2025 (5) TMI 2059 - HC - Income Tax

Reopening of assessment u/s 147 - Applicability of time period as stipulated u/s 149 - Subsequently proceedings u/s 153A were initiated against the petitioner - whether no incriminating material pertaining to the searched persons was found during the said search thus no further proceedings were warranted? - CIT(A) deleted the addition made by the AO by relying on Abhisar Buildwell Pvt. Limited. 2023 (4) TMI 1056 - SUPREME COURT that no addition was permissible in the absence of incriminating material as the year in question was not an abated assessment year. HELD THAT - Revenue claims that the impugned notice is premised on the findings and directions as embodied in the decision of Abhisar Buildwell (P.) Ltd supra .In the said decision the Supreme Court had held that in certain cases the assessing officer (AO) could exercise its powers under Section 147/148 of the Act even in cases which are related to a search conducted under Section 132 of the Act or a requisition made under Section 132A of the Act. The Revenue construes the said decision as constituting a finding or a direction for issuing such notices in respect of cases such as that of the assessee s. The question whether the decision in the case of Abhisar Buildwell (P.) Ltd. (supra) constitutes a finding and/or a direction for issuance of notices under Section 148 of the Act in cases which are otherwise beyond the period as stipulated under Section 149 of the Act is no longer res integra. This Court in the case of ARN Infrastructures India Ltd. 2024 (9) TMI 1573 - DELHI HIGH COURT had rejected a similar contention Plainly the controversy involved in this petition is covered by the decision of this court in ARN Infrastructures India Ltd. supra .The contention that the time period as stipulated u/s 149 of the Act is not applicable in the given facts is erroneous and thus rejected.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the issuance of the notice dated 30.08.2024 under Section 148 of the Income Tax Act, 1961, in respect of assessment year 2015-16, was valid and within the prescribed limitation period.

- Whether the absence of incriminating material found during the search under Section 132 of the Act precludes reopening of assessment under Sections 147/148.

- Whether Section 150 of the Act and the Supreme Court decision in Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell Pvt. Ltd. (2024) 2 SCC 433, provide a non-obstante clause or direction that overrides the limitation period under Section 149 of the Act for issuance of reassessment notices.

- The applicability and scope of the decision in Abhisar Buildwell (supra) in relation to reopening of completed assessments post-search when no incriminating material is found.

- Whether the reassessment proceedings initiated by the Assessing Officer (AO) comply with the statutory conditions under the Income Tax Act, especially Sections 147, 148, 149, and 150.

2. ISSUE-WISE DETAILED ANALYSIS

Validity and Limitation of Reassessment Notice under Section 148

The legal framework governing reassessment proceedings is primarily contained in Sections 147, 148, 149, and 150 of the Income Tax Act, 1961. Section 148 empowers the AO to reopen assessments if there is reason to believe that income chargeable to tax has escaped assessment. Section 149 prescribes the limitation period for issuance of such notices, generally within four years from the end of the relevant assessment year. Section 150 contains a non-obstante clause that saves the powers of the AO to issue notices beyond the limitation period in certain circumstances, including directions from the Supreme Court.

In the present case, the impugned notice was issued beyond the four-year limitation period under Section 149(1). The Revenue contended that the notice was valid by virtue of Section 150, relying on the Supreme Court's decision in Abhisar Buildwell (supra), which was argued to constitute a "finding and/or direction" permitting reopening beyond the limitation period.

The Court examined the decision in Abhisar Buildwell, particularly paragraphs 33 and 36.4, which acknowledged the Revenue's power to initiate reassessment even post-search where no incriminating material is found, subject to fulfillment of statutory conditions under Sections 147/148. The Court emphasized that the Supreme Court did not grant a carte blanche overriding Section 149 limitations but rather preserved the Revenue's existing reassessment rights subject to compliance with statutory safeguards.

Further, the Court relied on its own precedent in ARN Infrastructures India Ltd. v. Assistant Commissioner of Income Tax (2024), which rejected the interpretation that Abhisar Buildwell permits issuance of reassessment notices beyond the limitation period without adherence to Section 149. The Court quoted extensively from ARN Infrastructures, highlighting that the Supreme Court's observations were cautionary and conditional, not absolute overrides of limitation provisions.

