The Income Tax Appellate Tribunal (ITAT), Delhi, has delivered a critical ruling on the limitation period for issuing reassessment notices under Section 148 of the Income Tax Act, 1961. The Tribunal quashed a reassessment order dated 31.05.2023 for Assessment Year (AY) 2015-16, holding that the notice issued on 19.07.2022 was barred by limitation. This judgment reinforces the principle that reassessment proceedings for AY 2015-16 must adhere to the six-year limitation period under the unamended provisions of the Act, as clarified by the Supreme Court in Union of India v. Rajeev Bansal.
Background & Facts
The Dispute
The appellant, Rajdeo Singh, a resident of Delhi, filed his income tax return for AY 2015-16 declaring an income of Rs. 9,47,830. The Assessing Officer (AO), relying on information received during a search action conducted on 25.02.2021 under Section 132 of the Income Tax Act in the case of Tradenext Securities Limited (formerly Lifeline Securities Limited), initiated reassessment proceedings. The AO issued a show-cause notice (SCN) under Section 148A(b) on 26.05.2022, proposing to reopen the assessment under Section 147 read with Section 148 of the Act.
Key Facts
- The appellant filed his return for AY 2015-16 on 31.07.2015, declaring an income of Rs. 9,47,830.
- A search action under Section 132 was conducted on 25.02.2021 in the case of Tradenext Securities Limited.
- The AO issued a notice under Section 148A(b) on 26.05.2022, proposing reassessment.
- The appellant submitted a detailed reply on 27.06.2022, contesting the reopening.
- Despite the appellant’s submissions, the AO issued an order under Section 148A(d) and a notice under Section 148 on 19.07.2022.
- The AO completed the reassessment on 31.05.2023, determining the appellant’s income at Rs. 91,05,700 (as against the returned income of Rs. 9,47,830) and creating a demand of Rs. 26,67,107.
- The additions included:
- Rs. 74,12,990 (ad hoc addition without basis)
- Rs. 4,44,779 (ad hoc addition without basis)
- Rs. 3,00,100 (ad hoc addition without basis)
Procedural History
- 31.07.2015: Appellant filed return for AY 2015-16.
- 25.02.2021: Search action conducted under Section 132 in Tradenext Securities Limited.
- 26.05.2022: AO issued SCN under Section 148A(b).
- 27.06.2022: Appellant filed reply contesting reopening.
- 19.07.2022: AO issued order under Section 148A(d) and notice under Section 148.
- 31.05.2023: AO completed reassessment under Section 147, determining income at Rs. 91,05,700.
- 28.10.2025: Ld. CIT(A) confirmed the reassessment order.
- 09.03.2026: Appellant filed additional ground of appeal before ITAT, challenging the notice as time-barred.
- 09.04.2026: Hearing before ITAT.
- 29.04.2026: ITAT pronounced order, allowing the appeal.
The Parties' Positions
For the Appellant
The appellant contended that the notice under Section 148 dated 19.07.2022 was barred by limitation. Under the unamended provisions of the Act, the limitation period for issuing a notice under Section 148 for AY 2015-16 expired on 31.03.2022. The appellant relied on the Supreme Court’s judgment in Union of India v. Rajeev Bansal, wherein the Revenue conceded that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) did not apply to AY 2015-16. Thus, the old limitation period of six years from the end of the relevant assessment year applied, making the notice issued on 19.07.2022 void. The appellant also relied on the Delhi High Court’s judgment in Pratishtha Garg v. ACIT and the ITAT’s judgment in Eash Kumar Sarna v. ITO, both of which quashed reassessment notices for AY 2015-16 issued beyond 31.03.2022.
For the Revenue
The Revenue placed reliance on the orders passed by the lower authorities, arguing that the reassessment was validly initiated based on information gathered during the search action. The Revenue did not contest the admission of the additional ground of appeal, which was purely legal.
Relief Sought
The appellant sought:
- Quashing of the notice under Section 148 dated 19.07.2022 as time-barred.
- Quashing of the reassessment order dated 31.05.2023 and the consequent demand of Rs. 26,67,107.
