Legal Limits on Reopening Tax Cases

Understanding Reassessment Under Section 148 of the Income Tax Act — And Why the Right Assessee Matters! Section 148 of the Income Tax Act, 1961, empowers the Assessing Officer (AO) to reopen assessments if income has escaped assessment. But this power is not absolute — it must be exercised reasonably, lawfully, and against the correct assessee. Let’s consider a recent judgment that illustrates this well: Case: Yogesh Mafatlal Bhansali v. ITO Citation: [2025] 173 taxmann.com 412 (ITAT Ahmedabad) Bench: Annapurna Gupta (AM) & T.R. Senthilkumar (JM) Facts: The AO reopened the father’s assessment under Section 148, alleging that the minor son had acquired land and his share of the property (worth ₹44.66 lakh) was taxable under Section 56(2)(vii)(b)(ii) in the father’s hands. However, the father submitted that under Section 64(1A), the minor’s income had already been clubbed with the mother’s income, and documentary evidence supported this. Despite this, the AO proceeded with reassessment against the father, and the CIT(A) confirmed the addition. The matter went to the ITAT. Held: The ITAT quashed the reassessment. The Tribunal held that since the minor’s income was already clubbed with the mother’s return, any reopening should have been initiated in her case, not the father’s. Targeting the wrong assessee invalidates the proceedings. The bench also noted the AO’s failure to properly verify documents submitted by the assessee and criticized the mechanical nature of the reassessment. Key Takeaway: Section 148 cannot be invoked arbitrarily. Reassessment: - Must be initiated only where income has actually escaped assessment - Has to be directed at the correct assessee - Requires proper evaluation of evidence and facts already on record In this case, reopening was not only procedurally flawed but also legally untenable — leading to its dismissal. If you advise clients on tax litigation or handle reassessment matters, this is a vital reminder: procedure is just as important as substance under tax law. For deeper insights into reassessment strategy, Section 148 notices, and clubbing provisions under Section 64 — let’s connect. Read the entire judgement at:https://lnkd.in/g_x3YWEx Follow CA Sanjay Agarwal for more real-world updates and professional tax insights. #taxlaw #directtax #indirecttax #incometax #caselawanalysis #itat

Pandemic still echoes in tax law cases. You may ask, "Are you serious? It’s been 5 years since Covid. There are still pending cases in tax laws?" I would sadly say, "Yes! Almost 5 years since Covid-19, and yet it still impacts current tax law, as seen through the Rajeev Bansal case." 𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱 The government introduced the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) to extend limitation periods during COVID, effective until June 30, 2021. Then, the Finance Act, 2021 became effective from April 1, 2021, introducing: → Section 148A for reassessment procedure. → Shortened limitation period: 3 years, with 6 years only for cases exceeding ₹50 lakhs. → New approval requirements from authorities under Section 151. This created an overlap between TOLA and the Finance Act, 2021 for notices issued between April 1 and June 30, 2021. Building on the precedent set in the Ashish Agarwal case, where the Supreme Court held that all notices of that period were deemed to be show-cause notices under Section 148A(b), additional questions regarding procedural compliance under the new regime arose. This led to the Rajeev Bansal case. 𝗞𝗲𝘆 𝗜𝘀𝘀𝘂𝗲𝘀 → Whether TOLA's extension applied to reassessment notices issued after April 1, 2021. → Whether reassessment notices issued after June 30, 2021, were time-barred and lacked prior approval from specified authorities under the new regime. 𝗝𝘂𝗱𝗴𝗲𝗺𝗲𝗻𝘁 The Supreme Court categorized 3 timelines: → Pre-COVID period: Notices with a limitation period ending any time before March 20, 2020, would be time-barred. → COVID exclusion period: Limitation period ending between March 20, 2020, and March 31, 2021, would be extended till June 30, 2021. → Show-cause period: Limitation period between April 1, 2021, and June 30, 2021, would be dealt with as per procedures under the new regime. Thus, TOLA's extension applied to notices after April 1, 2021, if their limitation period ended within the COVID extension period. Notices issued after June 30, 2021, required prior approval from the appropriate authorities as specified under the new regime. This case balanced the interests of both the Revenue and taxpayers while reinforcing procedural safeguards designed to protect taxpayers' rights during reassessment proceedings. Cases like these remind me why I love the law: it’s not about enforcing the rules only but ensuring fairness. 𝗖𝗶𝘁𝗮𝘁𝗶𝗼𝗻: Union of India vs. Rajeev Bansal, 2024 INSC 754

