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Friends, we all are familiar with the famous words, "At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom" of the speech 'Tryst with Destiny' made by our first Prime Minister Pandit Jawaharlal Nehru, to the Indian Constituent Assembly, in the Parliament House, on the eve of India's Independence, towards midnight on 14th August 1947.

However, not many of us know, that guided by the auspicious astrological considerations of such a historic and significant event, this speech had to be completed exactly at 12 AM on the midnight of 14th August 1947, so that the holy Shankha be blown to herald the birth of a new nation at the stroke of midnight hour. The astrologers had strictly advised against any delay whatsoever, even of 2 minutes past 12AM, to commence the attainment of freedom by our Country. Thus, the criticality and significance of completing a time bound task by the stroke of midnight of the specified time barring date, was first witnessed when India attained freedom at the stroke of the midnight hour.

Recently, in the Income-tax jurisprudence also, we have witnessed the paradoxical criticality and importance of this '2-minutes' time frame, in the valid issuance and service of the scrutiny notice in the faceless assessments' regime.

The case in point is the recent judgement of the hon'ble Delhi High Court in the case of Acropolis Reality Pvt Ltd. v. ITO W.P.(C) 14317/2024 & CM No.59931/2024, dated 23-10-2024]. In the said Writ Petition, the petitioner challenged the validity of the impugned reassessment proceedings and the notice dated 1.4.2023, issued under section 148A(b) of the Income Tax Act, proposing to reopen the assessment of the petitioner for the AY 2019-20, as being time barred. The main contention of the petitioner was that since the quantum of escaped income, as alleged in the said notice was less than Rs. 50 lakhs, and as such the maximum time period of three years from the end of the relevant AY 2019-20, by virtue of legislative provision contained in section 149(1)(a) of the Act, for issuance of the said notice u/s 148A(b) of the Act, as available with the AO was only uptill 31.3.2023 and not beyond that.

Going by the above stated facts, at first instance, the case appeared quite normal just like any other time barring limitation period case. But as they say, the beauty lies in the details. A detailed reading of the judgement unfolds a very interesting and critical factual and legal proposition. During the course of hearing, the Revenue side contended that although the impugned notice bore the date of 01.04.2023, however, the same should be construed as having been issued on 31.03.2023. Their contention was premised on the basis that the process for issuing the impugned notice had begun in the late hours of 31.03.2023 and the final act of affixing the digital signature, which is a system generated process, was completed on 12:02 AM on 01.04.2023. The Revenue side thus contended that the delay is of only about two minutes in issuance of the impugned notice under Section 148A(b) of the Act. Therefore, the same be construed as having been issued within the period of three years from the end of the relevant AY 2019-20.

In adjudicating the issue as to when a notice can be considered to have been issued, in such circumstances, the hon'ble Delhi High Court, relied upon its earlier pronounced judgement in the case of 'Suman Jeet Agarwal v. ITO [2022] 143 taxmann.com 11/[2023] 290 Taxman 493/449 ITR 517. In the said judgement in Suman Jeet Agarwal case (supra), the hon'ble Delhi High Court has observed that while the function of generation of Notice on ITBA portal and digital signing of the Notice is executed by the JAO, the function of drafting of the e-mail to which the Notice is attached and triggering the e-mail to the assessee is performed by the ITBA e-mail software system. Thus, mere generation of Notice on the ITBA Screen cannot in fact or in law constitute issue of notice, whether the notice is issued in paper form or electronic form. In case of paper form, the notice must be despatched by post on or before 31st March 2021 and for communication in electronic form the e-mail should have been despatched on or before 31st March 2021.

Thus, relying upon the above observations, the hon'ble Delhi High Court in the present writ petition of Acropolis Reality Pvt Ltd, observed that the fact that the steps to generate the impugned notice commenced on 31.03.2023 cannot be a ground to hold that the impugned notice was issued on 31.03.2023. The impugned notice was digitally signed on 01.04.2023. Thus, the process of digitally generating the same on the system was completed on 01.04.2023. The impugned notice could not have been issued prior to the same being signed. The date of the said notice was correctly reflected as 01.04.2023. In addition, it was also pointed out that the DIN & Notice Number mentioned in the impugned notice – ITBA/AST/F/148A(SCN)/2023-24/1051828274(1) – also indicated that the impugned notice was issued in the financial year 2023-24. In view thereof, the hon'ble High Court found merit in the contention of the petitioner and set aside the impugned reassessment proceedings, as being time barred in Law.

