2025 (5) TMI 680 - AT - Income Tax

Reopening of assessment u/s 147 - Period of limitation - applicability of relaxation under the TOLA - contention of the Ld.AR is that the first proviso to section 149 clearly stipulates that notices under section 148 of the Act cannot be issued if the time limit prescribed under the un-amended provisions of section 149 as applicable prior to 01/04/2021 already expire - HELD THAT - As noted that notice under section 148 was issued on 29/07/2022 for assessment year 2015-16. As per RAJEEV BANSAL 2024 (10) TMI 264 - SUPREME COURT (LB) Notice issued on or after 01/04/2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA. Similar is the view taken by coordinate bench of this Tribunal in case of ACIT Vs.Manish Finanvial 2024 (12) TMI 1539 - ITAT MUMBAI and ITO Vs. Pushpak Realities Pvt. Ltd. 2024 (11) TMI 763 - ITAT MUMBAI We therefore do not find any reason not to uphold the argument advanced by the Ld.AR. Accordingly the notice issued under section 148 for assessment year 2015-16 is held to be invalid and the consequent assessment order passed under section 147 read with section 144B of the is liable to be quashed. Validity of the notice issued under section 148 as the approval was obtained from the Principal Commissioner of Income Tax instead of Principle Chief Commissioner of Income Tax or Chief Commissioner of Income Tax in terms of section 151 of the Act - AY 2016-17 and 2017-18 - In the present facts of the case the notice has been issued beyond 3 years from end of the assessment year under consideration. As per the decisions of Hon ble Supreme Court approval should be obtained as per the amended provisions of section 151 (ii) of the act from the Principal Chief Commissioner. However it is noted that the approval is obtained from the Principal Commissioner of Income tax as stated in the notice as well as the order passed under section 148A (d) of the act. We therefore do not find any reason not to uphold the argument advanced by the Ld.AR. Accordingly the notices issued u/s 148 for A.Y. 2016-17 2017-18 is held to be invalid and as a consequence assessment orders passed under section 147 read with section 144B for assessment years 2016- 17 2017-18 is liable to be quashed.

Summary

The core legal questions considered by the Tribunal in this appeal relate primarily to the validity and legality of reassessment notices and consequent assessment orders under sections 143(3), 147, 148, 149, 151, and related provisions of the Income-tax Act, 1961 ("the Act"), as amended by the Finance Act 2021 and impacted by The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA"). The issues also encompass the procedural compliance regarding issuance of notices, limitation periods, approval from specified authorities, and the application of judicial precedents, especially those of the Hon'ble Supreme Court in cases interpreting the new reassessment regime. Additionally, the Tribunal examined the correctness of substantive additions relating to residency, permanent establishment (PE), bogus expenses, and penalty proceedings. The principal issues may be enumerated as follows:

1. Whether the final assessment orders passed under section 143(3) read with section 147, pursuant to directions of the Dispute Resolution Panel (DRP), assessing the appellant's income at INR 3,98,31,781/- instead of nil returned income, are contrary to the provisions of the Act and void ab initio.

2. Whether the notice issued under section 148 on 29 July 2022 is barred by limitation, having regard to the time limits prescribed under the first proviso to section 149(1) of the Act and the applicability or otherwise of TOLA.

3. Whether the notice under section 148 could be validly issued under section 149(1)(b) in the absence of any income escaped assessment represented in the form of an "asset."

4. Whether the notice dated 17 March 2023 under section 143(2) is invalid for failure to consider the return of income filed in response to the section 148 notice.

5. Whether the Assessing Officer (AO) erred in initiating reassessment proceedings based on borrowed satisfaction from another department without independent application of mind.

6. Whether reliance on statements recorded during survey proceedings on the appellant's parent entity, which were subsequently retracted, was erroneous for making additions.

7. Whether the AO/DRP erred in holding the appellant as a resident of India under section 6(3)(ii) of the Act.

8. Whether the AO/DRP erred in holding the appellant to have a Permanent Establishment (PE) in India under Article 5(1) of the India-UAE tax treaty, and in attributing 75% of total profits to the alleged PE based on conjectures.

9. Whether the AO/DRP erred in alleging bogus expenses and repatriation of cash to India based on retracted survey statements.

10. Whether penalty proceedings initiated under sections 274 read with 271F and section 271(1)(c) are bad in law.

Given the Tribunal's approach, the analysis focuses primarily on the validity of reassessment notices and consequential assessment orders, particularly limitation and procedural compliance issues, before addressing the merits of substantive additions.

Issue-wise Detailed Analysis:

Validity and Limitation of Notice under Section 148 (Issues 1, 2, 3):

Legal Framework and Precedents: The reassessment regime underwent significant amendments effective 1 April 2021 under the Finance Act 2021, introducing a new section 149 prescribing time limits for issuance of notices under section 148. Section 149(1)(a) restricts issuance beyond three years from the end of the relevant assessment year, except under section 149(1)(b) which extends the period to ten years if escaped income represented in asset form exceeds fifty lakh rupees. The first proviso to section 149(1) preserves the limitation under the old regime for assessment years beginning on or before 1 April 2021, barring issuance of notices beyond the old time limits. TOLA, enacted during the COVID-19 pandemic, provides relaxation for compliance timelines between 20 March 2020 and 31 March 2021 but does not extend limitation beyond prescribed statutory periods. The Hon'ble Supreme Court's rulings in UOI vs. Ashish Agarwal and UOI vs. Rajeev Bansal elucidate the interplay between the old and new regimes, TOLA's applicability, and the requirement of prior approval under section 151.