In the case of Santosh, C/O Kapil Goel, Advocate vs. Income Tax Officer, Ward-59(3), New Delhi (ITA No. 2025/Del/2024, dated November 29, 2024), the Income Tax Appellate Tribunal (ITAT) Delhi addressed the issue of reopening of assessment under Section 148 of the Income Tax Act, 1961, and examined whether the conditions for reopening were met in light of the new regime for reassessment. Key Facts: 1. The assessee made two transactions in immovable properties during the assessment year but did not file a return of income. 2. A notice under Section 148 of the Act was issued on March 29, 2022, requiring the assessee to file a return. The return was filed on March 23, 2023. 3. During the assessment, the Assessing Officer (AO) identified: • Sale of an immovable property on September 10, 2014, for ₹43 lakh (purchased on August 11, 2009, for ₹15 lakh). • Purchase of another property on September 19, 2014, for ₹90 lakh. • The assessee claimed that ₹43 lakh from the sale of property and ₹14.98 lakh from the sale of jewelry were used for the purchase of the new property. • The AO treated ₹35.61 lakh as unexplained, disbelieving the sale of jewelry. 4. The AO calculated long-term capital gains of ₹17.05 lakh, allowed Section 54 deduction, and added ₹47 lakh under Section 69 r.w.s. 115BBE for unexplained investment. 5. The CIT(A) sustained the AO’s additions. ITAT’s Decision: 1. Flawed Reopening: • The notice under Section 148A(b) relied on two distinct pieces of information: • Sale of property worth ₹43 lakh (from Sub-Registrar and TDS return under Section 194IA). • Alleged sale of immovable property worth ₹1.33 crore. • The AO mechanically combined these two distinct transactions without differentiation, leading to a flawed prima facie case of escapement. • The ITAT noted that the reopening was mechanically approved, violating the requirements of the new reassessment regime, which mandates specific reasons and a higher threshold for cases beyond three years. 2. Failure to Substantiate Information: • The AO’s claim of ₹1.33 crore escaping assessment was inconsistent with the information available and was not substantiated during the reopening process. 3. CIT(A)’s Sustenance of Additions: • The ITAT found that the AO’s findings were based on assumptions rather than verified evidence, particularly regarding the sale of jewelry and unexplained investments. Conclusion: The ITAT held that the reassessment proceedings were invalid due to mechanical reopening and failure to adhere to the procedural safeguards under the new reassessment regime. Consequently, the additions made under Section 69 r.w.s. 115BBE and the associated assessment order were quashed.

Dear Friends , This is regarding show cause notice under section 148(b) being issued for reopening of assessments for assessment year as back as AY 2014-15, Ay 2015-16, 2016-17 and 2017-18 though all these assessment years stand barred by limitation as on date in view of the first proviso to Section 149(1). These notices probably have ignored the first proviso to section 149(1), whereby no assessment can be reopened which couldn’t be reopened as per time limit specified under the unamened section 149(1) i.e after six years from the end of the relevant assessment year. Accordingly, for assessment year up to assessment years up to 2017-18, the period of 6 years already stand expired on 31.3.2024 or earlier and hence barred by limitation as on date. This issue has come up before Delhi High Court in the case of Manju Somani WP(C) 7364/2024 whereby the Hon’ble Court has examined this issue and vide order dated 23rd July, 2024 has quashed reopening of assessment for AY 2016-17 as 148A(d) order and 148 notice was issued on 29.04.2024 - beyond six years from the end of the assessment year. The Court has rejected the Department’s contention of period of 10 assessment years under the amended provision of Section 149(1). Relevant paras of this judgment are 12 to 14. Copy of this judgment is annexed. This judgment being of jurisdictional High Court will be binding on all Tax Authorities falling under Delhi jurisdiction. It will be relevant to point out that the period of 10 years was to be available in respect of assessment year after AY 2021-22 (which provision will not be relevant post the amendment by Finance Act, 2024). Had this period of 10 years would have been applicable even for assessment years before AY 2021-22, there would not have been any need for so much prolonged hearing before Supreme Court in respect of assessment year 2013-14 onwards as admittedly after Ashish Aggarwal, new 148 notices have been issued in June/ July,2022 i. e within 10 years. Since first proviso to section 149(1) is restricting limitation to 6 assessment years, the Instructions No1/2022 dt 11th May,2022 also has stated that extended period of limitation shall be available due to extension under TOLA and not because of amended section 149(1) allowing 10 years period for reopening of assessment. It may be relevant to mention that Bombay HC in the case of Hexaware Technologies has also taken a similar view for AY 15-16 and held that notice under section 148 issued post 31.03.2022 (i.e after 6 years) is barred by limitation. Regards Ved Jain

