Big Win for Taxpayers! ITAT Mumbai Strikes Down Time-Barred Reassessment

Introduction
The Mumbai Income Tax Appellate Tribunal (ITAT) has recently ruled that reassessment notices
issued under Section 148 of the Income Tax Act, 1961, beyond a period of six years are barred by
limitation. This decision comes as a relief for taxpayers, reinforcing the principle that reassessment
proceedings must adhere to statutory time limits.

Case Overview: ACIT vs. Orbit Financial Capital
The case in question involved a partnership firm, Orbit Financial Capital, which challenged the
validity of a reassessment notice issued by the Assessing Officer (AO) under Section 148 of the Act.
The primary contention of the assessee was that the reassessment proceedings were time-barred, as the notice was issued after six years from the relevant assessment year.
Legal Framework: Understanding Section 148 and Section 147
Under the Income Tax Act, Section 148 empowers the AO to issue a reassessment notice if there is a reason to believe that income has escaped assessment. However, this power is subject to the
limitation prescribed under Section 147.
As per the prevailing law:
 A reassessment notice can be issued within four years from the end of the relevant
assessment year if there is no failure on the part of the assessee to disclose fully and truly all
material facts.
 If the escaped income exceeds Rs. 50 lakh, the period for reopening extends up to ten years.
However, for cases below this threshold, the maximum limit remains six years.

ITAT’s Ruling
The ITAT Mumbai examined the facts of the case and observed that:
 The reassessment notice under Section 148 was issued on 27th July 2022.
 This notice pertained to an assessment period beyond six years.
 There was no evidence suggesting that the escaped income exceeded Rs. 50 lakh, which
could have extended the limitation period to ten years.
Given these findings, the tribunal concluded that the reassessment proceedings were barred by
limitation and quashed the notice, reaffirming the principle that tax authorities must act within the
prescribed time frame.
Implications for Taxpayers
This ruling reinforces the importance of statutory limitations in reassessment proceedings.
Taxpayers facing delayed reassessment notices can now cite this precedent to challenge time-barred proceedings. Moreover, it underscores the need for tax authorities to adhere strictly to legal
provisions when reopening cases.

Conclusion

The ITAT Mumbai’s decision in ACIT vs. Orbit Financial Capital sets a significant precedent in
taxation law, protecting taxpayers from arbitrary and delayed reassessment notices. This case serves
as a reminder that tax authorities must operate within statutory limits, ensuring fairness and
certainty in tax administration.
For taxpayers and legal professionals, this ruling is a crucial reference point in challenging
reassessment proceedings initiated beyond the prescribed time limit.