Reassessment Notice Upheld as Time Allowed for Reply Is Excluded While Computing Limitation: Delhi HC

Sunil Bhalla Vs DCIT (Delhi High Court)

Summary: The Delhi High Court dismissed a writ petition challenging an order passed under Section 148A(d) and the consequential notice issued under Section 148 of the Income Tax Act, 1961 on the ground that the proceedings were allegedly time-barred. The Assessing Officer issued a notice under Section 148A(b) on 28.03.2024 and granted time to file a reply. The petitioner sought adjournments on 05.04.2024 and again on 15.04.2024. The second adjournment request was rejected, and the Assessing Officer passed the order under Section 148A(d) and issued the notice under Section 148 on 16.04.2024. Referring to its decision in a connected matter, the Court explained that under the fifth and sixth provisos to Section 149, the time allowed to an assessee for filing a reply must be excluded while computing limitation. Since no reply was filed, 15.04.2024 was treated as the deemed date of reply. The Court held that the order and notice issued on 16.04.2024 were well within the limitation period and upheld the proceedings.

Core Issue: Whether the order passed under section 148A(d) and the consequential notice issued under section 148 were barred by limitation when the assessee sought adjournments in response to notice under section 148A(b) but ultimately did not file any reply, and whether the period available for filing the reply, including the extended period sought through adjournments, was liable to be excluded under the fifth and sixth provisos to section 149.

Facts: The Assessing Officer issued a notice under section 148A(b) on 28.03.2024 requiring the assessee to file a reply by 08.04.2024. Instead of filing a reply, the assessee sought an adjournment on 05.04.2024, which was granted and the matter was deferred to 15.04.2024. On 15.04.2024, the assessee again sought adjournment. However, the second request was rejected by the Assessing Officer and no reply was filed thereafter. The Assessing Officer proceeded to pass the order under section 148A(d) and issue notice under section 148 on 16.04.2024. The assessee challenged the proceedings before the High Court contending that the reassessment proceedings had become time-barred.

Revenue’s Stand: The Revenue contended that in view of the fifth and sixth provisos to section 149, the entire period available to the assessee for filing a reply to the notice under section 148A(b), including the period extended on account of adjournments sought by the assessee, was required to be excluded while computing limitation. Therefore, the impugned order and notice were within time.

High Court Findings: The Court followed its earlier judgment in Shailendra Nath Rai v. Assistant Commissioner of Income Tax Circle 60(1), New Delhi and held that the fifth and sixth provisos to section 149 expressly require exclusion of the period allowed to the assessee for filing a reply to a notice under section 148A(b). The Court observed that the notice was issued on 28.03.2024 and, since no reply was ultimately filed, the date on which the assessee’s final adjournment request was rejected, namely 15.04.2024, had to be treated as the deemed date of filing reply. Consequently, the entire period from 28.03.2024 to 15.04.2024, being approximately 19 days, stood excluded while computing limitation. Thereafter, under the sixth proviso to section 149, the Assessing Officer was entitled to a statutory period of seven days from the deemed date of reply. Accordingly, the Assessing Officer had time up to 22.04.2024 to pass the order under section 148A(d) and issue notice under section 148. Since both the order and notice were issued on 16.04.2024, i.e., the very next day after rejection of the adjournment request and well before 22.04.2024, the proceedings were held to be within limitation.

Case Law Relied Upon: Shailendra Nath Rai v. Assistant Commissioner of Income Tax Circle 60(1), New Delhi.

Relevant Paras: 5 to 9.

Held: The Delhi High Court held that for the purposes of limitation under section 149, the entire period available to the assessee for filing a reply to a notice under section 148A(b), including any extended period arising from adjournments sought by the assessee, must be excluded. Where no reply is ultimately filed, the date of rejection of the final adjournment request can be treated as the deemed date of filing reply. Since the order under section 148A(d) and notice under section 148 were issued on 16.04.2024, well within seven days from the deemed date of reply (15.04.2024), the reassessment proceedings were held to be valid and within limitation. The writ petition was accordingly dismissed

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The present writ petition challenges the order passed under Section 148A(d) dated 16.04.2024 so also the consequential notice of even date issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the ^„Act of 1961‟) on the ground that the proceedings were initiated when they had become time-barred.

2. The common arguments were advanced by Mr. Salil Aggarwal, learned senior counsel for the petitioner and Mr. Puneet Rai, learned senior standing counsel for the respondents, in W.P.(C) 15305/2024 titled Shailendra Nath Rai v. Assistant Commissioner of Income Tax Circle 60(1) New Delhi & Anr..

