INTEREST-FREE LOANS TO LOSE TAX BURDEN

INTEREST-FREE LOANS TO LOSE TAX BURDEN

ITAT Ruling On Loans From Non-Relatives

Ram Narsinghdev Sahgal MUMBAI

IN A first-of-its- kind judgement, the Income-Tax Appellate Tribunal (ITAT) recently ruled that a recipient of an interest-free loan from a non-relative is not liable to pay tax. The judgement will come as a major relief for people who borrow money from friends and colleagues and latter grapple with notices from tax authorities.
Section 56 (2)(v) of the Income Tax Act provides for taxing any sum of money in excess of Rs 25,000 received without consideration by an individual or a Hindu Undivided Family (HUF) from any source other than a relative. Occasions where the recipient is exempted from tax are during a marriage, or in cases where the amount is received under a will, or by way of inheritance or in contemplation of death of the payer.
Applying this section, an income-tax assessing officer treated interest-free loans amounting to Rs 54.7 lakh received by one Chandrakant Shah from nonrelatives as a sum without consideration and taxed it.

New section came into force in 2004

THE assessee approached the Commissioner of I-T (Appeals), but was not granted relief. He then appealed before the Mumbai ITAT, where his legal counsel said that the lower authorities had "misinterpreted" the new section, which came into effect on September 1, 2004. Furthermore, Mr Shah's counsel said the sum of interest-free loans taken by him even before that date (September 1, 2004) did not fall within the ambit of the amended section.
Bhupendra Shah, Mr Shah's counsel, argued before a division bench comprising Madhavi Devi and VK Gupta that an interest-free loan could not be taxed under Section 56 (2)(v), as the repayment of a loan itself is treated as consideration between two parties and not a sum without consideration. The counsel said the amounts were shown in the balance sheet by the assessee as unsecured loan liabilities, and, hence, could not be treated as an addition to capital as in the case of a gift.
The counsel contended that the term "loan" meant delivery by one party to and receipt by another party of a sum of money upon agreement expressed or implied condition, to repay it with or without interest.
He maintained that it was inessential for an interest component to make a transaction of lending of money a loan transaction, by referring to a decision of the Court of Appeal of State of California. The US court had observed that a loan of money was a contract by which one delivered a sum of money to another, and the latter agreed to return at a future time without interest that sum which he borrowed.
The bench upheld the counsel's argument, saying: "We hold that a transaction of loan can be without interest and a transaction of loan implies an agreement to repay the money that is borrowed, which also gives reply to the revenue's query regarding the existence of the obligation to repay the money at the time of taking such loan." Section 56 (2)(v) was introduced to fill up the vacuum created by the abolition of the Gift Tax Act in 1997, which was donor-based, meaning the giver of a gift was taxed.

Section 115-O(5) did not, in any way, restrict allowability of claim u/s 80 M

Section 115-O(5) did not, in any way, restrict allowability of claim under section 80M - [2011] 10 taxmann 135 (Bom.)

An income already taxed under one head cannot, at subsequent period, be tax

An income already taxed under one head cannot, at subsequent period, be taxed under a different head - [2011] 10 taxmann.com 139 (Cal.)

Society , trading activity can not be claimed benefit u/s 12A & 80 G

Society for The Small & Medium Exporters Vs DIT [ITA No.3182 & 3183/Del/2008, dtd. 29.04.2011]
Benefits of Sec. 12A and 80G cannot be allowed if there is no charitable activity and assessee undertakes only commercial activity

ITAT Delhi bench held that in a case where the objects of the society may be charitable, but, in the absence of carrying on those activities despite the fact that the activities which were carried on were for the purpose of generating income, the society is not entitled for registration for benefits of Sec. 12A and 80G for that year. It has been held that for assessment years in which the assessee does not carry out charitable activity, the assessee has been rightly refused to get benefit of registration as charitable institution. The only activity which has been carried out is for the purpose of generating income, which is not a charitable activity in itself........

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Dear Friends : The emails are schedule to be posted in the blog (itronline.blogspot.com)and will sent to the group on various dates and time fixed. Instead of sending it on one day.

