ITAT Cancels Rs 39.92 Lakh Penny Stock Reassessment Over Time-Barred Section 148 Notice:

The Income Tax Appellate Tribunal (ITAT), Kolkata ‘SMC’ Bench, has quashed the reassessment proceedings against Tarun Kumar Sarda for Assessment Year (AY) 2016-17, holding that the notice issued under Section 148 of the Income Tax Act was barred by limitation.

The assessee had filed his income tax return (ITR) declaring an aggregate income amounting to Rs 4.97 lakh. The Assessing Officer (AO) has reopened the assessee's case and treated transactions in shares of Sunstar Realty Developers Ltd. as accommodation entries involving a penny stock and made an addition of Rs 39.92 lakh under Section 69 of the Act.

When the case was taken to the first appellate authority, i.e., the Commissioner of Income Tax (Appeals) [CIT(A)], the impugned addition was sustained, relying on the Supreme Court’s decision in Suman Poddar v. ITO.

Subsequently, the tribunal approached the Income Tax Appellate Tribunal (ITAT), Kolkata, challenging the validity of the reassessment proceedings. The assessee contended that the Section 148 notice dated July 20, 2022, was issued beyond the statutory time limit. The assessee relied on the Supreme Court’s ruling in Union of India v. Rajeev Bansal and submitted that only one day of the limitation period remained as of June 30, 2021.

The assessee contended that after accounting for the proceedings under Section 148A(b), the extended limitation period expired on June 29, 2022. Therefore, the notice issued on July 20, 2022, was beyond limitation. It was also argued that the mandatory approval required under Section 151(ii) had not been obtained.

The ITAT noted that the Revenue could not rebut the assessee’s limitation argument. It held that the Section 148 notice issued on 20 July 2022, concerning income escaping assessment below Rs 50 lakh, was barred by limitation. The tribunal had noted that "the Ld. DR could not rebut the contention of the Ld. AR. Hence, in view of the facts as narrated by the Ld. AR, it is held that the notice issued u/s 148 of the Act on 20.07.2022 for income escaping assessment of less than ₹50 Lakhs was barred by limitation on 20.07.2022 i.e. the date of issue." Accordingly, the Tribunal quashed the notice and consequential reassessment proceedings.

Since the reassessment itself was quashed, the ITAT did not adjudicate the grounds relating to the merits of the Rs 39.92 lakh addition. The appeal was allowed.