You don’t file your income tax return for an assessment year and some years after that the tax department sends you a notice over unexplained income for that AY. What happens then?Recently, the Income Tax Appellate Tribunal (ITAT), Chennai, has quashed a reassessment involving Rs 2.51 crore additionals after holding that the Income Tax Department had issued the reopening notice after the statutory time limit had already expired.The case concerned assessment year 2015-16 and the changes brought to the law governing reassessment notices from April 1, 2021.
What the case is about
A man did not file his income tax return for the assessment year 2015-16. However, the Assessing Officer received specific information that the man had made a Rs 2 crore time deposit, and had earned interest income of Rs 3,31,230 during the relevant year.Also Read | US-based daughter files case against parents seeking share in properties; Karnataka HC rejects her ‘ancestral’ claim, saying they were father’s separate assets, not coparcenary propertyBased on that information, the AO reopened the assessment and issued a notice under Section 148 on April 5, 2022. According to the assessment order, the man neither submitted a return in response nor replied to notices seeking an explanation regarding the nature and source of the deposit. The AO concluded that the assessee had no explanation to offer to respond to the deposit/interest and added Rs 2,51,77,110 out of which Rs 2 crore plus Rs 28,90,000 plus Rs 12,93,986 was made as unexplained investment under Section 69A.The assessment order was passed on December 22, 2023. The Commissioner of Income Tax (Appeals), or CIT(A), subsequently upheld the order in a decision dated January 29, 2026.The man then approached the ITAT.His main challenge before the ITAT was not whether the additions themselves were justified. He questioned the validity of the reassessment notice.His argument was that, for AY 2015-16, the six-year limitation period under the reassessment provisions that existed before the 2021 amendment had already expired by March 31, 2022. Therefore, he argued that he could not be issued a fresh Section 148 notice on April 5, 2022.Also Read | Man deposits Rs 85.3 lakh received as cash gifts from wife, relatives; income tax calls it unexplained and sends notice, but ITAT Chennai accepts gift deeds and gives relief
Why did the man win in ITAT Chennai ?
Fundamentally, the reason the ruling went in favour of the man was that the reassessment proceedings for AY 2015-16 had become time barred.Under the amended Section 149, the ordinary period for issuing a Section 148 notice became three years. A longer period of up to 10 years was also provided in specified circumstances where the Assessing Officer had evidence showing that escaped income of at least Rs 50 lakh was represented in the form of an asset, expenditure or certain entries in the books. The provision also specifically referred to bank deposits within the meaning of an “asset”.But ITAT said the amended provision could not be read in isolation.The first proviso to Section 149(1) deals specifically with assessment years beginning on or before April 1, 2021. It prevents the tax department from issuing a notice under the new regime if a notice could not have been issued at that point because the time limit under the old Section 149 had already expired.Amit Ganatra, Executive Director at Khaitan & Co explains that the reassessment timelines underwent a significant change effective 1 April 2022, however, the lawmakers only intended for these changes to be applicable prospectively.“For AYs governing the period prior to 1 April 2022 (i.e. AY 2021–22 and before) it is not just the limitation period of 10 years that is relevant but also the limitation period of 6 years, provided in section 149 prior to amendment, that needs examination,” he tells TOI.“While the ruling of the ITAT is on an issue that has been extensively examined by the Supreme Court in Union of India vs. Rajiv Bansal 469 ITR 46 (SC), it becomes imperative for taxpayers to understand the statutory provisions governing limitation period especially for AY 2021–22 and before,” says Amit Ganatra.Also Read | Retired bank employee got Rs 12.27 lakh leave encashment and claimed Rs 3 lakh exemption in 2020, but government later hiked limit to Rs 25 lakh in 2023; ITAT Chennai allows full tax exemption“The appeal of the assessee was admitted by the ITAT on the limited ground of whether the reassessment proceedings for AY 2015-16 were time barred on 5 April 2022 i.e. the date of issue of notice by the AO,” Ganatra explains.ITAT acknowledged that the timelines for reopening of assessments under section 149(1) of IT Act were increased from 6 years to 10 years from the end of relevant AY, where income escaping assessment was over Rs 50 lakh.However, as per the first proviso to section 149(1), no notice of reassessment can be issued under the revised reassessment regime, effective 1 April 2021, if such notices were already time barred under Section 148 as it stood prior to the amendment.“The ITAT also took note of the limitation period prescribed under section 149(1), as it stood prior to amendment, being 6 years in cases where income escaping assessment was more than Rs 1 lakh. Accordingly, under the pre-amendment provisions, the reassessment proceedings became time barred on 31 March 2022, being 6 years from end of AY 2015-16,” Ganatra tells TOI.The finding meant that ITAT did not have to decide whether the Rs 2.51 crore additions were otherwise sustainable.It’s important to note that ITAT did not hold that the Rs 2.51 crore amount was explained, nor did it rule that the additions under Section 69A were substantively wrong.Also Read | Grandmother and her son gifted 2.5-acre land to his second wife, who sold it; his daughter from first marriage claimed it was ancestral, but Madras HC rejects her plea
