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2025 (5) TMI 832 - HC - Income TaxReopening notice beyond period of limitation - calculating the block of six years and ten years for the purpose of computing the limitation for issuance of a notice u/s 153C - whether a notice u/s 153C could be issued for the relevant AY 2015-16 for the purposes of determining whether a notice u/s 148 of the Act can be issued? - HELD THAT - The controversy in the present case is covered by the decision of this court in Dinesh Jindal 2024 (6) TMI 75 - DELHI HIGH COURT as held an action of reassessment which comes to be initiated in relation to a search undertaken on or after 01 April 2021 would have to meet the foundational tests as specified in the First Proviso to Section 149 (1). A reassessment action would thus have to not only satisfy the time frames constructed in terms of Section 149 but in a relevant case and which is concerned with a search also those which would be applicable by virtue of the provisions of Section 153A and 153C. Undisputedly and if the validity of the reassessment were to be tested on the anvil of Section 153C the petitioner would be entitled to succeed for the following reasons. It is an undisputed fact that the proceedings under Section 148 commenced on the basis of the impugned notice dated 30 March 2023. This date would be of seminal importance since the period of six AYs or the relevant assessment year would have to be reckoned from the date when action was initiated to reopen the assessment pertaining to AY 2013-14. As in this case the block of ten assessment years is required to be reckoned from the end of the AY 2025-26 being the assessment year relevant to the financial year in which the impugned notice under Section 148 was issued. Present petition is allowed. The impugned notice is set aside as being barred by limitation.
The core legal questions considered in this judgment are:
Issue-wise Detailed Analysis Issue 1: Validity of the notice under Section 148 for AY 2015-16 - limitation period Relevant legal framework and precedents: Section 148 of the Act allows reopening of assessments if the Assessing Officer (AO) has reason to believe that income has escaped assessment. However, such reopening is subject to strict limitation periods prescribed under Section 149. The limitation period for issuance of a notice under Section 148 is generally 4 years from the end of the relevant AY, extendable to 6 or 10 years in certain cases involving income escaping assessment exceeding specified amounts or searches/seizures. Section 153C deals with reassessment proceedings in cases where a search under Section 132 has been conducted. Section 153A and 153C provide extended limitation periods for such cases. However, amendments introduced by the Finance Act, 2021, notably the sunset clause in Section 153C(3), restrict the applicability of Section 153C to searches conducted before 01 April 2021. Key precedents include the decisions in Dinesh Jindal v. Assistant Commissioner of Income Tax and Principal Commissioner of Income Tax-Central-1 v. Ojjus Medicare Pvt. Ltd., which clarify the computation of limitation periods and the applicability of Sections 153A and 153C post-amendment. Court's interpretation and reasoning: The Court noted that the impugned notice dated 28.03.2025 was issued to reopen AY 2015-16 assessments, following a search conducted on 02.03.2022. Since the search occurred after 31.03.2021, Section 153C no longer regulates reassessment for such searches. However, the first proviso to Section 149(1) requires examination of limitation periods as they stood before the Finance Act, 2021, to determine if the reopening is sustainable. The Court relied on the Dinesh Jindal decision, which held that the limitation period for reopening must be computed from the date when the reassessment proceedings are initiated, considering the pre-amendment timeframes under Sections 149, 153A, and 153C. The initiation date is critical, as the limitation clock runs from that date, not the date of search or seizure. Key evidence and findings: The petitioner filed the return for AY 2015-16 on 28.09.2015 declaring income of Rs. 29,74,570. The search was conducted on 02.03.2022, and the impugned notice was issued on 28.03.2025. Applying the principles from the precedents, the Court found that the limitation period for reopening AY 2015-16 had expired by the time the notice was issued in 2025. Application of law to facts: The Court applied the legal framework to the facts, concluding that the reopening notice issued in 2025 for AY 2015-16 was barred by limitation. The extended limitation periods under Sections 153A and 153C were not applicable due to the post-31.03.2021 search date and the statutory sunset clause. Treatment of competing arguments: The Revenue agreed with the legal proposition that the limitation period had expired. The petitioner contended the notice was beyond limitation, which the Court upheld. Conclusion: The notice under Section 148 for AY 2015-16 was invalid as it was issued beyond the prescribed limitation period. Issue 2: Applicability of Section 153C and computation of limitation periods in search cases Relevant legal framework and precedents: Section 153C allows reassessment of a non-searched person's income if incriminating material is found during a search of a related entity. The limitation period for such reassessment is governed by Section 149 read with Sections 153A and 153C. The Finance Act, 2021 introduced a sunset clause in Section 153C(3), ceasing its applicability for searches after 31.03.2021. Precedents such as Principal Commissioner of Income Tax-Central-1 v. Ojjus Medicare Pvt. Ltd. and Supreme Court decisions like Jasjit Singh and Vikram Sujitkumar Bhatia clarify that for non-searched persons, the limitation period computation starts from the date of receipt of seized books of accounts by the jurisdictional AO, not the date of search. Court's interpretation and reasoning: The Court reiterated that the first proviso to Section 149(1) requires consideration of limitation periods as they existed prior to the Finance Act, 2021. The Court emphasized that the limitation period for reassessment in search cases must be computed from the date of receipt of seized documents by the AO, not the date of search. The Court reproduced a detailed explanation from Ojjus Medicare decision, explaining the computation of six-year and ten-year blocks for limitation purposes. The six-year block relates to the AYs immediately preceding the AY relevant to the previous year of search, while the ten-year block is reckoned from the end of the AY relevant to the year of search. Key evidence and findings: The search in the present case was conducted on 02.03.2022, post the 31.03.2021 cut-off. The AO issued the notice on 28.03.2025, which relates to AY 2015-16. The Court tabulated the ten-year block ending with AY 2025-26 to demonstrate that AY 2015-16 falls outside the permissible limitation period. Application of law to facts: Since Section 153C does not apply to searches after 31.03.2021, and the limitation period must be computed from the date of initiation of reassessment proceedings, the reopening for AY 2015-16 is barred by limitation. Treatment of competing arguments: The Revenue did not dispute this legal position. The petitioner's argument that the notice was barred by limitation was accepted. Conclusion: Section 153C's limitation period computation principles do not extend to searches after 31.03.2021, and the reopening notice for AY 2015-16 is time-barred. Significant Holdings "The First Proviso to Section 149 (1), however, bids us to go back in a point of time, and to examine whether a reopening would sustain bearing in mind the timeframes as they stood embodied in Section 149 (1) (b) or Section 153A and 153C, as the case may be. The First Proviso essentially requires us to undertake that consideration bearing in mind the timeframes which stood specified in Sections 149, 153A and 153C as they stood prior to the commencement of Finance Act, 2021." "The reckoning of the six AYs' would require one to firstly identify the FY in which the search was undertaken and which would lead to the ascertainment of the AY relevant to the previous year of search. The block of six AYs' would consequently be those which immediately precede the AY relevant to the year of search. In the case of a search assessment undertaken in terms of Section 153C, the solitary distinction would be that the previous year of search would stand substituted by the date or the year in which the books of accounts or documents and assets seized are handed over to the jurisdictional AO as opposed to the year of search which constitutes the basis for an assessment under Section 153A." "The submission of the respondents, therefore, that the block periods would have to be reckoned with reference to the date of search can neither be countenanced nor accepted." The Court ultimately held that the impugned notice under Section 148 for AY 2015-16 was barred by limitation and set it aside accordingly.
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