2025 (5) TMI 675 - AT - Income Tax

Reopening of assessment u/s 147 - notice which was issued beyond 3 years - best judgment assessment on the ground that the assessee has failed to comply with the proceeding and has also not furnished any supporting documentary evidence to substantiate his contentions that the payments were made in F.Y. 2013-14 and further has also failed to submit the value of the property pertaining to that year - AO added the difference in the stamp duty value as per Section 56 (2) and the same is added as unexplained investment u/s. 69 - HELD THAT - The issue in hand has extensively been dealt with in Ganesh Dass Khanna 2023 (11) TMI 763 - DELHI HIGH COURT which has held that only in case of serious tax evasions were the income which has escaped assessment is Rs. 50, 00, 000/- and above could be reassessed after the lapse of 3 years and upto 10 years from the relevant assessment year. The assessee s case would squarely be covered by the above said proposition which has also been reiterated in the case of Naresh Balchandrarao Shinde 2022 (10) TMI 549 - BOMBAY HIGH COURT By respectfully following the above decisions we hereby quash the order passed u/s. 148A(d) of the Act and the notice u/s. 148 of the Act and hence allow ground no. 1 raised by the assessee. As we have quashed the reassessment proceedings the other grounds raised by the assessee requires no separate adjudication and are rendered academic in nature. Appeal filed by the assessee is allowed.

Summary

The core legal issues considered in this judgment revolve around the validity and legality of the reopening of the assessment under the Income Tax Act, 1961, specifically for the Assessment Year 2017-18, and the application of the limitation period for issuing notices under section 148 as amended by the Finance Act, 2021. The issues include:

1. Whether the reopening of assessment by issuing notice under section 148 beyond three years from the end of the relevant assessment year is valid when the escaped income is below Rs. 50 lakhs.

2. Whether the Assessing Officer had jurisdiction to issue notices and pass orders under sections 148A(b), 148, and 148A(d) after 19/07/2022, given the faceless assessment regime.

3. Whether proper approval was obtained for reopening the assessment as required under amended section 151 of the Act.

4. On merits, whether the valuation of the property for the purpose of section 56(2) should be based on the stamp duty value at the time of allotment in FY 2013-14 or at the time of registration in FY 2016-17.

5. Whether the matter ought to have been referred to a valuation officer upon objection to valuation by the assessee.

6. Whether the assessment order passed under section 144 is justified when the return was filed after the reopening notice.

Issue-wise Detailed Analysis:

1. Validity of Reopening Beyond Three Years When Escaped Income is Below Rs. 50 Lakhs

The legal framework governing the limitation for reopening assessments is provided under section 149 of the Income Tax Act, as amended by the Finance Act, 2021. Section 149(1)(a) restricts the issuance of notice under section 148 beyond three years from the end of the relevant assessment year, except in cases falling under clause (b). Clause (b) permits reopening up to ten years if the Assessing Officer has evidence that escaped income is Rs. 50 lakhs or more.

In the present case, the Assessing Officer issued the notice under section 148 on 19.07.2022, which is beyond the three-year period ending 31.03.2021 for AY 2017-18. The alleged escaped income was Rs. 35,13,283, which is below the Rs. 50 lakh threshold. Therefore, the reopening notice was issued beyond the permissible limitation period under section 149(1)(a).

The assessee relied on the jurisdictional High Court decision that quashed such notices issued beyond three years when escaped income is below Rs. 50 lakhs. The Department argued that this ground was not raised before lower authorities.

The Court referred extensively to the decision of the Delhi High Court in Ganesh Dass Khanna vs. ITO and the Supreme Court's ruling in Union of India vs. Ashish Agarwal, which clarified that the amended provisions of section 149 apply to past assessment years from 1.4.2021 onwards and that reopening beyond three years is permissible only if escaped income is Rs. 50 lakhs or more. The Court also noted that the extended limitation period under section 149(1)(b) cannot be extended by executive notifications under the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (TOLA), as such notifications cannot override the statutory provisions enacted by Parliament.

The Court rejected the "travel back in time" theory propagated by CBDT instructions, which suggested that notices issued after 1.4.2021 could be treated as if issued earlier to avail extended limitation, declaring such instructions ultra vires and vague.

Further, the Court observed that the principle of res judicata or estoppel does not apply to jurisdictional issues like limitation, and the decisions relied on by the Department (Touchstone and Salil Gulati) were distinguishable as they involved escaped income exceeding Rs. 50 lakhs.

Conclusively, the Court held that the reopening notice issued beyond three years for escaped income below Rs. 50 lakhs is invalid and quashed the notice and related orders.

2. Jurisdiction to Issue Notices and Pass Orders Post 19/07/2022 under Faceless Assessment Regime

The assessee contended that the jurisdiction to issue notices and pass orders under sections 148A(b), 148, and 148A(d) after 19/07/2022 lies only with faceless authorities, and that the Joint Assessing Officer (JAO) lacked jurisdiction. However, since the reopening itself was quashed on limitation grounds, the Court did not delve into this issue in detail, rendering it academic.

3. Approval under Amended Section 151 for Reopening

The assessee argued that approval for reopening beyond three years was required from higher authorities as per amended section 151, but the approval was from the Principal Commissioner of Income Tax (PCIT) instead of Principal Chief Commissioner or equivalent. This ground was also not adjudicated separately due to quashing of reopening.

4. Valuation Date for Property under Section 56(2)

On merits, the assessee contended that the valuation for the purpose of section 56(2) should be based on the stamp duty value prevailing at the time of booking the flat (FY 2013-14), not at the time of registration (FY 2016-17). The AO had considered the higher stamp duty value at registration, leading to an addition of Rs. 35,13,283 as unexplained investment under section 69.

The Court noted that the assessee failed to produce documentary evidence to substantiate payments made in FY 2013-14 or the value of the property at that time. The AO's addition was based on the information available, and since reopening was quashed, this issue was not adjudicated further.

5. Referral to Valuation Officer

The assessee argued that upon objection to valuation, the matter should have been referred to a valuation officer. This procedural contention was not addressed in detail due to the quashing of reassessment proceedings.

6. Legitimacy of Assessment under Section 144 when Return was Filed Post Notice

The assessee challenged the best judgment assessment under section 144, especially since the return was filed after the notice under section 148. This ground was rendered academic following the quashing of reopening.

Significant Holdings:

The Court held that the reopening of assessment beyond three years for escaped income below Rs. 50 lakhs is bad in law and cannot be sustained. The Court stated verbatim:

"Section 149(1) of the Act mandates that notice u/s. 148 cannot be issued after lapse of 3 years from the end of the assessment year, unless the ld. AO is in possession of books of accounts or other documents or evidence which reveal that the income which has escaped assessment is Rs. 50,00,000/- or more for that year."

Further, the Court emphasized the binding nature of the Supreme Court's ruling in Ashish Agarwal's case, which clarified that the substituted provisions of sections 147 to 151 apply to past assessment years and that notices issued under unamended provisions after 1.4.2021 are deemed to be issued under section 148A(b).

The Court rejected the validity of executive notifications under TOLA attempting to extend limitation periods beyond statutory limits, holding them ultra vires and incapable of overriding the statutory scheme.

It was held that the "travel back in time" theory endorsed by CBDT instructions was legally unsustainable and vague.

On the principle of res judicata, the Court held that limitation being a jurisdictional issue cannot be barred by res judicata or estoppel principles.

Finally, the Court quashed the reopening notice and related orders, allowing the appeal of the assessee and rendering other grounds academic.