Reassessment: Limitation: Exclusion from limitation: S/s. 147, 148, 149 and 150: A.Ys. 1999-00 to 2002-03: Reassessment pursuant to order of appellate authority in case of third party: Condition precedent for exclusion of limitation: Assessee must be given opportunity to be heard: Order of Tribunal in case of third party holding that interest income belonged to assessee: Notice for reassessment beyond six years to assessee without giving opportunity to be heard: Notice barred by time:

The assessee advanced loans to a co-operative society which created a special corpus fund. The society earned interest on the special fund but did not disclose it in its return of income on the ground that the money actually belonged to the assessee and that any income earned thereon was on behalf of the assessee. The Tribunal agreed with the submissions of the society and held that the interest was not taxable in the hands of the society but ought to be taxed in the hands of the assessee. On the basis of the said observations of the Tribunal the Assessing Officer issued notices u/s. 148 of the Income-tax Act, 1961 on 23-03-2011 for reopening the assessment for the A.Ys. 1999-00 to 2002-03.

The Delhi High Court allowed the writ petition filed by the assessee, set aside the notices issued u/s. 148 and held as under:

“i) Before a notice u/s. 148 can be issued beyond the time limit prescribed u/s. 149, the ingredients of Explanation 3 to section 153 have to be satisfied. Those ingredients require that there must be a finding that income which is excluded from the total income of one person is income of another person. The second ingredient is that before such a finding is recorded, such other person should be given an opportunity of being heard.

ii) When the Tribunal held in favour of the society concluding that the interest was not taxable in its hands and that the interest ought to have been taxed in the hands of the assessee, an opportunity of hearing ought to have been given to the assessee. No opportunity of hearing was given to the assessee prior to the passing of the order by the Tribunal in the case of the society.

iii) As such, one essential ingredient of Explanation 3 was missing and, therefore, the deeming clause would not get triggered. Thus, section 150 would not apply and, therefore, the bar of limitation prescribed by section 149 was not lifted. In such a situation, the normal provisions of limitation prescribed u/s. 149 would apply.

iv) Those provisions restrict the time period for reopening to a maximum of six years from the end of the relevant assessment year. The notices u/s. 148 having been issued beyond the period of six years were time barred.”