipts cannot be termed as “income” for the purpose of re-assessment, but only the profit element embedded therein can be termed as income. In this regard, reliance was placed on the decision of the Madhya Pradesh High Court in the case of Nitin Nema v. Pr. Chief CIT 458 ITR 690 (Madhya Pradesh) dated 16th August 2023, wherein it was held that the income chargeable to tax cannot be the gross receipts/consideration in any business transaction. Reliance was also placed on the decision of this Court in the case of CIT v. Hariram Bhambhani [IT Appeal No. 313 of 2013, dated 4-2-2015] wherein it was held that only the profit element embedded in the sale consideration can be subjected to tax;
vi. The gross receipts as reflected in Form 26AS constitute the gross receipts or revenue of the Petitioner. The same cannot be termed as an “asset” within the meaning of Section 149(1)(b) of the Act. The Explanation to Section 149(1) provides that “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. The gross receipts/sale consideration neither fall within any of these categories nor it falls within the common parlance of the term ‘asset’. The alleged escaped income, being only the profit element embedded in the gross receipts, cannot be called as income represented in the form of an asset.
8. Per Contra, Mr. Vikas Khanchandani, the learned Advocate appearing on behalf of the Respondent-Revenue, has not disputed the facts as narrated above. However he has raised a preliminary objection regarding the maintainability of the present Writ Petition. It was submitted that the order of assessment dated 22nd January 2026 has already been passed and the Petitioner should have resorted to the alternate remedy of filing an appeal before the Commissioner of Income-tax (Appeals) instead of approaching this Court by way of a Writ Petition.
9. Mr. Jain submitted that vide order dated 27th January 2026, this Court had already quashed the Notice issued under Section 148 of the Act and all consequential notices/orders emanating therefrom. Since the Notice under Section 148 itself stood quashed, there was no question of filing an appeal against the final assessment order which was passed pursuant to the said Notice.
10. We have heard the learned Advocates for the parties and perused the record. The primary issue that arises for our consideration is whether the reassessment proceedings initiated against the Petitioner are barred by limitation in view of the provisions of Section 149(1)(b) of the Act. Section 149(1) as it stood at the relevant time reads as under:
“149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(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, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year:
…
Explanation.—For the purposes of clause (b) of this subsection, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account
…”
(emphasis supplied)
11. It is evident from the above provision that when a Notice under Section 148 is to be issued after three years from the end of the relevant Assessment Year, then in such case Section 149(1)(b) of the Act inter alia mandates that the alleged income escaping assessment must be represented in the form of an asset and the quantum of the income escaping assessment must be Rs. 50 lakhs or more. Both these conditions are cumulative and mandatory, and nonfulfillment of either condition would render the re-assessment proceedings without jurisdiction.
12. In the present case, Respondent No.1 himself, in the order dated 18 th July 2022 passed under Section 148A(d) of the Act, has recorded that “‘the income embedded in contractual receipts of Rs. 3,25,80,250/- deposited in bank represents asset exceeds Rs. 50,00,000/- and has escaped assessment.” This assertion on the part of Respondent No.1 clearly establishes that the alleged escaped income is not the entire gross receipts of Rs. 3,25,80,250/-, but only the income/profit element embedded therein.
13. Further, Respondent No.1, in the Show Cause Notice dated 8th January 2026 and in the final assessment order dated 22nd January 2026, has himself estimated the profit element at 8% of the gross receipts as reflected in Form 26AS, and made a final addition of only Rs. 26,06,420/-. Even in the Assessment Order for AY 2014-15, the income was estimated at 8% of the gross receipts and not the entire gross receipts.
14. Thus, when the income component embedded in the gross receipts is admittedly less than Rs. 50,00,000/-, the precondition of Section 149(1)(b) of the Act is not fulfilled.
15. In view of the foregoing discussion, we are of the considered opinion that the re-assessment proceedings initiated against the Petitioner are bad in law as the Notice under Section 148 does not satisfy the parameters specified in Section 149(1)(b) of the Act. The condition precedent for invoking the jurisdiction under Section 149(1)(b) are not satisfied, and consequently, the Notice issued under Section 148 and all consequential proceedings are liable to be quashed.
16. As a result, we allow the Writ Petition and quash and set aside the Notice issued under Section 148 of the Act and all consequential proceedings/orders emanating therefrom. Rule is made absolute in terms thereof. However, there shall be no order as to costs.
17. Since we have allowed the present Writ Petition on the ground that the income escaping assessment was less than Rs. 50 lakhs as mandated by Section 149(1)(b) of the Act, we have not examined the other arguments canvassed by Mr. Jain that in any event, the gross receipts of the Petitioner in the current Assessment Order cannot be income chargeable to tax represented in the form of an asset. That issue is left open to be decided in an appropriate case and if the need so arises.
18. This order will be digitally signed by the Private Secretary/personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.