Facts of the Case

The Petitioner, Nagesh Trading Co., filed a writ petition challenging:

  • Show cause notice dated 02.06.2022 issued under Section 148A(b) of the Income Tax Act, 1961
  • Order passed under Section 148A(d)
  • Subsequent notice issued under Section 148 dated 28.07.2022

These proceedings related to Assessment Year 2017–18.

The case arose from allegations that the Petitioner was a beneficiary of accommodation entries involving bogus sales amounting to ₹3,02,00,636 through entities controlled by entry operators.

However, the Petitioner contended that:

  • An earlier notice under Section 148 (unamended) had already been issued on 31.03.2021
  • The Petitioner had participated in reassessment proceedings
  • The statutory time limit for completing reassessment expired on 31.03.2022
  • Despite this, fresh proceedings were initiated under the new regime

Issues Involved

  1. Whether reassessment proceedings under Section 148A(b) can be initiated when earlier proceedings under unamended Section 148 had already been concluded or had become time-barred.
  2. Whether the Revenue can restart reassessment proceedings under the new regime after limitation under the old regime has expired.
  3. Applicability of the Supreme Court ruling in Union of India vs Ashish Agarwal to the present case.

Petitioner’s Arguments

  • The initial notice under Section 148 (dated 31.03.2021) was validly issued and served.
  • The Petitioner had duly complied by filing returns and responding to notices under Section 142(1).
  • The Revenue failed to complete reassessment within the statutory limitation period ending 31.03.2022.
  • Fresh proceedings initiated under Section 148A(b) were illegal and beyond jurisdiction.
  • The reliance on Ashish Agarwal judgment was misplaced as it applied only to notices issued between 01.04.2021 to 30.06.2021.

Respondent’s Arguments

  • The Revenue claimed that earlier reassessment proceedings were treated as void due to uncertainty regarding service of notice dated 31.03.2021.
  • Based on this belief, proceedings were re-initiated under the new reassessment regime following the Supreme Court’s ruling in Ashish Agarwal.
  • It was argued that the Petitioner was involved in accommodation entries and income had escaped assessment exceeding ₹50 lakhs.
  • The Department sought a liberal view due to procedural complexities and software-related limitations.

Court’s Findings / Order

  • Once a notice under Section 148 (unamended) was issued and served on 31.03.2021, the Revenue could not initiate fresh proceedings under Section 148A(b).
  • The judgment in Ashish Agarwal did not apply, as it was limited to notices issued between 01.04.2021 and 30.06.2021.
  • The subsequent notices and orders were therefore without jurisdiction.

Final Order:

  • Show cause notice dated 02.06.2022 (Section 148A(b)) – Quashed
  • Order under Section 148A(d) – Quashed
  • Notice under Section 148 dated 28.07.2022 – Quashed

Important Clarifications by Court

  • The Court did not examine the legality of the original notice dated 31.03.2021 under unamended Section 148.
  • The Revenue was granted liberty to take further steps, if permissible under law.
  • The Petitioner retains the right to challenge any future action.

Sections Involved

  • Section 148 – Income escaping assessment (Old & New Regime)
  • Section 148A(b) – Show cause notice before reassessment
  • Section 148A(d) – Order after considering reply
  • Section 142(1) – Inquiry before assessment

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:4237-DB/MMH12102022CW137812022_193440.pdf

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