Therefore, even a minor delay of just 2 minutes by the AO, in completing the steps to generate, digitally sign and dispatch the said notice u/s 148A(b) of the Act to the petitioner via email, proved fatal to the life of such notice and the impugned reassessment proceedings, and the same were quashed being barred by limitation, by the hon'ble High Court.

Legislative Provisions addressing what Constitutes a Valid 'Issue', 'Dispatch' & 'Service' of Notice & Order under Faceless Assessments Regime?

In 'Faceless Assessments', what would be considered as a valid 'dispatch and receipt' of notice so as to constitute a 'legitimate service of notice to the assessee', as stipulated under section 143(2) of the Income-tax Act?

It is a cardinal rule of Law that in order to render legality to the regular assessment proceedings under section 143(3)/143(3A) read with section 144B of the Income-tax Act, the serving of notice under section 143(2) of the Act, by the assessing authority to the assessee within a period of three months from the end of the financial year in which the return is filed, is a mandatory condition and a sine-quo-non.

The legislative mandate of service of a Notice u/s 143(2) read with section 144B of the Income Tax Act, to the assessee, for initiation of regular assessment proceedings, is given in clause (iii) of sub-section (1) of section 144B of the Income Tax Act.

For ready reference, the said legislative provision is being reproduced below:

"144B. [(1) Notwithstanding anything to the contrary contained in any other provision of this Act, the assessment, reassessment or recomputation under sub-section (3) of section 143 or under section 144 or under section 147, as the case may be, with respect to the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:—

In the conventional manual assessments, the dispatch of the Notice under section 143(2) of the Act at the registered address of the assessee and the receipt of the same by the assessee within the prescribed time barring limitation period constituted a legitimate 'service' of notice under section 143(2) of the Act.

However, in the 'Faceless Assessments' regime, the notice under section 143(2) of the Act, is sent electronically by the assessing authority via 'e-Proceedings' functionality of the ITBA module, to the 'Registered e-Filing account' of the assessee on the 'e-Filing Portal' of the Income-tax Department website.

The natural question which comes to any curious mind is what would be considered as a valid 'dispatch and receipt' of notice, so as to constitute a 'legitimate service of notice to the assessee', as stipulated under section 143(2) of the Income-tax Act, under the 'Faceless Assessments' regime.

This interesting question is addressed by sub-section (6) of the newly substituted section 144B of the Income Tax Act.

Clauses (ii) to (v) of the newly substituted subsection (6) of section 144B provides that:

(ii) every notice or order or any other electronic communication shall be delivered to the addressee, being the assessee, by way of—

(iii) every notice or order or any other electronic communication shall be delivered to the addressee, being any other person, by sending an authenticated copy thereof to the registered email address of such person, followed by a real time alert;

Clause (s) of Explanation to Section 144B of the Income Tax Act, defines, "registered account" of the assessee means the electronic filing account registered by the assessee in designated portal;

Clause (t) of Explanation to Section 144B of the Income Tax Act, defines, "registered e-mail address" means the e-mail address at which an electronic communication may be delivered or transmitted to the addressee, including—

Clause (u) of Explanation to Section 144B of the Income Tax Act, defines, "registered mobile number" of the assessee means the mobile number of the assessee, or his authorised representative, appearing in the user profile of the electronic filing account registered by the assessee in designated portal;

Clause (p) of Explanation to Section 144B of the Income Tax Act, defines, "Mobile app" shall mean the application software of the Income tax Department developed for mobile devices which is downloaded and installed on the registered mobile number of the assessee.

Further, a useful reference in this regard is also provided in Section 282 of the 'Income-tax Act, 1961' read with Rule 127 of the 'Income-tax Rules, 1962' and section 13 of 'The Information Technology Act 2000'.

Section 282 of the Income-tax Act

"282. Service of notice generally.—(1) The service of a notice or summon or requisition or order or any other communication under this Act (hereafter in this section referred to as "communication") may be made by delivering or transmitting a copy thereof, to the person therein named,—

(2) The Board may make rules providing for the addresses (including the address for electronic mail or electronic mail message) to which the communication referred to in sub-section (1) may be delivered or transmitted to the person therein named.

