Reassessment Notice Issued Beyond Statutory Limitation Period

Reassessment Notice Issued Beyond Statutory Limitation Period Under First Proviso to Section 149(1) Is Void

Issue

Whether a reassessment notice issued under Section 148 on 20.03.2024 for Assessment Year 2015-16 is barred by limitation under the first proviso to Section 149(1) of the Income-tax Act, 1961.

Facts

Assessment Year: The case pertains to Assessment Year (AY) 2015-16.
Escaped Income: The income escaping assessment was alleged to be more than ₹1 lakh.
Pre-2021 Limitation Period: Under Section 149 in force prior to 01.04.2021, the maximum limitation period to reopen an assessment for AY 2015-16 (where escaped income exceeded ₹1 lakh) was 6 years from the end of the relevant assessment year, which expired on 31.03.2022.
First Proviso Limit: As per the first proviso to Section 149(1), no notice under Section 148 can be issued if such notice could not have been issued under the old regime prior to 01.04.2021 due to the expiration of limitation. Therefore, the last valid date to issue a notice under the new regime was 31.03.2022.
Delayed Notice Issuance: The Revenue issued the notice under Section 148 for AY 2015-16 on 20.03.2024.

Decision

Barred by Limitation: In favor of Assessee. The notice issued under Section 148 on 20.03.2024 was well beyond the permissible outer limit of 31.03.2022 prescribed by virtue of the first proviso to Section 149(1).
Quashing of Order: Since the foundational Section 148 notice was invalid and time-barred, the reassessment order passed as a consequence was quashed.

Key Takeaways

First Proviso Protection: The first proviso to Section 149(1) acts as an absolute bar against reviving time-barred assessments that could not have been reopened under the pre-amended provisions prior to 01.04.2021.
Strict Computation of Limitation: For AY 2015-16, the maximum 6-year period from the end of the assessment year expired on 31.03.2022; any notice issued thereafter under Section 148 is void for lack of jurisdiction.
Consequential Quashing: Any reassessment order framed on the strength of a time-barred Section 148 notice is bad in law and liable to be quashed entirely.

IN THE ITAT JAIPUR BENCH ‘SMC’

Manish Kumar Kotawala

Deputy Commissioner of Income-tax, Central

Smt. Annapurna Gupta, Accountant Member

IT Appeal No. 1875 (JPR) OF 2025
[Assessment year 2015-16]

AUGUST 4, 2026

Kamlesh Chaurasia, CA for the Appellant. Mrs. Arti Rawat, JCIT for the Respondent.

ORDER

1. The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax Appeal, CIT(A), Jaipur 05 (hereinafter referred to as “Ld. CIT(A)”), dated 28.10.2025 u/s 250 of the Income Tax Act, 1961,(hereinafter referred to as “the Act”).

2. The facts relating to the case are that the case of the assessee was reopened and assessment framed u/s 147 of the Act, making addition to the income of the assessee of Rs.1,96,331/- on account of unexplained interest income earned during the impugned year.

3. The AO was in possession of information which was gathered from a search and seizure operation conducted u/s 132 of the Act on 23.11.2021 in the case of Nirmal Kumar Bardiya Group. The search action revealed that the said persons were involved in unaccounted transactions with various persons which included the assessee also. The assessee was noted to have undertaken unrecorded cash transactions amounting to Rs.19,15,70,800/- taken from the searched persons and Rs.17,93,31,210/- given to the said persons. He was also noted to have earned and paid interest on account of the alleged unrecorded cash transaction undertaken with the searched entities.

4. The searched person Sh. Radha Mohan Maheshwari was a finance broker and material was found during course of search conducted on 23.11.2021 by way of seven pendrives containing several excel sheets which contained data relating to unaccounted financial transactions extending over a period of more than ten years. Sh. Radha Mohan Maheshwari allegedly admitted ownership of pendrives and the Authenticity of contents therein, explaining that the files recorded cash transactions, loans, interest, and commission dealings with various parties. The structure of the excel sheets was systematically maintained with columns such as date, description, cash transaction code, amount taken, amount give, balance, interest rate, and number of days for interest accrual. Sh. Radha Mohan Maheshwari had clarified that a positive balance donated money receivable by him and a negative balance indicated money payable by him. The analysis of the excel files reveals that certain accounts were maintained in code names or in foreign currency denominations such as USD, Euro, Baht, RMB and GBP. However, it was admitted that the transactionswere conducted in Indian Rupees, converted on the exchange rate of the day. It was revealed that the cheque transactions noted in the ledgers were duly recorded in the regular books of Sh. Radha Mohan Maheshwari, whereas the cash transactions were not .Thus confirming that these were unaccounted dealings. Cross verification of the data in the seized material and regular books also established that all numerical figures in these excel sheets carried two zero suppressions, thereby representing whole amounts.

