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Facts
The assessee, an individual, did not file a return of income. The AO received information about the sale of penny stock shares by the assessee and reopened the assessment under Section 148. The notice under Section 148 was deemed to be issued under Section 148A in light of Supreme Court judgments. The assessee raised an additional ground that the notice under Section 148 was time-barred.
Held
The Tribunal held that the notice issued under Section 148 was barred by limitation as per the provisions of Section 149 and the ratio laid down by the Supreme Court in Rajeev Bansal. Consequently, the reassessment order was deemed invalid.
Key Issues
Whether the notice issued under Section 148 for reassessment is barred by limitation as per the provisions of Section 149 of the Income Tax Act, considering the new regime of reassessment and Supreme Court judgments.
Sections Cited
148, 148A, 149, 69A, 151, 153A, 153C, 132, 132A
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM &
Appellant /Assessee by : Shri K. Gopal a/w Shri Om Kandalkar, AR Revenue / Respondent by : Shri R. R. Makwana, Addl. CIT : 20.02.2025 Date of Hearing Date of Pronouncement : 27.02.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals) /National Faceless Appeal Centre (NFAC), Delhi [for short 'the CIT(A)'] dated 07.11.2024 for the AY 2013-14.
The assessee is an individual and the assessee did not file the return of income. The AO received certain information from the DDIT(Inv.) with regard to Finalysis Credit & Guarantee Company Ltd. (FCGCL) a penny stock company and the AO noticed that the assessee during the year under consideration has sold the shares of the said company. Therefore the AO had a reason to believe that the income of the assessee has escaped assessment and accordingly vide notice dated 30.06.2021 issued under section 148 of the Act the AO reopened the assessment. Subsequently pursuant to the directions of the Hon'ble Supreme Court in the case of Union of India Vs. Ashish Agrawal [2022] 444 ITR 1 (SC) the notice dated 30.06.2021 was treated as notice under section 148A of the Act. The AO then issued a notice under section 148A(b) on 28.05.2022 giving 15 days time to the assessee to file the necessary response as to why the reassessment proceeding should not be initiated in assessee's case. The assessee did not respond to notice under section 148A(b) of the Act. Thereafter the AO passed an order under section 148A(d) and also issued the notice under section 148 on 28.07.2022. The AO vide order dated 23.05.2023 completed the assessment by making an addition under section 69A of the Act to the tune of Rs. 59,89,072/- towards the consideration received on the sale of alleged penny stock. On further appeal the CIT(A) confirmed the addition made by the AO. The assessee is in appeal before the Tribunal against the order of the CIT(A).
Besides the main grounds the assessee vide letter dated 19.02.2025 raised the following additional ground: “1. The Ld. Income Tax Officer, Ward 26(2)(1), Mumbai (hereinafter referred to as 'Ld. A.O.) has issued the notice dated 28.07.2022 under section 148 of the Act beyond the time limit specified under the first and third proviso to section 149 of the Act. Hence, the notice issued under section 148 of the Act is beyond jurisdiction as the same is time barred. 2. The notice dated 28.07.2022 under section 148 of the Act issued by the Ld. A.O. for the A.Y. 2013-14 has become time barred as per the directions laid
down by the Hon'ble Supreme Court in UOI v. Rajeev Bansal [2024] 469 ITR 46 (SC) [03-10-2024]. Thus, the said notice issued under section 148 of the Act is time barred and therefore, void ab initio.”
The additional grounds raised are pure legal issue, which does not require investigation of new facts. Hence, placing reliance on the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional grounds. Since the additional grounds pertain to the legal contentions, they are taken up first for the purpose of adjudication.
The ld. AR argued that the notice issued by the AO under section 148A of the Act is barred by limitation. The ld. AR argued that notice issued under section dated 28.07.2022 is barred by limitation as per the provisions of section 149. The ld AR submitted that the AO issued the notice under section 148(b) on 28.05.2022 giving 15 days time to furnish the reply and the assessee not being aware of the issue of such notice did not filed any reply. The ld AR further submitted that time for filing reply expired on 12.06.2022 and therefore as per the 4th proviso section 149, the AO ought to have issued the notice under section 148 by 19.06.2022. The ld AR therefore argued that the notice dated 28.07.2022 is beyond the time limit and therefore not valid.
The ld. DR on the other hand relied on the order of the lower authorities.
