Gujarat High Court on limitation for reassessment based on search material: Impact of Section 149 and Section 152(3)

Background of the dispute

In Bipinkumar Girdharlal Parekh Vs ACIT, the Gujarat High Court examined whether the Revenue could reopen an assessment for A.Y. 2021-22 under Section 148 when the basis for such reopening was incriminating material unearthed during a search under Section 132 conducted on a third party, and the reassessment notice was issued beyond the time limit prescribed under Section 149.

The assessee challenged:

• The order dated 19.05.2025 passed under Section 148A(d) of the Income Tax Act 1961, rejecting his objections, and
• The consequential notice dated 23.05.2025 issued under Section 148 for A.Y. 2021-22.

The core legal issue turned on how Section 152(3) (inserted by the Finance (No. 2) Act, 2024) interacts with the limitation provisions under the “old regime” Section 149, where the search took place between 01.04.2021 and 01.09.2024.

Material facts in brief

Business profile and original assessment

• The assessee is engaged in the transportation business, providing trucks to M/s. DCW Ltd. against agreed freight charges.
• For A.Y. 2021-22, the assessee filed a return of income on 14.12.2021, declaring net total income of Rs. 38,51,910.
• The return was processed under Section 143(1). No scrutiny assessment under Section 143(3) was carried out at that stage.

Search on M/s. DCW Ltd. and subsequent proceedings

• A search under Section 132 was carried out on the M/s. DCW Ltd. group on 18.11.2023.

• During the search, the Department claimed to have found handwritten sheets and other documents indicating:

  • Cash receipts and cash payments,
  • Cash loans from various parties and distributors,
  • Adjustment of such cash loans against non-genuine expenses (bogus commission / rebate), and
  • Evidence of unaccounted scrap sales.

• Based on this material, the Assessing Officer issued a show cause notice under Section 148A(1) to the assessee on 31.03.2025, alleging escapement of income in respect of transportation transactions with M/s. DCW Ltd.

Allegation of inflated transport bills

• The assessee responded, explaining his transportation receipts and referring to total freight and transport bills of Rs. 6,68,95,812.

• The Revenue alleged that:

  • The assessee had inflated transportation bills to the extent of Rs. 32,71,205, and
  • This allegedly represented income that had escaped assessment for A.Y. 2021-22.

• The assessee objected to the proposed reopening.

• These objections were rejected through an order dated 19.05.2025 passed under Section 148A(d).

• Subsequently, the Assessing Officer issued a notice under Section 148 on 23.05.2025, seeking to reopen the assessment for A.Y. 2021-22.

Assessee’s arguments before the High Court

No escapement of income and jurisdictional challenge

The assessee put forward a two-fold challenge:

1. Factual objection

   • He contended that there was no real escapement of income, and the transportation receipts were duly disclosed and supported by bills.

2. Legal objection – limitation and applicable regime

   • The search on M/s. DCW Ltd. was conducted on 18.11.2023, i.e., after 01.04.2021 but before 01.09.2024.
   • Under Section 152(3), where a search under Section 132, requisition under Section 132A or survey under Section 133A (other than under sub-section (2A)) is carried out between 01.04.2021 and 01.09.2024, the provisions of Sections 147 to 151 apply as they stood immediately before the commencement of the Finance (No. 2) Act, 2024.
   • Therefore, the pre–Finance (No. 2) Act, 2024 regime of Sections 147–151 governed the reassessment proceedings in this case.

Key plea on limitation
Since the alleged escaped income was Rs. 32,71,205, i.e., below Rs. 50 lakh, Section 149(1)(a) (old regime) applied, prescribing a limit of three years from the end of the relevant assessment year. For A.Y. 2021-22, this limitation expired on 31.03.2025. The notice under Section 148 dated 23.05.2025 was therefore time-barred.