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Losses in non-delivery based share transactions can be set off against speculation profit

Losses in non-delivery based share transactions can be set off against profits of speculation business under deeming fiction of Explanation to section 73 - [2011] 11 taxmann.com 385 (Mum. - ITAT)

Interest received by public financial institution

 

Interest received by public financial institution on loans and advances made under bills re discounting scheme from different banking companies to which Banking Regulation Act, 1949 applies, does not form part of chargeable interest - [2011] 11 taxmann 412 (Cal.)

ITR (TRIB) Volume 11 : Part 4 (Issue dated : 19-09-2011)

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 11 : Part 4 (Issue dated : 19-09-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

 

->> Bad debt --Deduction--Condition precedent--Writing off in accounting year--Resolution for writing off in subsequent year not relevant--Amount deductible as bad debt--Income-tax Act, 1961, s. 36-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> Business income --Remission or cessation of trading liability--Transfer of loan from sister-concern--No trading transaction--Creditor not acknowledging debt--Amount not assessable under section 41--Outstanding liability due to trading transaction becoming subsequently non-payable--Section 41 applicable--Amount to be added to business income of assessee--Income-tax Act, 1961, s. 41-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> Capital gains --Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C--Income-tax Act, 1961, ss. 48, 50C, 142A-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> Charitable purpose --Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration--Income-tax Act, 1961, ss. 12A, 12AA-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

->> Co-operative society --Special deduction--Interest received from credit facilities to members--Assessee not a credit society-- Not entitled to deduction--Income-tax Act, 1961, s. 80P(2)(a)(i)-- ITO v. Modern Engineers Construction Co-op. Society (Chennai) . . . 393

 

->> Penalty --Concealment of income--Additions made by Assessing Officer on account of disallowance of expenditure--No material to show concealment by assessee--Penalty not imposable--Income-tax Act, 1961, s. 271(1)(c)-- Deputy CIT v. Eagle Iron and Metal Industries Ltd. (Mumbai) . . . 384

 

->>Production of cinematograph films--Statement to be filed in Form 52A--Failure to file by due dates--Explanation that assessee under bona fide belief that form to be filed with return--Commissioner (Appeals) finding reasonable cause for delay and reducing penalty--Order attaining finality--Order of Commissioner (Appeals) confirmed--Income-tax Act, 1961, s. 272A(2)(c)-- Deputy CIT v. Dasari Narayana Rao (Chennai) . . . 403

 

->> Search and seizure --Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal--Income-tax Act, 1961, ss. 132(4), 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Block assessment--Income-tax authorities--Jurisdiction--Central Board of Direct Taxes--Powers--Joint Director substituting Deputy Commissioner--Only case of redesignation--Board has power to authorise Deputy Commissioner to carry out necessary searches--No fresh notification required--Income-tax Act, 1961, s. 132--General Clauses Act, 1897, s. 24-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->>Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation--Income-tax Act, 1961, ss. 132, 158BC, 158BE-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->>Block assessment--Search prior to June 1, 2002--Surcharge in addition to income-tax leviable on undisclosed income--Proviso to section 113 clarificatory--Income-tax Act, 1961, ss. 113, 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Block assessment--Undisclosed income--Addition on unaccounted investment --No evidence found during search indicating assessee made investments--Addition to be deleted--Income-tax Act, 1961, s. 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Block assessment--Undisclosed income--Addition on unaccounted receivable and investment in computer--Matter remanded--Income-tax Act, 1961, s. 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> Trust --Creation of trust--Committee empowered to create trust to manage affairs of charitable institutions--Delhi Sikh Gurudwaras Act, 1971, s. 24(iv)-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

->> Delhi Sikh Gurudwaras Act, 1971 :

 

S. 24(iv) --Trust--Creation of trust--Committee empowered to create trust to manage affairs of charitable institutions-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

 General Clauses Act, 1897 :

 

->> S. 24 --Search and seizure--Block assessment--Income-tax authorities--Jurisdiction--Central Board of Direct Taxes--Powers--Joint Director substituting Deputy Commissioner--Only case of redesignation--Board has power to authorise Deputy Commissioner to carry out necessary searches--No fresh notification required-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

Income-tax Act, 1961 :

->> S. 12A --Charitable purpose--Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

->> S. 12AA --Charitable purpose--Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