3. The relevant dates of the present case are noted hereunder in tabular form:

4. In our order of even date passed in Shailendra Nath Rai (supra), we have clarified the legal position, having due regard to fifth and sixth proviso to Section 149 of the Act of 1961.

5. It will not be out of place to reproduce the relevant part of said judgment :

“19. If the facts of the present case are examined, it is clear that on 29.03.2024, the assessee was called upon to file his reply as provided in Section 148A(b) and (c) of the Act of 1961. On 08.04.2024 instead of filing reply, he sought an adjournment and on 12.04.2024, the petitioner sought another adjournment and it was only on 21.04.2024 that the petitioner filed reply, with a plea that the proceedings have become time-barred.

20. We are firmly of the view that in the face of fifth and sixth proviso, which clearly provide that for the purpose of computing the period of limitation, the time or extended time allowed to the assessee as per show cause notice issued under clause (b) of Section 148A is required to be excluded. The period from 29.03.2024 to 21.04.2024 was thus in any event required to be excluded.

21. If argument of Mr. Aggarwal, learned senior counsel for the petitioners is to be accepted, then every notice under Section 148A(b) issued after 1^st March would be invalid because time for reply may vary from 7 days to 30 days and in each case, the validity of notice under Section 148A(b) would be depending upon an uncertain event of time taken by the assessee in filing reply. Because fifth and sixth proviso requires time taken in filing the reply by the assessee (subject to maximum 30 days) which has to be excluded. Such interpretation would not only lead to uncertainty but would frustrate the very purpose of a provision which has been introduced to ensure observance of principles of natural justice.

22. A combined reading of fifth and sixth proviso to Section 149 suggests that the time between the date of notice under Section 148A(b) i.e. 03.2024 and the date on which the petitioner had filed reply i.e. 21.04.2024 (as given under fifth proviso) is to be excluded and then, from that date, a period of 7 days is to be taken as per sixth proviso for the purpose of determining the last date of limitation, by which the AO has to pass the order under Section 148A(d) and issue the notice under Section 148 of the Act of 1961.

23. Accordingly, having received reply on 21.04.2024, the AO had only 7 days at his disposal to pass order under Section 148A(d) of the Act of 1961 and to issue notice under Section 148 of the Act of 1961, whereas he has passed the order under Section 148A(d) of the Act of 1961 and issued notice under Section 148 of the Act of 1961 on 30.04.2024 – he has taken 9 days‟ time to issue notice under Section 148 of the Act of 1961.

24. The notice under Section 148 was required to be issued within maximum of 7 days from the date, when reply was filed i.e. 21.04.2024. The notice could therefore be issued by 28.04.2024, whereas the same came to be issued on 30.04.2024. The impugned notice dated 30.04.2024 is, thus, barred by limitation.

25. The writ petition is allowed. Order under Section 148A(d) and notice under Section 148 of the Act of 1961 both passed/issued on 30.04.2024 are, therefore, quashed, being issued beyond the limitation.”

6. On the anvil of above principles, if the facts of the present case are tested, according to us, the proceedings are well within the period of limitation inasmuch as the notice under Section 148A(b) of the Act of 1961 was issued on 28.03.2024, in response whereof, the petitioner was allowed time to file reply on 05.04.2024. On 05.04.2024, the hearing was deferred to 15.04.2024. Again, the assessee prayed for an adjournment, which request was turned down by the Assessing Officer and the impugned order under Section 148A(d) of the Act of 1961 came to be passed on 16.04.2024.

7. In the instant case, since reply was not filed, we have to take 15.04.2024 as the deemed date of filing reply as the request of the petitioner for an adjournment was turned down.

8. Having turned down the request for adjournment (on 15.04.2024), the Assessing Officer passed an order under Section 148A(d) and issued a notice under Section 148 of the Act of 1961 on the very next date i.e. 16.04.2024.

9. Needless to observe that on 28.03.2024, the Assessing Officer had three days’ time in his hands and even going by sixth proviso to Section 149 of the Act of 1961 from the date of filing reply, the Assessing Officer had seven days’ time to pass an order. The last date for passing order under Section 148A(d) of the Act of 1961 and issuing notice under Section 148 was therefore 7 days from 15.04.2022, i.e. 22.04.2024. Since the order under Section 148A(d) and notice under Section 148 have admittedly been issued on 16.04.2024, the same are well within limitation.

10. Instant writ petition, therefore, fails. Pending application stands disposed of.