ITAT Holds Reassessment Proceeding Is Invalid if Time Limit for Scrutiny under Section 143(2) Had Not Expired

The Income Tax Appellate Tribunal (ITAT) Hyderabad observed that the AO cannot bypass the normal assessment mechanism by invoking the extraordinary provisions relating to reassessment. Accordingly, the notice issued under Section 148 and the reassessment order passed were quashed.

The assessee is an individual who filed his return of income for AY 2019-20, declaring a total income of Rs 1.72 crore. During a search conducted in the case of another person belonging to the Subhagruha Projects India Pvt. Ltd. group, an affidavit was found wherein the assessee had allegedly admitted long-term capital gains amounting to Rs. 4.30 crore. On verification, the AO noticed that only Rs. 1.55 crore had been offered as long-term capital gains in the return of income. Consequently, he assumed that income of Rs. 2.74 crore had escaped assessment and issued a notice under Section 148 on 24 February 2021. Since the assessee did not respond to the notices, reassessment proceedings under Sections 147 read with 144 were completed, and an addition of Rs. 2.74 crore was made.

Aggrieved by the reassessment order, the assessee preferred an appeal before the CIT(A), which granted him the relief. Challenging the relief, the Revenue filed an appeal before the Tribunal, and the assessee also filed a cross-objection to challenge the validity of the reassessment proceedings.

The Tribunal noted that the assessee had filed the return of income on 16 June 2020 and that the time available to the AO for issuing notice under Section 143(2) was extended up to 30 September 2021. However, notice under Section 148 had been issued on 24 February 2021, when the regular assessment mechanism was still available. The Tribunal preferred the view taken by the Bombay High Court and held that the AO could not invoke the provisions of Section 147 while the statutory time limit for initiating regular scrutiny proceedings under Section 143(2) was still subsisting.

The Tribunal held that the notice issued under Section 148 dated 24 February 2021 was invalid and so quashed the reassessment order passed under Sections 147 read with 144 of the Income Tax Act, 1961. Since the reassessment proceedings themselves were held to be unsustainable, the Revenue’s appeal challenging the deletion of the addition of Rs. 2.74 crore became academic and was dismissed as infructuous, while the cross-objection filed by the assessee was allowed.