Applying this framework, the Court concluded that the impugned notice dated 30.08.2024 was issued beyond the prescribed limitation period and the invocation of Section 150 did not validate the notice absent a clear Supreme Court direction specifically permitting such reopening in the present facts.

Effect of Absence of Incriminating Material on Reassessment

The petitioner argued that since no incriminating material was found during the search under Section 132, no addition or reassessment could be made for the completed assessment year. The CIT(A) had earlier deleted the addition made by the AO, relying on Abhisar Buildwell (supra), which held that no addition is permissible in the absence of incriminating material for non-abated assessment years.

The Court noted that while the Supreme Court recognized the Revenue's power to initiate reassessment in such cases, this power is circumscribed by statutory conditions and cannot be exercised arbitrarily. The absence of incriminating material limits the scope of reassessment, and any addition must be justified by relevant material discovered post-search.

In the present case, the AO made additions without any incriminating material found during the search, and the reassessment was challenged as lacking jurisdiction. The CIT(A)'s deletion of the addition was upheld as consistent with settled legal principles.

Interpretation of Section 150 and Supreme Court Directions

The Revenue's reliance on Section 150 and the Abhisar Buildwell decision was critically examined. Section 150 contains a non-obstante clause preserving the AO's powers to issue reassessment notices notwithstanding other provisions, but only "subject to the directions of the Supreme Court."

The Court clarified that the Supreme Court's observations in Abhisar Buildwell do not amount to a general direction permitting reopening beyond limitation in all cases post-search. Instead, the Supreme Court preserved reassessment powers subject to statutory compliance, emphasizing that such powers are "subject to fulfilment of the conditions mentioned in Sections 147/148."

The Court rejected the Revenue's expansive interpretation that Abhisar Buildwell constitutes a standing direction overriding Section 149 limitations. It held that the non-obstante clause in Section 150 cannot be invoked to bypass statutory time limits absent a specific Supreme Court direction applicable to the facts.

Application of Law to Facts and Treatment of Competing Arguments

The petitioner's contention that the reassessment notice was barred by limitation and lacked jurisdiction was supported by the absence of incriminating material and the settled legal position that reopening completed assessments requires compliance with limitation periods and statutory conditions.

The Revenue's argument that the Supreme Court's decision in Abhisar Buildwell permits reopening beyond limitation was found to be a misreading of the judgment, as the Supreme Court expressly conditioned reassessment powers on statutory compliance.

The Court's reasoning was supported by prior authoritative decisions, including its own ruling in ARN Infrastructures, which clarified the limited scope of reassessment powers post-search and the non-application of Section 150 as a blanket override of limitation periods.

3. SIGNIFICANT HOLDINGS

"The observations of the Supreme Court in Abhisar Buildwell were thus intended to merely convey that the annulment of the search assessments would not deprive or denude the Revenue of its power to reassess and which independently existed. However, the Supreme Court being mindful of the statutory prescriptions, which otherwise imbue the commencement of reassessment, qualified that observation by providing that such an action would have to be in accordance with law."

"The observations of the Supreme Court cannot possibly be read or construed as a carte blanche enabling the respondents to overcome and override the restrictions that otherwise appear in Section 149 of the Act."

"The liberty which the Supreme Court accorded and the limited right inhering in the Revenue to initiate reassessment was subject to that power being otherwise compliant with the Chapter pertaining to reassessment as contained in the Act."

Final determinations:

• The impugned notice under Section 148 dated 30.08.2024 was issued beyond the limitation period prescribed under Section 149(1) of the Income Tax Act and is therefore invalid.
• The invocation of Section 150 of the Act and reliance on the Supreme Court's decision in Abhisar Buildwell do not validate the notice absent a specific direction overriding limitation periods.
• In the absence of incriminating material found during the search, reassessment and additions cannot be made in a completed assessment year without jurisdictional basis.
• The reassessment proceedings initiated against the petitioner are without jurisdiction and contrary to settled legal principles.
• The impugned notice is set aside and the petition allowed accordingly.