5. It is this data collected from search conducted on Nirmal Kumar Bardiya Group ,which revealed the assessee also to have undertaken unaccounted transaction in cash with Sh. Radha Mohan Maheshwari to the extent noted above.For the transactions noted to have been undertaken of unrecorded cash taken and given of Rs.19.15 crores and Rs.17.93 crores respectively ,applying concept of peak credit theory the AO determined that only the highest balance of the peak be treated as unaccounted income to avoid double taxation and accordingly incremental peak of the impugned year before me ,AY 2015-16 ,was determined to be NIL.

6. Further the interest and commission notings were examined and it was noted that the interest expenditure worked out at Rs.4,32,660/-and the interest income earned by the assessee at Rs.6,28,991/-,resulting in net unexplained interest income of Rs.1,96,331/- earned by the assessee during the year. The impugned amount accordingly was added to the income of the assessee in the order passed by the AO u/s 147 r.w.s. 143(3) of the Act.

7. The same was challenged before the Ld. CIT(A), who confirmed the order of the AO.

8. Aggrieved by the same, the assessee has come up in appeal before me raising following grounds of appeal:-

That CIT(A) has erred in confirming addition as the learned Assessing Officer failed to appreciate that in view of the first proviso to section 149(1) (as substituted by the Finance Act, 2021), no notice under section 148 can be issued for an assessment year beginning on or before 01.04.2021 if such notice could not have been issued on that date under the erstwhile provisions of section 149.

That CIT(A), has erred in confirming addition as the learned Assessing Officer has failed to establish that the alleged escaped income represents an asset, expenditure, or entry in the books of account amounting to 50 lakh or more, as mandatorily required under section 149(1)(b).

That on the facts and circumstances, the Ld CIT(A) Officer has erred in confirmation of addition done by Assessing Officer of Rs. 1,96,331 /-, based on Mobile number registered at PAN of HUF, ignoring the facts that documents were not in the name of Manish Kumar Kotawala.

That the Ld. CIT(A) has erred in facts and law in confirming addition done by Assessing Officer of Rs. 1,96,331/- on Unaccounted of interest income under section 69A (taxed as per provisions of Sec. 115BBE of the IT Act, 1961) the basis of excel sheet recovered from searched person.

That the Ld. CIT(A) has erred in facts and law in confirming Assessment Order passed by Assessing Officer under section 147 r.w.s 143(3) dated 20th March 2025, without DIN, is violation of CBDT Circular no. 19/2019, dated 14th August, 2019.

That on the facts and circumstances, Ld. CIT(A) has erred in confirming the initiating penalty proceeding u/s 271(1)(C) of the IT Act, 271D and 271E because the assessment itself is vitiated, and consequently, proceedings initiated for penalty under IT Act are invalid and bad in law.

That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated hereinabove before or at the time of hearing.

9. Taking up ground No.1, the said ground is a legal ground challenging the validity of the assessment framed u/s 147 of the Act on the ground of limitation. The said ground was admittedly not raised before the Ld. CIT(A) but being a legal ground, the facts relating to which are available on records, the same is admitted for adjudication,in view of the decision of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC).

10. The contention of the ld. Counsel for the assessee before me was that the order passed in the present case was barred by limitation by virtue of the first proviso to Section 149 of the Act. In the facts of the present case the notice u/s 148 of the Act was issued to the assessee on 20.03.2024. The extant provisions of Section 149 of the Act applicable to the assessee therefore are as under which was amended by Finance Act 2023 w.e.f 01.04.2023.

³[Time limit for notices under sections 148 and 148A.

149. (1) No notice under section 148 shall be issued for the relevant assessment year,—

(a) if three years and three months have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b) if three years and three months, but not more than five years and three months, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more.

(2) No notice to show cause under section 148A 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 five years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is 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^s day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at the time on account of being beyond the time limit specified under the provisions of clause (b) of subsection (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:

… …….. ….. …. …. ….. ..**

11. The contention of the ld. Counsel for the assessee was that as per the provisions of Section 149 of the Act, the time limit for issuing notice u/s 148 of the Act was three years and in cases when income exceeded Rs.50 lakhs the reopening could be resorted to upto 10 years. Ld. Counsel for the assessee contended that as per the first proviso to the said section 149(1) ,no notice u/s 148 of the Act could be issued for a relevant assessment year beginning on or before 01.04.2021 if the notice u/s 148 of the Act or Section 153A or Section 153C could not have been issued at that time on account of being barred by limitation as per the proviso of law as existed before the commencement of Finance Act 2021.