Does the old dictum of ‘reasons to believe’ hold true in light of 2021 amendment in process of reopening of assessments? Introduction: 1. “Reason has always existed but not always in reasonable form”-Karl Marx. 2. Similarly we can say that reasons also exists but not always reasons to believe. 3. Reason to believe have always formed an integral and crucial part of assessments under the various statutes. Reason to believe in the context of reopening of assessment U/S 148 of the Income Tax Act: 1. Under the new reassessment provisions, the Assessing Officer is required to possess ‘information’ which suggests escapement of income. 2. By way of the amendment made by the Finance Act, 2021, the ‘reasons to believe' was done away with and a new phrase ‘possess information’ was introduced which increased the scope for the revenue to reopen the cases. 3. Such information with the Assessing Officer has to suggest that the income of the assessee chargeable to tax has escaped assessment. 4. Thereafter, a valid notice under Section 148 reopening the assessment of an assessee can be issued. High Court judgements on possession of information: 1. Hon Bombay HC in the case of Standard Industries Ltd (WP No. No. 6725 of 2022) has held that notice for reopening of assessment cannot be issued where the AO is not in possession of new information between the date of order of assessment U/S 143(3) of the Income Tax Act and the date of notice U/S 148. 2. Hon Rajasthan HC has held in the case of Chaturbhuj Gattani (D.B. Civil Writ Petition No. 10866/2023) With the amendment in Sections 147, 148 and insertion of Section 148A vide Finance Act 2021 w.e.f. 1.4.2021, the assessment/reassessment proceedings can be initiated by the Assessing Officer on receiving information only. In other words, the requirement of Assessing Officer of having “reason to believe” is no more there for initiating assessment/reassessment proceedings. High Court judgements on change in opinions: 1. Hon High Court of Delhi in the case of Seema Gupta v.Income-tax Officer,[W.P.(C) 10740/2022] has held that there was a sliver of hope that the historical safeguard of ‘change of opinion’ would be read into the amended provisions of Section 147/148 of the IT Act. 2. Similar judgements were held by the Bombay HC and Karnataka HC have held that reassessment proceedings cannot be commenced in the new regime merely on account of a change in opinion. Conclusion: Merely because ‘reason to believe’ has been done away with in the new provisions, does not give the AO license to reopen any case simply because he has reasons to do so. The AO should have material new information in his possession for issuing notice for reopening of assessments. Note: Before issuing notice, the AO also has to complete the procedure specified in Sec 148A of the Income Tax Act. TaxByte by CA Aniket Kulkarni

📝 Time Limits for Income Tax Notices Many people think that the Income Tax Department can issue notices at any time. But that is not true. The law gives them a limited time frame to take action. Here is the essence: 1️⃣ For regular scrutiny, notice must be issued within 3 months from the end of the financial year in which the return is filed. 2️⃣ For income escaping cases: 🔹 If the escaped income is below ₹50 lakhs → notice allowed only up to 3 years + 3 months. 🔹 If the escaped income is ₹50 lakhs or more → notice allowed only up to 5 years + 3 months. 👉 This means that all tax years up to 31.03.2019 (if not already under scrutiny) are now closed for fresh notices. ✅ Knowing these timelines helps taxpayers to be clear about when their tax file is safe from reopening.