- Restoration of the returned income of Rs. 9,47,830.
The Legal Issue
The central question was whether the notice issued under Section 148 of the Income Tax Act on 19.07.2022 for AY 2015-16 was barred by limitation, given that the old regime of reassessment (unamended provisions) prescribed a six-year limitation period from the end of the relevant assessment year.
Arguments Presented
For the Appellant
- The notice under Section 148 dated 19.07.2022 was issued beyond the six-year limitation period, which expired on 31.03.2022 for AY 2015-16.
- The Supreme Court in Union of India v. Rajeev Bansal held that the TOLA provisions did not apply to AY 2015-16, and thus, the old limitation period applied.
- The Delhi High Court in Pratishtha Garg v. ACIT and the ITAT in Eash Kumar Sarna v. ITO had quashed similar notices issued beyond 31.03.2022 for AY 2015-16.
- The reassessment was void ab initio as it was based on information gathered during a search action not disclosed in the SCN under Section 148A(b), violating principles of natural justice.
For the Respondent
The Revenue relied on the orders of the lower authorities, arguing that the reassessment was validly initiated based on the information received during the search action.
The Court's Analysis
The ITAT examined the limitation period for issuing a notice under Section 148 for AY 2015-16. The Tribunal noted that the Supreme Court in Union of India v. Rajeev Bansal had clarified that the TOLA provisions did not apply to AY 2015-16, and thus, the old limitation period of six years from the end of the relevant assessment year applied. For AY 2015-16, this period expired on 31.03.2022.
The Tribunal observed:
"Based on the above decisions of the Hon'ble Supreme Court and jurisdictional high court had clearly held that the notice issued u/s 148 of the Act beyond 31.03.2022 is barred by limitation and thus, following the principles of judicial discipline, we hereby quash the notice so issued u/s 148 of the Act dated 19.07.2022 in case of the assessee and also quash the assessment order so framed u/s 147 of the Act dated 31.05.2023 along with consequent demands being barred by limitation, void-ab-initio and bad in law.
The Tribunal also noted that the reassessment was initiated based on information gathered during a search action, which was not disclosed in the SCN under Section 148A(b). This violated the principles of natural justice, as the appellant was not afforded an opportunity to cross-examine the third parties or rebut the evidence relied upon by the AO.
The Verdict
The ITAT allowed the appeal, quashing the notice issued under Section 148 dated 19.07.2022 and the reassessment order dated 31.05.2023. The Tribunal held that the notice was barred by limitation, and the reassessment proceedings were void ab initio. The consequent demand of Rs. 26,67,107 was also quashed. Since the additional ground of appeal was allowed, the Tribunal did not adjudicate the other grounds raised by the appellant.
What This Means For Similar Cases
Limitation Period for Reassessment Notices Under Old Regime
- For AY 2015-16 and earlier assessment years, the limitation period for issuing a notice under Section 148 is six years from the end of the relevant assessment year.
- Notices issued beyond 31.03.2022 for AY 2015-16 are barred by limitation and will be quashed.
- Practitioners must ensure that reassessment notices comply with the limitation period prescribed under the unamended provisions of the Act, as clarified by the Supreme Court in Union of India v. Rajeev Bansal.
Principles of Natural Justice in Reassessment Proceedings
- Reassessment proceedings initiated based on information gathered during search actions must disclose the basis of reopening in the SCN under Section 148A(b).
- Failure to provide an opportunity for cross-examination or to confront third-party evidence violates the principles of natural justice and renders the reassessment void.
- Assessees can challenge reassessment orders on the ground of non-compliance with audi alteram partem (the right to be heard).
Judicial Discipline and Precedents
- Tribunals and lower authorities are bound by the decisions of higher courts, including the Supreme Court and jurisdictional High Courts.
- In this case, the ITAT followed the Supreme Court’s judgment in Union of India v. Rajeev Bansal and the Delhi High Court’s judgment in Pratishtha Garg v. ACIT, demonstrating judicial discipline.
- Practitioners should cite binding precedents to challenge reassessment notices issued beyond the limitation period.