12. The Hon’ble Apex Court had an occasion to examine the provisions of Section 149 as amended by Finance Act 2021 in the case of UOI v. Rajeev Bansal 469 ITR 46 (SC) dated 03.10.2024.Interpreting the provisions, the Hon’ble Apex Court observed that while the time limit u/s 149 of the Act had been reduced from 4 years to 3 years for reopening the cases of the assessees from the end of the relevant assessment year for all situations beyond 3 years the cases could be reopened upto 10 years from the end of the relevant assessment year if the income chargeable to tax which has escaped assessment amounting to Rs.50 lakhs or more. The Hon’ble Apex Court thereafter noted that first proviso to Section 149 however prohibited the issuance of reassessment notices under the new regime if such notices had become time-barred under the old regime.The relevant observation of the Hon’ble apex court at para 10, 49 & 53 of its order is as under:

….. …. …

iii. Finance Act 2021

10 The Finance Act 2021 substituted the entire scheme of reassessment under Sections 147 to 151 of the Income Tax Act with effect from 1 April 2021.

Substantial changes were brought about by the new regime. Broadly speaking, they are summarized thus:

(i) Section 148 mandates the assessing officer to initiate proceedings only based on prior information and with the prior approval of the specified authority;

(ii) Section 148A requires the assessing officer to provide an opportunity of being heard to the assessee before deciding to issue a reassessment notice under Section 148. Section 148A requires the assessing officer to:

(a) conduct any enquiry, if required, with the prior approval of the specified authority;

(b) provide an opportunity of hearing to the assessee by serving a show cause notice with the prior approval of the specified authority;

(d) decide on the basis of available material, including the reply of the assessee, whether or not it is a fit case to issue a notice under Section 148 by passing an order.

(iii)The time limit under Section 149 has been reduced from four years to three years from the end of the relevant assessment year for all situations. Assessments can be reopened beyond three years but within ten years from the end of the relevant assessment year if the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rupees fifty lakhs or more. However, the firstproviso to Section 149 prohibits the issuance of a reassessment notice under the new regime if such notices have become time-barred under the old regime; and

… ….. …

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 noticeunder 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 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 assesses.

… ….. …

53.The position of law which can be derived based on the above discussion may be summarized thus: (i) Section 149(1) of the new regime is not prospective. It also applies to past assessment years; (ii) 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, (Hi) 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 time 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 ifthe income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.

… ….. …

13. Therefore, for adjudicating whether, the notice issued u/s 148 of the Act in the facts of the present case was barred by limitation or not as per the first proviso to Section 149 of the Act, what is to be seen is whether the time limit as prescribed under the old regime i.e. prior to 01.04.2021 survived as on the date of issuance of notice under the new regime. As per the old regime the time limit prescribed u/s 149 of the Act was 4 years in all cases and an outer limit of 6 years from the end of the relevant assessment year if the income escaping assessment exceeded Rs. 1 lakhs.

14. The facts of the present case are that the impugned assessment year before me is AY 2015-16, and the income escaping assessment is more than Rs.1 lakh. Therefore as per the provision of Section 149 of the Act in force prior to 01.04.2021 , the impugned year could be reopened upto six years from the end of the relevant assessment year which isupto31.03.2022. The time limit therefore for issuing notice as per the old regime expired on 31.03.2022 in the facts of the present case. The notice under the new regime could therefore have been issued upto 31-03-2022 as per the first proviso to section 149(1) of the Act ,but however was issued on 20.03.2024 to the assessee. The notice issued u/s 148 of the Act is clearly well beyond the period prescribed as per the proviso to Section 149(1)(b) of the Act.

15. I have no hesitation in holding therefore thatthe notice issued u/s 148 of the Act in the present case,has been issued beyond time limit prescribed as per law.

16. Ld. DR was unable to demonstrate as to how the notice issued u/s 148 of the Act in the present case was not barred by limitation in view of the first proviso to Section 149 of the Act.

17. In view of the above, I have no hesitation in holding that the notice issued in the present case u/s 148 of the Act was barred by limitation by virtue of first proviso to Section 149(1) of the Act. The jurisdiction assumed therefore to frame assessment u/s 147 of the Act by the AO is I hold, without valid authority of law. The order passed as a consequence is held to be invalidly passed and is accordingly quashed.

18. Since I have quashed the assessment order for the above reason, I am not taking up the other legal grounds and also the grounds raised on merits, since they are mere academic in nature.

19. In effect, appeal of the assessee is allowed in above terms.