->> S. 36 --Bad debt--Deduction--Condition precedent--Writing off in accounting year --Resolution for writing off in subsequent year not relevant--Amount deductible as bad debt-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> S. 41 --Business income--Remission or cessation of trading liability--Transfer of loan from sister-concern--No trading transaction--Creditor not acknowledging debt--Amount not assessable under section 41--Outstanding liability due to trading transaction becoming subsequently non-payable--Section 41 applicable--Amount to be added to business income of assessee-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> S. 48 --Capital gains--Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> S. 50C --Capital gains--Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed --No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> S. 80P(2)(a)(i) --Co-operative society--Special deduction--Interest received from credit facilities to members--Assessee not a credit society--Not entitled to deduction-- ITO v. Modern Engineers Construction Co-op. Society (Chennai) . . . 393

 

->> S. 113 --Search and seizure--Block assessment--Search prior to June 1, 2002--Surcharge in addition to income-tax leviable on undisclosed income--Proviso to section 113 clarificatory-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> S. 132 --Search and seizure--Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->> S. 132(4) --Search and seizure--Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> S. 142A --Capital gains--Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> S. 158BC --Search and seizure--Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Search and seizure--Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->>Search and seizure--Block assessment--Search prior to June 1, 2002--Surcharge in addition to income-tax leviable on undisclosed income--Proviso to section 113 clarificatory-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Search and seizure--Block assessment--Undisclosed income--Addition on unaccounted investment--No evidence found during search indicating assessee made investments--Addition to be deleted-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Search and seizure--Block assessment--Undisclosed income--Addition on unaccounted receivable and investment in computer--Matter remanded-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> S. 158BE --Search and seizure--Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->> S. 271(1)(c) --Penalty--Concealment of income--Additions made by Assessing Officer on account of disallowance of expenditure--No material to show concealment by assessee--Penalty not imposable-- Deputy CIT v. Eagle Iron and Metal Industries Ltd. (Mumbai) . . . 384

 

->> S. 272A(2)(c)--Penalty--Production of cinematograph films--Statement to be filed in Form 52A--Failure to file by due dates--Explanation that assessee under bona fide belief that form to be filed with return--Commissioner (Appeals) finding reasonable cause for delay and reducing penalty--Order attaining finality--Order of Commissioner (Appeals) confirmed--Deputy CIT v. Dasari Narayana Rao (Chennai) . . . 403

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Project also has commercial shops, it is entitled to Sec 80IB(10) benefits

 

Income tax - Whether when project also has commercial shops, it is entitled to Sec 80IB(10) benefits if it was commenced prior to amendment in Sec 80IB from April 1, 2005 - Yes, rules ITAT

PUNE, JULY 15, 2011: THE question before the Tribunal is - Whether when the project has also commercial shops, it is entitled to deduction u/s 80IB(10) if it was commenced prior to the amendment brought into section 80IB(10) w.e.f. 1st April, 2005. Yes is the Tribunal's answer.

Facts of the case

AO denied deduction claimed u/s. 80 IB(10) on the basis that section 80IB was not applicable to a project which contained shop/commercial establishment and it did not remain a `Housing Project' - the assessee had constructed 66 shops being commercial premises included in the project admeasuring 9404 sq. ft. which was as per the assessee was about 11.88% but as AO about 12.41%.

CIT (A) confirmed the disallowance observing that the commercial construction was more than 5% or 2000 sq.ft. as per the amended provisions of Sec. 80IB (10) w.e.f. 1.4.2005. In A.Y. 2005-06, the amended provision was very much in operation.

Assessee contended that prior to the amendment in Section 80 IB(10) w.e.f. 1.4.2005, there was no restriction on the area for commercial purpses. By Finance Act 2004, the Legislature provided a ceiling of 2000 sq.ft. or 5% of the total area whichever is less. Hence, if a project was commenced prior to A.Y. 2005-06, there was no limit prescribed and accordingly, the assessee's project had satisfied all the conditions laid down in Sec. 80 IB (10). Sec. 80IB(10) states that the profit derived from the "housing project" is entitled to deduction. However, the words "housing project" is not defined in the Section. Therefore, the definition had to be considered in its general meaning and as understood in common parlance.

Further contended that CBDT vide its clarifications dt. 4th May 2001, clarified that in "housing project" certain shopping or commercial area would be mandatory – any project which was approved as a housing project by local authority would be eligible. When the assesees started the project, the old provisions of Section 80 IB(10) were on the Statute in which there was no ceiling on the portion of the commercial area – the housing project could include the commercial portion along with the residential portion. Hence, in view of the decision of the Special Bench in the case of Bramha Associates (2009-TIOL-218-ITAT-PUNE-SB), the assessees were entitled to deduction u/s. 80 IB (10).

