RAGHAVENDRA BEDADA,KHAMMAM vs. ITO, WARD -1, KHAMMAM

The order passed by the learned Assessing Officer under section 147 r.w.s. 144 of the Act, is bad in law, as the notice issued is beyond a period of three years and the escaped income is less than Rs. 50,00,000/-, under the facts and circumstances of the case.

The order passed by the learned Assessing Officer under section 147 r.w.s. 144 of the Act, is bad in law and the notice issued under section 148 of the Act, does not fall under section 149[1] [b] of the Act, under the facts and circumstances of the case.

For the above and other grounds that may be urged at the time of the hearing of the appeal the appeal may be allowed and justice rendered.”

As the additional grounds of appeal raised by the assessee involve pure questions of law, which will not require looking any further beyond the facts borne on record and goes to the root of the assessment framed in the present case, the same are admitted for adjudication in view of the ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).

Succinctly stated, the AO based on information that the assessee during the subject year had carried out substantial financial transactions, viz., (i) cash deposits: Rs.20,00,500/-; and (ii) time deposits: Rs.20,00,000/- with Karnataka Bank Limited, but had not filed his return of income, initiated proceedings under section 147 of the Act. Thereafter, the AO passed an order under section 148A(d) of the Act. Notice under section 148 of the Act, dated 07/04/2022, was issued by Raghavendra Bedada vs. ITO the AO calling upon the assessee to file his return of income for the subject year.

Thereafter, the AO vide his order passed under section 147 r.w.s 144 r.w.s 144B of the Act, dated 23/02/2024, determined the income of the assessee at Rs. 20,04,144/-, i.e., after treating the entire amount of cash deposits of Rs.20,00,500/- as the assessee’s unexplained money under section 69A of the Act and making an addition of the interest income of Rs. 3,644/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

The assessee, aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

We have heard the Learned Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

Shri Pawan Kumar Chakrapani, CA, Learned Authorised Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal submitted that the AO had grossly erred in law and facts of the case in assuming juri iction for framing the impugned assessment vide his order passed under section 147 r.w.s. 144 r.w.s. 144B of the Act, dated 23/02/2024. Elaborating on his contention, the Ld. AR submitted that as the AO as per “first proviso” to section 149(1) of the Act (post amended) as was applicable at the time of issuing the notice under section 148 of the Act, dated 07/04/2022 was divested of his juri iction to issue any such notice for reopening the case of the assessee for the subject year AY 2015-16 beyond 31/03/2022, i.e., beyond the time limit specified under the clause (b) of sub-section (1) of section 149 of the Act as was available on the statute before commencement of the Finance Act, 2021, therefore, the initiation of the impugned proceedings and the consequential framing of the assessment by him based on the said notice cannot be sustained and is liable to be struck down on account of invalid assumption of juri iction. The Ld. AR to buttress his contention had drawn our attention to section 149(1) of the Act - “first proviso” (as was made available on the statute by the Finance Act, 2021, w.e.f. 01/04/2021).

Carrying his contention further, the Ld. AR submitted that though the “fifth” and “sixth” provisos of the post amended section 149 of the Act provide for excluding certain periods while computing the period of limitation, viz., (i) the time or extended time allowed to the assessee, as per show cause notice (SCN) issued under clause (b) of section 148A of the Act or the period during which the proceedings under section 148A is stayed by an order or injunction of any Court (as per “fifth proviso”); and (ii) that where immediately after the exclusion (period Raghavendra Bedada vs. ITO referred to in “fifth proviso”) of the period of limitation available to the AO for passing an order under clause (d) of section 148A of the Act does not exceed seven days, such remaining period shall be extended to seven days and the period of limitation under sub-section (1) of section 149 shall be deemed to be extended accordingly (as per “sixth proviso”), but both the aforementioned provisos, i.e., “fifth proviso” and “sixth proviso” qualify the substantive amended section 149 of the Act and do not relate to the un-amended section 149 of the Act, which in turn is taken care of exclusively by the “first proviso” to section 149(1) of the Act. Accordingly, the Ld. AR based on his aforesaid contentions submitted that the time spent from the issuance of notice under section 148A(b) of the Act upto the passing of the order under section 148A(d) of the Act in terms of “fifth proviso” and “sixth proviso” cannot be excluded for reckoning the limitation period for issuance of notice under section 148 of the Act. Elaborating on his contention, the Ld. AR submitted that as the notice under section 148 of the Act, dated 07/04/2022 for the AY 2015-16 had been issued beyond the time limit specified under the provisions of clause (b) of sub-section (1) of section 149 of the Act as was available on the statute before the commencement of the Finance Act, 2021, which expired as on 31/03/2022 (six years from the end of the assessment year, i.e., AY 2015-16), therefore, the same cannot be sustained and is liable to be quashed. The Ld. AR, to buttress his contention, had relied upon the Raghavendra Bedada vs. ITO judgment of the Hon’ble High Court of Telangana in the case of Cyberabad Citizens Health Services Private Limited vs DCIT, Circle- 1(1), Writ Petition No.25121 of 2024, dated 17/11/2025. 10. Per contra, Shri Lakshmi Kanth, Learned Senior Departmental Representative (for short, “Ld. Sr. DR”) relied upon the orders of the authorities below.