Explanation.—For the purposes of this section, the expressions 'electronic mail' and 'electronic mail message' shall have the meanings as assigned to them in Explanation to section 66A of the Information Technology Act, 2000 (21 of 2000)."

The time and place of dispatch and receipt of 'electronic record or electronic communication' shall have the same meaning as provided under section 13 of the Information Technology Act, 2000 (No. 21 of 2000).

Section 13 of 'The Information Technology Act, 2000':

'Time and place of dispatch and receipt of electronic record:—

Thus, a plain reading of the above legislative provisions of the Income-tax Act read with section 13 of the Information Technology Act, makes it clear that the valid dispatch of notice under section 143(2) of the Act by the assessing authority to the assessee, in the faceless regime provided u/s 144B(1)(iii) of the Act or for that matter the show cause notice mandated u/s 144B(1)(xii)(b) of the Act or an order, takes place when such notice or an order enters the 'computer resource' of the assessee, outside the control of the assessing authority i.e. 'registered e-filing account of the assessee, on the e-filing portal of the Income tax department website' or the registered email account of the assessee, and the valid receipt of the same by the assessee also occurs at the time when the notice enters the designated computer resource of the assessee i.e. 'registered e-filing account of the assessee, or his registered email account.

Whether the Date of Digitally Signing the Notice or Order is to be considered as the Date of Issuance and Service of such Notice or Order?

This interesting question has been addressed recently by the Hon'ble Allahabad High Court in the case of "Daujee Abhushan Bhandar Pvt Ltd v. Union of India [2022] 136 taxmann.com 246/286 Taxman 623/444 ITR 41.

In this case, the hon'ble Court had the occasion to adjudicate as to what would constitute a valid issuance of a notice u/s 148 of the Act, in the faceless regime. The hon'ble Court was confronted with a peculiar question as to whether mere digitally signing the Notice, would constitute, Issuance of such Notice, or not?

The Hon'ble Court, taking note of provisions of section 282, 282A of the Income Tax Act and section 13 of the Information Technology Act, 2000, held as under:

"Considering the provisions of Section 282 and 282A of the Act, 1961 and the provisions of Section 13 of the Act, 2000 and meaning of the word "issue" we find that firstly notice shall be signed by the assessing authority and then it has to be issued either in paper form or be communicated in electronic form by delivering or transmitting the copy thereof to the person therein named by modes provided in section 282 which includes transmitting in the form of electronic record.

Section 13(1) of the Act, 2000 provides that unless otherwise agreed, the dispatch of an electronic record occurs when it enters into computer resources outside the control of the originator. Thus, the point of time when a digitally signed notice in the form of electronic record is entered in computer resources outside the control of the originator i.e. the assessing authority that shall the date and time of issuance of notice under section 148 read with Section 149 of the Act, 1961.

In view of the discussion made above, we hold that mere digitally signing the notice is not the issuance of notice. Since the impugned notice under Section 148 of the Act, 1961 was issued to the petitioner on 06.04.2021 through e-mail, therefore, we hold that the impugned notice under section 148 of the Act, 1961 is time barred. Consequently, the impugned notice is quashed."

Conclusion: The valid issuance, dispatch and service of any income tax notice, by the assessing authority to the assessee, in the faceless regime, takes place when such notice is first signed digitally by the competent Income Tax authority and such digitally signed notice enters the 'computer resource' of the assessee, outside the control of the competent Income Tax authority i.e. 'registered e-filing account of the assessee, on the e-filing portal of the Income tax department website' or the registered email account of the assessee, and the valid receipt of the same by the assessee also occurs at the time when the notice enters the designated computer resource of the assessee i.e. 'registered e-filing account of the assessee, or his registered email account.

Some Fictional Lighter Moments: An enquiry committee was set up to fix the responsibility and accountability of the above discussed 2-minutes delay in generating and digitally signing the notice. After, a detailed enquiry, it was found out that the real culprit was the 'Maggi' noodles, as to satisfy his hunger pangs, the AO got indulged in getting his 'Maggi' ready to eat in 2-minutes….

The enquiry committee has also suggested to go back to the old manual system of issuing and dispatching physical notices, where backdating was possible, in the National interest ofcourse.

This reminds me of a similar scenario wherein EVM is made the real culprit for loosing elections by the opposition parties and increasing voices are being made to return to the postal ballot system, again in the National interest ofcourse.

[This Article has also been published in Taxmann with the Citation [2024] 168 taxmann.com 555]