Regarding applicability of amended provision to those projects where the project was started and completed before 1.4.2005, the assessee contended that the issue was directly covered by the decision of Mumbai Bench of the Tribunal in the case of Hiranandani Akruti J.V. v/s. DCIT, ITA No. 5416/Mum/2009 (A.Y. 2006-07) wherein it was held that the amended Section would apply to the projects started after 1.4.2005. If the project was commenced earlier, the assessee had not known that the Legislature would put such a restriction in future – the assessees were given an assurance by the Legislature that the profits from the project would be eligible for deduction even if, the project contained commercial portion and the approval was obtained before 1.4.2005 – the deduction had to be given on the basis of promissory estoppal also – it was further contended that if the assessee had followed the WIP method, the income from the project would had been taxable in the earlier years as the project was completed earlier to the amendment and in that case, as per the old provision, the assessee would had been eligible for the deduction. But, just because the assessee has followed the "Project Completion Method "in these cases, the deduction is being denied because it falls in A.Y. 2005-06.

Without prejudice it was contended that on the portion of commercial area exceeding limit under Clause (d), the deduction u/s. 80 IB(10) might not be granted but on the balance project, the deduction should be allowed.

Revenue contended that the amended provisions refer to all projects approved before 31.3.2007 and does not differentiate between Housing Project approved before 2004 or 2003. Had the Legislature wanted to make a distinction between projects commenced prior to 1.4.2005 and completed after the amendment by introducing clause (d) to Sec. 80IB(10) then the Legislature would have said so in clear terms.

In rejoinder the assessee contended that the deduction was continued and extended to the new project by extending the time limit for approval of the projects itself indicates that there was no intention to withdraw or cancel the deduction u/s. 80 IB(10).

After hearing both the parties, the ITAT held that,

++ by applying the principle of harmonious construction to interpret the provisions under Sub-section (10) to Section 80IB as amended w.e.f. 1.4.2005 the legislature always intended that the project must be approved by the local authority, thus in those approved projects where construction has been started much earlier than 1.4.2005, the assessees are required to complete the plan as it has been approved. As putting such assessees to complete the plan meeting out condition under clause (d) of the subsection would lead into absurdity and impossibility for the assessee and in contradiction to the provisions u/s. 80 IB(10) as prevailed at the time of approval and commencement of the construction of the project well before 1.4.2005;

++ in the case of Hiranandani Akruti J.V V/s. DCIT, the Mumbai Bench held that the law as existed when the assessee submitted its proposal and permission for carrying out the development was accorded and when the assessee commenced development is to be applied. In the present cases, in the case of Opel Shelter the project was commenced on 23.2.2001 and even completed on 14.5.2004, similarly in the case of D.S. Kulkarni and Associates, the project was commenced on 12.4.2001 and completed in the month of November 2003. Thus, the assessees were supposed to complete the projects as per the law as existed in the A.Y. 2001-02 in the case of Opel Shelters and in the A.Y. 2002-03 in the case of D.S. Kulkarni and Associates. Thus following the decision in the case of Hiranandani Akruti JV V/s. DCIT it is held that amended provisions under Section 80 IB(10) w.e.f. 1.4.2005 are not applicable in the present case, hence assessees are eligible for the claimed deduction u/s. 80 IB (10) of the Act.

growing of plant in lab by applying scientific method is an agriculture income

Whether growing of plant in lab by applying scientific method of tissue culture can be claimed as agricultural activity, exempt under I-T Act - NO, rules ITAT

BANGALORE, JULY 19, 2011: THE issues before the Tribunal are - Whether growing of plant in lab by applying scientific method of tissue culture can be termed as agricultural activity - Whether, to qualify as agricultural income, it is necessary for an operation to be carried on soil. Tribunal's answer for the first question is NO and YES for the latter one.

Facts of the case

Assessee is a company engaged in the business of growing and exporting of ornamental plants. It filed its return of income for the assessment year 2005-06 claiming the entire income as agricultural income and also exempt from Income-tax. The AO after visiting the premises of the assessee company and discussing the matter with Director of the company came to the conclusion that the assessee was carrying on tissue culture methodology and by this process, some of the activities carried on by the assessee are non-agriculture and, therefore, the entire income from the sale of plants cannot be termed as agricultural income. He, therefore, bifurcated the income into agricultural income and business income in the ratio of 70:30. The CIT(A) partly allowed the appeal of the assessee by restricting the business income to the tune of 10% only.

