2025 (5) TMI 36 - HC - Income Tax

Reopening of assessment u/s 147 beyond period of limitation as stipulated u/s 149(1) - HELD THAT - In the present case notice u/s 148 which was subject matter of challenge in the writ petition 2023 (1) TMI 417 - DELHI HIGH COURT was barred by limitation on the date it was issued by virtue of Section 149 (1) of the Act. Thus any order passed in a challenge to the said notice would not have the effect of obliterating the time limits for passing such an order. We find no merit in the contention advanced on behalf of the Revenue. It is necessary to note that the said writ petition was filed by the petitioner inter alia challenging the order issued under Section 148A (d) of the Act and the notice u/s 148 of the Act. There is no dispute that the impugned notice was barred by limitation and thus was liable to be set aside on the said ground alone. However the petitioner had challenged the impugned notice and the order under Section 148A (d) of the Act inter alia on the ground that the same had been passed without considering the reply furnished by the petitioner to the notice issued u/s 148A (b) of the Act. AO was required to pass an order in accordance with law. And as noted above the time period for passing such order had already elapsed on the date the impugned notice was issued. The import of the order is not to obliterate the timelines stipulated for issuing the notice u/s 148 of the Act. On the contrary it was incumbent on the AO to examine whether it was a fit case for issuance of a notice under Section 148 of the Act which would not be the case if issuance of such a notice was barred by limitation.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the reassessment notice issued under Section 148 of the Income Tax Act, 1961 (the Act) for the Assessment Year (AY) 2014-15 was barred by limitation as per Section 149(1) of the Act.

2. Whether the procedural requirements introduced by the amendment to reassessment provisions effective from 31.03.2021, particularly under Section 148A of the Act, were complied with in issuing the notices.

3. The applicability and scope of Section 150 of the Act, which allows issuance of reassessment notices beyond the normal limitation period in cases where the reassessment is consequential to an appellate or revisional order.

4. The effect of the Supreme Court's directions in Union of India & Ors. v. Ashish Agarwal and related cases on the reassessment proceedings and limitation periods.

5. The impact of the remand order passed by this Court on 06.12.2022 for de novo consideration by the Assessing Officer (AO), particularly whether the timelines under Section 149(1) of the Act were revived or extended by virtue of the remand.

Issue-wise Detailed Analysis:

1. Limitation for issuance of reassessment notice under Section 148 of the Act:

Legal framework and precedents: Section 149(1) prescribes the time limit within which a notice under Section 148 can be issued for reassessment. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended the limitation period for AY 2014-15 up to 30.06.2021. The Supreme Court in Union of India & Ors. v. Ashish Agarwal clarified that notices issued after 31.03.2021 under Section 148 are to be construed as notices under Section 148A(b) of the Act, and the AO must provide the assessee with information suggesting escaped income along with the notice.

Court's reasoning and findings: The first notice under Section 148 (construed as under Section 148A(b)) was issued on 30.06.2021, the last date of limitation as extended by TOLA. The petitioner responded on 10.06.2022, and the period between 30.06.2021 and 10.06.2022 was required to be excluded from limitation calculations as per Supreme Court's ruling in Union of India & Ors. v. Rajeev Bansal. Consequently, the AO had only seven days from the petitioner's response to issue a notice under Section 148, i.e., by 17.06.2022. However, the AO issued the notice on 23.07.2022, beyond the prescribed limitation period.

Application of law to facts: The Court held that the reassessment notice issued on 23.07.2022 was barred by limitation under Section 149(1) of the Act. This finding aligns with the earlier decision of this Court in Ram Balram Buildhome Pvt. Ltd. v. Income Tax Officer.

Treatment of competing arguments: The Revenue argued that Section 150 of the Act allowed issuance of the notice beyond limitation due to the remand order passed by this Court. The Court rejected this contention, holding that Section 150 applies only where reassessment is consequential to an appellate or revisional order and not to revive limitation where the notice was already time-barred.

Conclusion: The notice under Section 148 dated 23.07.2022 was issued beyond the limitation period and was therefore invalid.

2. Compliance with procedural requirements under amended reassessment provisions (Section 148A):

Legal framework: The amendment effective from 31.03.2021 introduced a preliminary enquiry stage under Section 148A(a), followed by issuance of notice under Section 148A(b) with reasons and information on escaped income. The AO must consider the assessee's response before passing an order under Section 148A(d) to proceed with reassessment.

Court's reasoning: The initial notice dated 30.06.2021 was issued without following the procedure under Section 148A, which was challenged and quashed by this Court and other High Courts. The Supreme Court's decision in Ashish Agarwal clarified the procedure and dispensed with the preliminary enquiry under Section 148A(a) but required furnishing of information along with the notice under Section 148A(b).

The petitioner responded to the notice dated 26.05.2022 under Section 148A(b), disputing the alleged escaped income. The AO passed an order on 23.07.2022 under Section 148A(d) without considering the petitioner's reply, which was challenged and set aside by this Court on 06.12.2022 with directions for a de novo hearing.