We heard the parties and perused the material on record. The primary contention of the assessee is that the notice dated 28.07.2022 issued under section 148 of the Act is barred by limitation under section 149 of the Act. Therefore before proceeding further we will first understand legal position in this regard. Under the new regime of reassessment, the sequence of initiation of the proceedings is as under –
(i) First the notice under section 148A(b) as why the notice under section 148 should not be issued based on the information that income has escaped assessment. The AO is required to give a period of not less than 7 days and not more than 30 days to the assessee to file the response (ii) Assessee files the response within the time specified or the time expired where the assessee has not filed any reply (iii) The AO passes an order under section 148A(d) within 30 days from the end of the month in which the reply is received by the AO or the time given in the notice under section 148A(b) expires
(iv) The AO issues notice under section 148 initiating the reassessment proceedings.
In the cases where section 148 notices issued under the old regime between 01.04.2021 to 30.06.2021, by virtue of the decision of the Hon'ble Supreme Court in the case of Ashish Agarwal (supra) were deemed to be issued under section 148A of the Act. For such notices deemed as issued under 148A for AY 2013-14 and 2014-15, (where TOLA is applicable) the Hon'ble Supreme Court in the case Rajeev Bansal (supra), provided clarity as to the time limit available to the AO for completing the procedure under section 148A and for issuing of notice under 148. The relevant observations of the Hon'ble Supreme Court is extracted below –
The effect of the creation of the legal fiction in Ashish Agarwal (supra) was that it stopped the clock of limitation with effect from the date of issuance of Section 148 notices under the old regime [which is also the date of issuance of the deemed notices]. As discussed in the preceding segments of this judgment, the period from the date of the issuance of the deemed notices till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra) has to be excluded from the computation of the period of limitation. Moreover, the period of two weeks granted to the assesses to reply to the show cause notices must also be excluded in terms of the third proviso to Section 149.
The clock started ticking for the Revenue only after it received the response of the assesses to the show causes notices. After the receipt of the reply, the assessing officer had to perform the following responsibilities: (i) consider the reply of the assessee under section 149A(c); (ii) take a decision under section 149A(d) based on the available material and the reply of the assessee; and (iii) issue a notice under section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed under the Income-tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under section 148 of the new regime.
Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under section 148 of the new regime will end on 18 August 2022.
In Ashish Agarwal (supra), this Court allowed the assesses to avail all the defences, including the defence of expiry of the time limit specified under section 149(1). In the instant appeals, the reassessment notices pertain to the assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017- 2018. To assume jurisdiction to issue notices under section 148 with respect to the relevant assessment years, an assessing officer has to: (i) issue the notices within the period prescribed under section 149(1) of the new regime read with TOLA; and (ii) obtain the previous approval of the authority specified under section 151. A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer. Therefore, the reassessment notices issued under section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit
surviving under the Income-tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time-barred.
To understand the ratio laid down by above observations of the Hon'ble Supreme Court it is important to look into the relevant provisions of section 149 which reads as under –
Time limit for notice. 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 account 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: 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 1st day of April, 2021, if such notice 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, as they stood immediately before the commencement of the Finance Act, 2021: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 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 or 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 is less than 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.
A combined reading of the observations of the Hon'ble Supreme Court and the provisions of section 149, it is clear that the surviving time limit available to the AO for issue of notice under section 148 is number of days from the date of the issuance of the deemed notices 148A(a) till 30.06.2021 besides the period granted to the assesses to reply to the show cause notices in terms of the third proviso to Section 149. Further as per the fourth proviso if the surviving time limit is less that 7 days then, such remaining period shall be extended to seven days for the purpose of period limitation.
In the background of the above legal position we will now examine the facts in assessee's case. In assessee's case the original notice under section 148 was issued on 30.06.2021 and said notice was deemed to be issued under section 148A by virtue of the decision of the Hon'ble Supreme Court in the case of Ashish Agarwal (supra). Accordingly, the surviving time limit as laid down by the Hon'ble Supreme Court in the case Rajeev Bansal r.w. fourth proviso to section 149 is 7 days. Further the AO in the notice under section 148A(b) dated 28.05.2022 has given 15 days time to respond i.e. by 12.06.2022. Therefore the time limit by when the AO out to have issued the notice is 19.06.2022. In the present case the AO has issued the notice under section 148 on 28.07.2022 and therefore in the light of the above discussion, we are of the considered view that the notice under section 148 is barred by limitation and invalid. Accordingly the re-assessment order is liable to quashed.
Since we have allowed the appeal considering the additional ground raising legal contentions, the rest of the grounds on merits have become academic
In result, the appeal of the assessee is allowed.