Income Tax Dept Cannot Reopen Time-Barred Assessment Through Amended Reassessment Provisions: ITAT Visakhapatnam

The Income Tax Appellate Tribunal (ITAT), Visakhapatnam has recently quashed reassessment proceedings against an assessee after holding that the Income Tax Department could not use the amended reassessment provisions to reopen a matter after the statutory time limit for assessment had already expired.

The bench of Vice President Vijay Pal Rao and Accountant Member Manjunatha G observed, “Since the assessment u/s 153A already attained finality by expiry of limitation u/s 153B of the Act, the said limitation cannot be extended by resorting to subsequent amendment u/s 148 of the Act.”

The case concerns ₹28 lakh found with Krishna Mohan Potluri during vehicle checking by a Flying Squad team during the election period on November 27, 2018. The Income Tax Department subsequently issued a warrant under Section 132A on November 29, 2018 for requisition and seizure of the cash.

At the time, the law required the AO to follow the assessment procedure under Section 153A when assets were requisitioned under Section 132A. Section 153A dealt with assessment or reassessment following a search or requisition and required the AO to assess or reassess income for the specified assessment years.

Section 153B set the time limit for completing such assessments. In this case, the AO had 18 months from the end of the financial year in which the cash was requisitioned. That period expired on December 31, 2020.

The AO did not start proceedings under Section 153A within that time. Instead, the Department issued a notice under Section 148A(b) on March 2, 2023, followed by a notice under Section 148 on March 28, 2023.

Section 148A sets out the procedure the AO must follow before issuing a reassessment notice under Section 148.

It provides for issuance of a notice for reassessment where the statutory conditions for reopening an assessment are met.

The tribunal held that these amended reassessment provisions could not be used in the case. The amended Section 148 provisions came into effect from April 1, 2021, after the limitation for proceeding under Section 153A had already expired.

“Since the assessment u/s 153A already attained finality by expiry of limitation u/s 153B of the Act,” the tribunal observed, the limitation could not subsequently be extended by using the amended Section 148.

It further held that once the AO had lost the power to initiate and complete the Section 153A assessment because of the expiry of time, he could not resort to the subsequently inserted Sections 148A and 148.

The tribunal also considered the Explanation to Section 148. It held that the Explanation applied where a search under Section 132 or requisition under Section 132A was conducted on or after April 1, 2021. Potluri's cash, however, had been requisitioned on November 29, 2018.

The reassessment had treated the ₹28 lakh as unexplained money under Section 69A. The assessee had challenged this addition as well as the validity of the reassessment proceedings.

The tribunal did not examine the other challenges on merits. After quashing the Section 148 proceedings, it held that the remaining grounds had become infructuous and therefore did not require adjudication.

The tribunal also deleted the consequential penalty. It observed that once the reopening under Section 148 was quashed and the reassessment order was consequently vitiated, the penalty arising from that reassessment could not survive.

Both appeals filed by Potluri were allowed.

For Assessee: CA M.V. Prasad

For Revenue: Nilanjan Dey, CIT(DR)