Application of law to facts: The Court emphasized that the AO was required to pass a speaking order after considering the petitioner's submissions and reply. The remand order did not absolve the AO from adhering to limitation timelines.

Conclusion: The procedural safeguards under Section 148A must be complied with, and the AO must consider the assessee's response before proceeding.

3. Applicability and scope of Section 150 of the Act:

Legal framework and precedents: Section 150(1) allows issuance of reassessment notices beyond limitation to give effect to findings or directions in appellate, revisional, or court orders. Section 150(2) carves out an exception where reassessment was barred by limitation at the time of the order.

The Punjab and Haryana High Court in Praveen Kumari v. CIT and this Court in Intec Corporation v. Asst. CIT have held that Section 150(1) cannot be invoked to revive jurisdiction where reassessment was already time-barred at the time of the appellate or revisional order.

Court's reasoning: The Court noted that the impugned notice dated 23.07.2022 was barred by limitation on the date it was issued, and the order under challenge was passed after limitation had expired. Thus, Section 150(1) could not be invoked to extend limitation or revive jurisdiction.

Application of law to facts: The remand order passed by this Court on 06.12.2022 was not an appellate or revisional order within the meaning of Section 150, but a direction for de novo consideration. Therefore, Section 150 did not apply to extend or revive limitation for issuance of the reassessment notice.

Conclusion: Section 150 does not apply to the present case to cure the limitation defect in issuance of the reassessment notice.

4. Effect of Supreme Court's directions in Union of India & Ors. v. Ashish Agarwal:

Legal framework: The Supreme Court clarified that notices issued post 31.03.2021 under Section 148 must be treated as notices under Section 148A(b), requiring furnishing of information and an opportunity to respond before proceeding with reassessment.

Court's reasoning and application: The AO complied with this direction by issuing the notice dated 26.05.2022 under Section 148A(b) and furnishing information. The petitioner responded on 10.06.2022. The Court applied the exclusion of the period between issuance of the notice and response from limitation calculations as per the Supreme Court's ruling in Union of India & Ors. v. Rajeev Bansal.

Conclusion: The Supreme Court's directions govern the procedural aspects and limitation calculations but do not permit issuance of reassessment notices beyond the prescribed limitation period.

5. Impact of remand order dated 06.12.2022 on limitation:

Court's reasoning: The remand order set aside the order under Section 148A(d) dated 23.07.2022 and the reassessment notice dated 23.07.2022, directing the AO to conduct a de novo hearing and pass a speaking order considering the petitioner's reply. The Court clarified that this remand did not revive or extend the limitation period under Section 149(1).

The AO was required to examine whether it was a fit case for reassessment within the limitation period. The remand did not foreclose any rights or contentions but required lawful exercise of jurisdiction within the prescribed timelines.

Conclusion: The remand order does not override limitation provisions; issuance of reassessment notice beyond limitation remains invalid.

Significant holdings and core principles established:

"Section 150 of the Act contemplates a case where an assessment, reassessment or re-computation is necessitated on account of an order passed by an appellate, revisional or any other authority in any proceedings under the Act or by a court in any proceedings under any other law. This, clearly, contemplates a case where it may not be possible to adhere to the timelines as specified under Section 149 of the Act to give effect to any findings or directions issued by an authority in an appeal, reference or revision, or by a court under any other law. It does not contemplate rejuvenating the timelines in respect of time barred assessments and orders which were subject matter of proceedings in which findings or directions are issued."

"The entire object of section 150(2) is to bar the proceedings under sub-section (1) in the matter of assessment/reassessment or recomputation, which has become the subject-matter of the reference or revision by reasons of any other provisions limiting the time limit. Section 150 (1) provides that the power to issue notice under section 148 in consequence of or giving effect to any finding or direction of the appellate/revisional authority or the court, is subject to the provision contained in section 150(2), which provides that directions under section 150 (1) cannot be given by the appellate/revisional authority or the court if on the date on which the order impugned in the appeal/revision was passed, the reassessment proceedings had become time barred."

"The remand order dated 06.12.2022 was not to obliterate the timelines stipulated for issuing the notice under Section 148 of the Act. On the contrary, it was incumbent on the AO to examine whether it was a fit case for issuance of a notice under Section 148 of the Act, which would not be the case if issuance of such a notice was barred by limitation."

Final determinations:

- The reassessment notice dated 23.07.2022 and the subsequent notice dated 01.04.2024 issued under Section 148 of the Act were barred by limitation under Section 149(1) and are set aside.

- The order dated 31.03.2024 passed under Section 148A(d) of the Act is also set aside as it was premised on a time-barred notice.

- The procedural safeguards under Section 148A must be complied with, including consideration of the assessee's response before issuance of reassessment notices.

- Section 150 of the Act cannot be invoked to revive limitation where reassessment proceedings were already time-barred at the time of appellate or revisional orders or remand.

- The remand order for de novo consideration does not extend or revive limitation periods for reassessment notices.