Court's Interpretation and Reasoning: The Tribunal observed that for assessment year 2015-16, the time limit under the old regime (unamended section 149) expired on 31 March 2022. The notice under section 148 was issued on 29 July 2022, beyond this period. The Tribunal relied on the Supreme Court's decision in Rajeev Bansal, which held that TOLA's relaxation applies only to timelines expiring on or before 31 March 2021 and does not extend limitation beyond the old statutory period. Consequently, the notice issued for AY 2015-16 was held invalid and the assessment order quashed.

For AYs 2016-17 and 2017-18, the Tribunal examined whether prior approval under section 151 was obtained from the correct authority under the new regime. The Supreme Court clarified that the authority granting sanction depends on the time elapsed since the end of the assessment year and that under the new regime, higher authorities (Principal Chief Commissioner or Chief Commissioner) must grant approval if notices are issued beyond three years. The impugned notices were issued on 29 July 2022, beyond three years, but approval was obtained from the Principal Commissioner instead of the Principal Chief Commissioner. The Tribunal held this non-compliance fatal, invalidating the notices and quashing the assessments for these years as well.

Key Evidence and Findings: The Tribunal examined the dates of notices, the approval authority stated in the notices and orders under section 148A(d), and the timelines prescribed under the Act and TOLA. It noted that the approval was not from the competent authority as per the new regime's section 151, and that the notices were issued beyond the permissible time limits.

Application of Law to Facts: The Tribunal applied the Supreme Court's rulings to the facts, concluding that the reassessment notices were barred by limitation or lacked proper sanction, rendering the subsequent assessments void.

Treatment of Competing Arguments: The Revenue contended that the notices were valid under the old regime or that TOLA extended timelines. The Tribunal rejected these, relying on authoritative judicial pronouncements clarifying that TOLA does not extend limitation beyond prescribed statutory periods and that sanction must be obtained from the specified authority under the new regime.

Conclusions: The notices under section 148 for all three assessment years were held invalid-time barred for AY 2015-16 and lacking proper approval for AYs 2016-17 and 2017-18. Consequently, the assessment orders passed under section 147 read with section 144B were quashed.

Validity of Notice under Section 143(2) (Issue 4):

The appellant contended that the notice under section 143(2) dated 17 March 2023 was invalid as the AO failed to consider the return filed in response to the section 148 notice. The Tribunal did not explicitly adjudicate this issue separately, but by quashing the reassessment notices and orders, the issue became academic.

Initiation of Reassessment Based on Borrowed Satisfaction and Reliance on Retracted Survey Statements (Issues 5 and 6):

The appellant argued that the AO initiated reassessment proceedings based on borrowed satisfaction from another department without an independent application of mind and relied on statements recorded during survey of the parent entity, which were later retracted. The Tribunal did not delve into the merits of these contentions as the reassessment orders were quashed on procedural grounds. Thus, these issues were rendered academic.

Residency and Permanent Establishment Issues (Issues 7 and 8):

The AO/DRP held the appellant to be a resident of India under section 6(3)(ii) and attributed a fixed place PE in India under Article 5(1) of the India-UAE tax treaty, attributing 75% of profits to the PE. The appellant challenged these findings as erroneous and based on conjecture. The Tribunal did not examine these merits due to quashing of the reassessment orders.

Allegation of Bogus Expenses and Cash Repatriation (Issue 9):

The AO/DRP alleged bogus expenses of AED 20,55,747.34 and repatriation of cash to India based on survey statements that were subsequently retracted. The appellant contested this. The Tribunal did not rule on this substantive issue for the same reasons as above.

Penalty Proceedings (Issue 10):

The appellant challenged penalty proceedings initiated under sections 274 read with 271F and section 271(1)(c) as bad in law. The Tribunal did not address this issue separately in view of quashing of the assessment orders.

Significant Holdings:

On the crucial issue of limitation and validity of reassessment notices, the Tribunal held:

"The notice issued under section 148 for assessment year 2015-16 is held to be invalid and the consequent assessment order passed under section 147 read with section 144B of the Act is liable to be quashed."

"The notices issued under section 148 for AYs 2016-17 and 2017-18 are held to be invalid and as a consequence, the assessment orders passed under section 147 read with section 144B for these years are liable to be quashed."

Regarding approval under section 151, the Tribunal stated:

"The approval is obtained from the Principal Commissioner of Income Tax as stated in the notice, as well as the order passed under section 148A(d) of the Act. We therefore do not find any reason not to uphold the argument advanced by the Ld.AR."

On the interplay between the old and new reassessment regimes and TOLA, the Tribunal extensively relied on the Supreme Court's reasoning in UOI vs. Rajeev Bansal and UOI vs. Ashish Agarwal, summarizing the law as follows:

"(i) Section 149(1) of the new regime is not prospective. It also applies to past assessment years; (ii) The time limit of four years is now reduced to three years for all situations. The Revenue can issue notices under section 148 of the new regime only if three years or less have elapsed from the end of the relevant assessment year; (iii) the proviso to Section 149(1)(b) of the new regime stipulates that the Revenue can issue reassessment notices for past assessment years only if the time limit survives according to Section 149(1)(b) of the old regime, that is, six years from the end of the relevant assessment year; and (iv) all notices issued invoking the time limit under section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs."

The Tribunal further held that TOLA's relaxation applies only to actions falling due between 20 March 2020 and 31 March 2021 and does not extend limitation beyond statutory limits.

As a result of quashing the reassessment notices and orders on procedural and limitation grounds, the Tribunal did not adjudicate the merits of substantive additions, residency, PE, bogus expenses, or penalty proceedings, rendering those issues academic.