We have heard the Learned Authorised Representatives of both parties and given thoughtful consideration qua the issue in hand before us, i.e., sustainability of the impugned order of assessment passed by the AO under section 147 r.w.s 144 r.w.s. 144B of the Act, dated 23/02/2024, which in turn is based on the notice issued under section 148 of the Act, dated 07/04/2022, for the AY 2015-16. 12. Admittedly, it is a matter of fact borne from record that the impugned notice under section 148 of the Act, dated 07/04/2022 has been issued beyond the time limit specified under the provisions of clause (b) of sub-section (1) of section 149 of the Act as they stood immediately before the commencement of the Finance Act, 2021. We say so, for the reason that as per the pre-amended section 149(1)(b) of the Act a notice under section 148 of the Act for the AY 2015-16 could have been issued by the AO latest by 31/03/2022. 13. Considering the aforesaid factual position, we find substance in the Ld. AR’s contention that as a notice under section 148 of the Act, Raghavendra Bedada vs. ITO dated 07/04/2022 had been issued beyond the time period specified under the provisions of clause (b) of sub-section (1) of section 149 of the Act, as was available on the statute prior to the commencement of the Finance Act, 2021, therefore, the same could not have been issued as per the clear mandate of the “first proviso” to section 149 of the Act as had been made available on the statute by the Finance Act, 2021. Also, we concur with the Ld. AR that the period sought to be excluded for the purpose of computing the period of limitation as contemplated in the “fifth proviso” of section 149(1) of the Act (post amended) and also the extension of time limit to seven days in a case where after the exclusion of the time limit contemplated in the “fifth proviso” to seven days (as per the “sixth proviso”) of section 149(1) of the Act cannot be read into for the purpose of computing the period of limitation for issuance of notice under section 148 of the Act as contemplated in the “first proviso” of post amended section 149(1) of the Act. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Telangana in the case of Cyberabad Citizens Health Services Private Limited vs. DCIT (supra), wherein, based on exhaustive deliberations, it was observed as under:-

The first proviso) to the amended Section 149 of the Act prescribes that no notice under Section 148 of the Act shall be issued at any time in a case for the relevant assessment year beginning on or before 01.04.2021, if a notice under Section148 of the Act 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 Section 149 of the Act or as they stood immediately before the commencement of the Finance Act, 2021. For the purposes of appreciating the first proviso, the un-amended Section 149 of the Act is also extracted in the foot note10 Time limit for notice.

