Defective Section 148 Notice Leads ITAT Delhi to Quash RNT Metals' Reassessment and Regular Assessment

In a significant ruling that underscores the strict procedural requirements under the Income Tax Act, the Income Tax Appellate Tribunal (ITAT) Delhi bench has quashed both the reassessment proceedings against RNT Metals Pvt. Ltd. for assessment year (AY) 2021-22 and the regular assessment for AY 2022-23. The tribunal held that the Section 148 notice issued for the reopening was fatally defective, failing to provide the statutorily mandated period for filing a return, and that the regular assessment after a search could not validly proceed under the normal mechanism.

The bench, comprising Judicial Member Satbeer Singh Godara and Accountant Member Sanjay Awasthi, allowed the company’s appeals, delivering a clear message that jurisdictional defects cannot be brushed aside as procedural irregularities.

A Notice Cut Short

For AY 2021-22, RNT Metals challenged the reopening of its assessment on the basis of a Section 148 notice issued on July 25, 2023. The notice required the company to furnish its return within 30 days from service. However, the assessee argued that Section 148, as applicable at the relevant time, mandated a period of three months from the end of the month in which the notice was issued.

The tribunal examined the statutory provision and found that the prescribed period had not been afforded. It observed that the notice “had indeed fallen well short of affording the above statutory time period to the assessee for the purpose of filing its response thereto.” Emphasising that the issuance of a valid statutory notice is a condition precedent to assuming jurisdiction, the bench held that the defect was jurisdictional and could not be treated as a mere procedural irregularity. Consequently, the reopening was quashed.

The Search Complication

For AY 2022-23, the company challenged the Section 143(3) assessment completed on March 31, 2024. The order records that a Section 132 search had been conducted at RNT Metals’ premises on December 12, 2022. The Revenue did not dispute this factual position.

The tribunal relied on its earlier decision in Montage Enterprises (P.) Ltd. v. DCIT , which held that once a Section 132 search is initiated and material relating to the assessee is found, a pending Section 143(3) assessment cannot validly continue. Instead, the Assessing Officer must proceed under the special mechanism of Section 148. Applying that reasoning, the tribunal ruled that “no normal assessment under section 143(3)” could have been framed after the search. It adopted the reasoning mutatis mutandis and quashed the regular assessment dated March 31, 2024.

Partial Relief for Later Years

The tribunal also dealt with appeals for AY 2023-24. For RNT Metals, the appeal was partly allowed. The bench fixed a 5% gross-profit disallowance on alleged bogus purchases of ₹28 lakh and reduced a seized-cash addition from ₹7.68 lakh to ₹2 lakh. Director Archit Jain’s appeal for the same year was allowed for statistical purposes, with a direction to the Assessing Officer to carry out fresh factual verification and reconciliation on whether the two disputed additions had already been assessed in RNT Metals’ hands.

Legal Analysis: A Strict Approach to Procedural Compliance

The ITAT’s ruling reinforces the principle that statutory notices must strictly comply with the time periods prescribed by law. A failure to afford the full period renders the notice invalid ab initio , stripping the Assessing Officer of jurisdiction. This is particularly important given that Section 148 notices are often issued in bulk, and revenue officers must ensure that the notice period is calculated correctly.

Moreover, the decision clarifies the interplay between search assessments under Section 132 and regular assessments under Section 143(3). Once a search is conducted and incriminating material is found, the normal assessment machinery is displaced by the special mechanism under Section 148. Tax practitioners should note that continuing a pending Section 143(3) assessment after a search is impermissible, and any assessment framed in such circumstances is liable to be quashed.

Impact on Tax Practice

The judgment serves as a timely reminder for both assessees and the Revenue about the importance of procedural due diligence. For tax professionals, it highlights the need to scrutinise the period granted in Section 148 notices and to challenge defective notices at the earliest stage. For the Revenue, it underscores that shortcuts in compliance can lead to entire assessments being set aside, regardless of the merits of the underlying tax demand.

The reliance on the Montage Enterprises precedent also provides clarity on the post-search assessment regime. With search-and-seizure actions being a common tool, this ruling will likely influence how pending assessments are handled in similar cases.

Conclusion

The ITAT Delhi’s decision in the RNT Metals case is a welcome relief for the assessee and a clear enunciation of the law on procedural validity of notices and the effect of search on pending assessments. By quashing both the defective reopening and the post-search regular assessment, the tribunal has reinforced the principle that substantive tax collection must be founded on impeccable procedural compliance.