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2025 (5) TMI 445 - HC - Income TaxValidity of reassessment proceedings beyond period of limitation - escaped income from multiple assessment years to meet the threshold limit of Rs. 50 lakhs - whether the issuance of notice u/s 148 of the Act is within the period of limitation as prescribed u/s 149 (1)? - HELD THAT -Conditions as set out in Sub-section (1A) of Section 149 of the Act are not satisfied. The issue involved in the present case is covered by the decision of this court in M/s L-1 Identity Solutions Operating Company Private Limited 2025 (4) TMI 1363 - DELHI HIGH COURT a plain reading of Sub-section (1A) of Section 149 of the Act indicates that the condition of a minimum amount of Rs. 50 lakhs of income escaping assessment may be satisfied by the cumulative amount that has escaped assessment or is likely to escape assessment in respect of more than one assessment year exceeding the said amount. However the same is subject to the condition that the income chargeable to tax is represented in the form of an asset or expenditure in relation to an event or occasion . Thus in cases where the income that has escaped assessment is represented by an asset notwithstanding that the said asset is on account of income that escaped assessment for more than one previous years the condition under Section 149 (1) (b) of the Act would be satisfied if the value of the asset exceeds Rs. 50 lakhs. The same would hold true if there is an expenditure in relation to an event or occasion which exceeds the value of Rs. 50 lakhs. In this case as well as notwithstanding that the expenditure has been incurred in different previous years the condition under Section 149 (1) (b) of the Act would be satisfied if the cumulative value of the expenditure exceeds Rs. 50 lakhs provided that the same is related to an event or occasion The petition is accordingly allowed. Reassessment proceedings set aside.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of the notice under Section 148 within the limitation period prescribed under Section 149(1) Relevant legal framework and precedents: Section 149(1) of the Act prescribes that no notice under Section 148 shall be issued after three years from the end of the relevant assessment year unless the income escaping assessment exceeds Rs. 50,00,000/- represented by an asset or expenditure in relation to an event or occasion. Section 149(1A) further permits issuance of notice for multiple assessment years if the aggregate escaped income represented by an asset or expenditure exceeds Rs. 50,00,000/-. Court's interpretation and reasoning: The Court examined the AO's reliance on Section 149(1A) to aggregate income escaping assessment over multiple years to justify issuance of notice beyond three years. The AO claimed unexplained cash transactions amounting to Rs. 37,63,528/- for AY 2018-19 and aggregated escaped income from AY 2015-16 to AY 2020-21 exceeding Rs. 50,00,000/-. However, the Court found that the AO did not establish that the income escaping assessment across these years related to the same event or occasion or was represented by a single asset, as required by the Explanation to Section 149 and Section 149(1A). Key evidence and findings: The AO's order detailed unexplained cash transactions and alleged that these related to the same issue across years. However, the Court noted absence of material indicating a singular event or asset representing the escaped income. The transactions spanned multiple years, involving cash receipts and payments related to property purchases and renovations, but no common event or asset was identified. Application of law to facts: The Court held that the threshold of Rs. 50,00,000/- for extending limitation under Section 149(1)(b) and 149(1A) applies only where the income escaping assessment is represented by an asset or expenditure related to the same event or occasion. Since the AO failed to demonstrate this, the notice under Section 148 was issued beyond the permissible period. Treatment of competing arguments: The Revenue argued that Sub-section (1A) of Section 149 permits aggregation of escaped income across multiple years to satisfy the Rs. 50,00,000/- threshold. The Court acknowledged this but emphasized the statutory conditions requiring the escaped income to be represented by an asset or expenditure related to a singular event or occasion. The AO's failure to establish this was decisive. Conclusion: The issuance of notice under Section 148 for AY 2018-19 was not within the limitation period prescribed under Section 149(1) of the Act. Issue 2: Interpretation and applicability of Section 149(1A) of the Act Relevant legal framework and precedents: Section 149(1A) contains a non obstante clause allowing issuance of notice for multiple assessment years if the escaped income represented by an asset or expenditure related to an event or occasion exceeds Rs. 50,00,000/-. The Court relied on a prior decision of the same High Court, which clarified that aggregation is permissible only if the escaped income is represented by an asset or expenditure related to the same event or occasion. Court's interpretation and reasoning: The Court reiterated that the conditions under Section 149(1A) are cumulative and mandatory. The income escaping assessment must be represented by an asset or expenditure related to the same event or occasion. The AO's attempt to aggregate escaped income from different years without establishing these conditions was held to be legally untenable. Key evidence and findings: The AO's order listed various cash transactions and alleged unaccounted income involving different persons and transactions over multiple years. However, no single event or asset was identified that linked these transactions cumulatively. Application of law to facts: The Court applied the statutory language and precedent to conclude that the AO could not rely on Section 149(1A) to aggregate escaped income for issuing notices beyond the three-year period unless the income was represented by an asset or expenditure related to the same event or occasion. Since this was not established, Section 149(1A) was not applicable. Treatment of competing arguments: The Revenue's contention that the aggregate escaped income exceeded Rs. 50,00,000/- and thus justified reopening was rejected because the statutory conditions for aggregation were not met. Conclusion: Section 149(1A) was not applicable in the present case as the conditions relating to representation of escaped income by an asset or expenditure linked to the same event or occasion were not satisfied. Issue 3: Whether the unexplained cash transactions constitute an asset or relate to a singular event or occasion Relevant legal framework and precedents: The Explanation to Section 149 and Section 149(1A) require that the income escaping assessment be represented by an asset or expenditure related to an event or occasion for aggregation and extended limitation to apply. Court's interpretation and reasoning: The Court examined the AO's detailed findings regarding cash transactions involving receipts, payments for property renovation, and purchases. It noted that these transactions were spread over different years and involved different types of transactions and parties. There was no material indicating that these transactions represented a single asset or were linked to one event or occasion. Key evidence and findings: The AO's order showed multiple cash transactions involving different amounts and dates. The Court emphasized the absence of evidence connecting these transactions as representing one asset or one event. Application of law to facts: The Court held that since the unexplained cash transactions did not constitute a singular asset or relate to one event or occasion, the conditions for aggregation under Section 149(1A) were not met. Treatment of competing arguments: The Revenue's argument that these transactions collectively indicate escaped income was not accepted for the purpose of extending limitation because the statutory precondition of a linked asset or event was not fulfilled. Conclusion: The unexplained cash transactions do not qualify as an asset or relate to a singular event or occasion for the purposes of Section 149(1A). 3. SIGNIFICANT HOLDINGS The Court held: "A notice under Section 148 of the Income-tax Act, 1961 cannot be issued beyond the period of three years from the end of the relevant assessment year unless the income escaping assessment exceeds Rs. 50,00,000/- and is represented by an asset or expenditure in relation to an event or occasion. The aggregation of escaped income across multiple assessment years under Section 149(1A) is permissible only if the escaped income is represented by an asset or expenditure related to the same event or occasion." "In the present case, the AO failed to demonstrate that the income escaping assessment across various years was represented by an asset or related to a singular event or occasion. Consequently, the issuance of notice under Section 148 for AY 2018-19 beyond the three-year period was not valid." "The conditions set out in Section 149(1A) are cumulative and mandatory. The mere fact that the aggregate escaped income across years exceeds Rs. 50,00,000/- does not justify reopening assessments unless the statutory conditions are met." The Court set aside the impugned order dated 21.03.2025 passed under Section 147, the notice dated 31.03.2024 issued under Section 148, and the order dated 31.03.2024 passed under Section 148A(d) of the Act.
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