(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 not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. I 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 entity) 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. Raghavendra Bedada vs. ITO (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation 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 doubts, 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. 12. Apparently, the fifth and sixth provisos of the amended Section 149 of the Act extracted hereinabove provide for excluding certain periods while computing the period of limitation as per the amended Section. It prescribes the time or extended time allowed to the assessee as per the show cause notice under clause (b) of Section 148 of the Act or the period during which the proceeding under Section 148A of the Act is stayed shall be excluded. The sixth proviso to the amended Section 149 of the Act also deals with exclusion of the period referred to in the fifth proviso i.e., the period of limitation available to the Assessing Officer for passing an order under clause (d) of Section 148A of the Act if it does not exceed seven days. In that event, 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, both the fifth and sixth provisos in the first place do not amount to clarification of the first proviso. These two provisos qualify the substantive amended Section 149 of the Act and do not relate to the un-amended Section 149 of the Act for which the first proviso takes care of. The contention of the learned counsel for the Revenue that the time spent from the issuance of notice under Section 148A(b) of the Act up to the passing of the order under Section 148A(d) of the Act in terms of the fifth and sixth provisos stands excluded for reckoning the limitation period for issuance of notice under Section 148 of the Act is not worth acceptance. Section 148A of the Act lays down the procedure for issuance of notice under Section 148 of the Act whereas Section 149 of the Act prescribes strict time limit within which notice under Section 148 of the Act can be issued in the prescribed circumstances. The Revenue is therefore obliged to adhere to the timeline prescribed under Section 149 of the Act for issuance of such notice and undertake the procedure before issuance of notice under Section 148A of the Act.

In this regard, it is apposite to refer to opinion of the Delhi High Court. Paragraphs 15 and 16 of Godrej Industries Ltd., (supra) are extracted hereunder:

Paragraph 12 of Shree Cement Ltd., (supra) is also extracted hereunder. “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 Ltd. (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 ie, 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 this case, it is Assessment Year 2017-18) beyond a certain date. Therefore, the way the section would operate, is to fira decide whether a notice issued under Section 148 of the Vet is within the period of limitation under Section 149(1)(2) or (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 notice 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 Ltd. V. Assistant Commissioner of Income-tax [2024] 160 taxmann.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:

The reliance placed by the Revenue on the decision rendered by Patna High Court in the case of Chandra Shekhar (supra) is distinguishable as it relates to the Assessment Year 2020-21 in respect of which the notice under Section 148A(b) of the Act was issued on 28.03.2024. The petitioner therein had assailed the notice on the ground that the Assessing Officer had no juri iction to undertake the assessment for the Assessment Year 2020-21 after 31.03.2024 with reference to the second notice issued on 22.04.2024 as it was beyond the time limit stipulated under Section 149(1)(a) of the Act. In the aforesaid facts, the learned Court held that the combined reading of the fifth and sixth provisos meant that the first notice dated 28.03.2024 was issued well within the time limit stipulated. Therefore, the Assessment Officer has juri iction.

In view of the above discussion, the initiation of reopening of assessment by the impugned notice dated 22.04.2024 is barred by limitation being beyond the period of six (6) years reckoned from the relevant Assessment Year 2017-18 as per the un-amended Section 149 of the Act read with the first proviso thereof brought into effect from 01.04.2021.”

We thus, in terms of our aforesaid deliberations find substance in the Ld. AR’s contention that as the notice issued by the AO under section 148 of the Act, dated 07/04/2022 is barred by limitation as per the mandate of the “first proviso” to section 149 of the Act as had been made available on the statute by the Finance Act, 2021, the same cannot be sustained, and also, the consequential assessment order passed by the AO on the basis of the said notice vide his order under Raghavendra Bedada vs. ITO section 147 r.w.s 144 r.w.s 144B of the Act, dated 23/02/2024 has to meet the same fate and is liable to be quashed.

We thus, in terms of our aforesaid deliberations, quash the assessment order passed under section 147 r.w.s 144 r.w.s. 144B of the Act, dated 23/02/2024, for want of a valid assumption of juri iction.

As we have quashed the assessment order passed by the AO under section 147 r.w.s 144 r.w.s. 144B of the Act, dated 23/02/2024, therefore, we refrain from adverting to the other contentions based on which the impugned order of assessment has been assailed by the assessee before us, which, thus, are left open.

In the result, the appeal filed by the assessee is allowed in terms of our aforesaid observations. AY: 2015-16

We shall now take up the appeal filed by the assessee against the order passed by the CIT(A), dated 17/11/2025, which in turn arises from the order passed by the AO under section 271(1)(c) of the Act, dated 19/08/2024. 19. As we have quashed the assessment order passed by the AO under section 147 r.w.s. 144 r.w.s. 144B of the Act, dated 23/02/2024, while disposing of the aforementioned quantum appeal of the assessee in ITA No.202/Hyd/2026, therefore, the penalty imposed by the AO 202 & 203/Hyd/2026 are allowed in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file