No Reopening During Pending Rectification: High Court Invalidates Time-Barred Section 148 Notice

The petitioner challenged the issuance of notice under Section 148 and the underlying order under Section 148A(d) for AY 2017-18. The assessee’s original assessment had been completed on 20.12.2019 under Section 143(3), with additions under Section 68. A rectification order under Section 154 was issued on 23.12.2019 to correct a typographical error regarding the addition of Rs. 40 crore. Another rectification notice proposed correction of several issues, including the short addition of Rs. 39.60 crore, disallowance of delayed PF contribution of Rs. 6.35 lakh under Section 36(1)(va), and disallowance of depreciation of Rs. 78.26 lakh due to lack of verification of additions to fixed assets. The assessee responded and also submitted detailed invoices in December 2022.

Thereafter, a fresh notice under Section 148A(b) was issued. The assessee objected, but the department proceeded to pass the order under Section 148A(d) on 22.04.2024 and thereafter issued the Section 148 notice the same day.

Issue Before HC: Whether the reassessment notice for AY 2017-18 issued on 22.04.2024 was barred by limitation under amended Section 149, and whether reopening was invalid when rectification proceedings on the same issues were pending.

HC Decided: The Court held that the reassessment was clearly time-barred. For AY 2017-18, the six-year period under the unamended Section 149 expired on 31.03.2024. By virtue of the first proviso to Section 149(1), no notice could be issued thereafter. The notice under Section 148 was issued on 22.04.2024, beyond this limitation, making it invalid. The Court clarified that provisos relate only to computing the limitation within the amended three-year or ten-year framework and cannot override the restriction imposed by the first proviso.

The Court accepted the assessee’s argument that reopening was impermissible when rectification proceedings on identical grounds were already pending. Relying upon S.M. Overseas (P) Ltd., the Court held that initiation of reassessment during ongoing Section 154 proceedings amounts to a change of opinion and is legally untenable. The reasons recorded under Section 148A(d) directly overlapped with the issues in the rectification notice. Thus, both the notice under Section 148 and the order under Section 148A(d) were quashed.

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