ITAT Delhi Quashes Reassessment Against Company Over Defective Notice

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has quashed the reassessment proceedings against RNT Metals Pvt. Ltd. for assessment year (AY) 2021-22, holding that the notice issued under Section 148 did not provide the statutory period prescribed for filing the return.

It also quashed the company's regular assessment for AY 2022-23, holding that, in the circumstances of the case, the Assessing Officer could not continue the pending Section 143(3) assessment after a Section 132 search and had to follow the special mechanism under Section 148.

A bench of Judicial Member Satbeer Singh Godara and Accountant Member Sanjay Awasthi allowed RNT Metals' appeals for AYs 2021-22 and 2022-23.

The company challenged the reopening for AY 2021-22 on the basis of a Section 148 notice issued on July 25, 2023. The order records that the notice required the company to furnish its return within 30 days from service.

The assessee contended that Section 148, as applicable at the relevant time, required three months from the end of the month in which the notice was issued. The tribunal examined the statutory provision and found that the prescribed period had not been afforded.

The tribunal also relied on the principle that issuance of a valid statutory notice is a condition precedent to assuming jurisdiction. It held that the defect was jurisdictional and could not be treated as a mere procedural irregularity. The reopening was consequently quashed.

The tribunal observed that the Section 148 notice “had indeed fallen well short of affording the above statutory time period to the assessee for the purpose of filing its response thereto”.

It adopted the reasoning in the earlier decision to quash the reopening.

For AY 2022-23, RNT Metals challenged the Section 143(3) assessment completed on March 31, 2024. The order records that a Section 132 search had been conducted at the company's premises on December 12, 2022. The Revenue did not dispute this factual position.

The tribunal relied on its decision in Montage Enterprises (P.) Ltd. v. DCIT. It had held in that case that once a Section 132 search is initiated and material relating to the assessee is found, a pending Section 143(3) assessment cannot validly continue in the circumstances covered by the special mechanism. The Assessing Officer must instead proceed under Section 148

The tribunal also noted the statutory time limit for issuing a Section 143(2) notice and the effect of its expiry in the circumstances considered in Montage Enterprises. Section 143(2) enables the Assessing Officer to scrutinise a return, but the notice must be issued within the prescribed time.

Applying that reasoning, the tribunal ruled that “no normal assessment under section 143(3)” could have been framed after the search. It adopted the reasoning mutatis mutandis and quashed RNT Metals' regular assessment dated March 31, 2024.

RNT Metals' appeal for AY 2023-24 was partly allowed on separate issues. The tribunal fixed a 5% gross-profit disallowance on the alleged bogus purchases of ₹28 lakh and reduced a seized-cash addition from ₹7.68 lakh to ₹2 lakh.

Director Archit Jain's appeal for AY 2023-24 was allowed for statistical purposes. The Assessing Officer was directed to carry out fresh factual verification and reconciliation on whether the two disputed additions had already been assessed in RNT Metals' hands.

For Assessee: Pranav Yadav, Advocate

For Revenue: Kranti, CIT (DR)