On appeal, the Tribunal held that,

++ it can be seen that the plant tissue culture is used to reproduce clones of a plant to get multiple plants with the same traits by placing various tissues of the mother plant in containers and required medium, which is definitely not consisting of land or soil. Such multiple plants which are generated or produced in the laboratories are then transferred to soil and after their adaptation to the natural conditions, they are allowed to be grown into mature plants to be sold to the customers;

++ thus, it can be seen that the subsequent argument of the assessee that the laboratories are only meant to keep the demonstration plants under controlled condition is not entirely correct. Where any operation is not carried out on land, such an operation cannot be called as agricultural operation. When the assessee is not carrying on the cultivation of land or plants in the soil in pots, the operations cannot be called as agricultural operations. The medium is not the soil or basic operations of agriculture such as tilling of the land, sowing of the seeds etc. are not carried out. Of course, once the sampling has been planted in the soil and is let to grow into a mature plant, this operation is definitely agricultural operation and income there-from has to be treated as agricultural income;

++ thus, we are in agreement with the finding of the assessing authority that the entire operation of the assessee is not agricultural income and, therefore, the entire income cannot be treated as agricultural income. AO had held that 30% of the income is non-agricultural income but he has not given any basis for such bifurcation. The criteria to bifurcate the income into agricultural and non agricultural income would be to take into account the expenditure incurred by the assessee on the micro propagation i.e tissue culture operation carried out by it and the expenditure incurred by it on growing of the plants after they are planted in the soil and in this proportion of expenditure only income can also be bifurcated into agricultural and non agriculture income. It is further observed that the assessee has filed an affidavit stating that no operations are carried on in the laboratories. This fact also needs verification by the AO. Therefore, the AO is directed to make a field inspection of the assessee's laboratory to see and observe the activities carried on by the assessee.

Notice u/s 148 issued within time , but served after limitation is valid !

Notice u/s 148 issued within time , but served after limitation is valid !

In previous posting , readers attention was brought on the invalidity of assessment if it was based on a notice u/s 143(2) which was issued in time , but served after time limitation . Contrary to the said  position is the issue of notice  u/s 148 of the I T Act. The notice u/s 148 is issued by A.O when he records reasons for reopening an assessment u/s 147 of the I .T.Act. Section 149 of the I T Act prescribes time limit within which notice us/ 148 can be issued.

Notice u/s 148

The question on validity of issue of notice us/ 148 which was issued in time , but served after the time limitation  recently came up before ITAT , Agra bench in ITO vs Sikandar Lal Jain reported in  45 SOT 113 [2011] . The tribunal held the service of notice even after the limitation date as valid if it was issued within time.
The decision of Tribunal was based on the decision of Hon'ble Supreme Court in the case of R.K. Upadhyaya v. Shanabhai P. Patel, 166 ITR 163 (SC) in which it was held that -

"The scheme of the 1961 Act so far as notice for reassessment is concerned is quite different. What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147, 148 and 149, in the 1961 Act. A clear distinction has been made out between "issue of notice" and "service of notice" under the 1961 Act. Section 149 prescribes the period of limitation. It categorically prescribes that no notice under section 148 shall be issued after the prescribed limitation has lapsed. Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. The mandate of section 148(1) is that reassessment shall not be made until there has been service. The requirement of issue of notice is satisfied when a notice is actually issued. In this case, admittedly the notice was issued within the prescribed period of limitation as March 31, 1970, was the last day of that period. Service under the new Act is not a condition precedent to conferment of jurisdiction on the Income-tax Officer to deal with the matter but it is a condition precedent to the making of the order of assessment. The High Court, in our opinion, lost sight of the distinction and under a wrong basis felt bound by the judgment in Banarsi Debi v. ITO [1964] 53 ITR 100. As the Income-tax Officer had issued notice within limitation, the appeal is allowed and the order of the High Court is vacated. The Income-tax Officer shall now proceed to complete the assessment after complying with the requirements of law."

Settled Position on issue of notice u/s 148

If the notice u/s 148 is issued within time , the notice is valid despite the fact that the said notice is served after the end of time for issue of notice.