2025 (6) TMI 77 - HC - Income Tax

Reopening of assessment u/s 147 as barred by limitation -application of TOLA - scope of new law/regime - HELD THAT - The fact remains that once the notice u/s 148 dated 31.01.2021 was served upon the assessee on 01.04.2021 the same is issued and served after 31.03.2021 i.e. during the period from 01.04.2021 to 30.06.2021 as per TOLA. Therefore the assessment order passed pursuant to the notice u/s 148 dated 29.03.2022 would become infructuous in view of the decision of Hon ble Apex Court in case of Ashish Agarwal 2024 (10) TMI 264 - SUPREME COURT (LB) The respondent has thereafter issued notice under section 148 of the Act pursuant to the order dated 26.07.2022 passed under section 148A(d) of the Act. Therefore the assessment order dated 29.03.2022 passed pursuant to the notice dated 31.03.2021 shall not survive and consequently the appeal preferred by the petitioner would also not survive as the assessment order passed pursuant to the notice dated 31.03.2021 would not be a valid assessment order passed pursuant to such notice and a fresh assessment order will have to be passed as per the reassessment notice issued under section 148 of the Act on 26.07.2022 in view of the decision of the Apex Court in case of Rajiv Bansal 2022 (5) TMI 240 - SUPREME COURT Petition succeeds and the impugned order dated 29.03.2022 is declared as void and non existent order in view of the subsequent notice issued by the respondent u/s 148.

Summary

The core legal questions considered by the Court in this matter include:

1. Whether the reopening notice under section 148 of the Income Tax Act, 1961, issued on 31.03.2021 but served after 01.04.2021, is valid in light of the amended provisions introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA") effective from 01.04.2021.

2. Whether the assessment order dated 29.03.2022 passed pursuant to the said reopening notice remains valid or becomes infructuous following subsequent reassessment proceedings initiated after the Supreme Court's judgment in Union of India vs. Ashish Agarwal.

3. The legal effect of the quashing of reassessment proceedings initiated pursuant to the Supreme Court's decision in Keenara Industries Private Limited and the subsequent reversal of that decision by the Supreme Court in Union of India vs. Rajiv Bansal.

4. Whether the demand notices and recovery proceedings issued pursuant to the assessment order dated 29.03.2022 and the rectification order dated 04.07.2024 are sustainable.

5. The applicability and levy of interest under sections 234A and 234B of the Income Tax Act in the context of the reopened assessment and rectification orders.

Issue 1: Validity of the reopening notice dated 31.03.2021 served after 01.04.2021 under the new regime introduced by TOLA

The legal framework governing reopening of assessments was substantially amended by TOLA, which came into effect from 01.04.2021. The Act's provisions relating to reassessment notices under sections 147 and 148 were modified, and TOLA introduced transitional provisions for notices issued during the period 01.04.2021 to 30.06.2021.

The Supreme Court in Union of India vs. Ashish Agarwal held that reopening notices issued under the old regime but served after 01.04.2021 are to be treated as deemed notices under the new regime and must comply with the new procedural safeguards. This decision clarified that such notices are valid only if they meet the requirements of the amended law.

In the present case, the reopening notice dated 31.03.2021 was served on 01.04.2021, thus falling within the transitional period governed by TOLA. The Court observed that the reopening notice under section 148, though issued before 01.04.2021, was served after that date and therefore must be considered under the new regime as per the Supreme Court's ruling in Ashish Agarwal.

The Court reasoned that the reopening notice dated 31.03.2021, served on 01.04.2021, does not satisfy the procedural requirements of the new regime and thus, the assessment order passed pursuant to it is not sustainable.

Issue 2: Validity and effect of the assessment order dated 29.03.2022 passed pursuant to the reopening notice dated 31.03.2021

The assessment order dated 29.03.2022 was passed under section 147 read with section 144B of the Act following the reopening notice dated 31.03.2021. The petitioner challenged this order on the ground that it became infructuous after the subsequent reassessment proceedings initiated pursuant to the Supreme Court's decision in Ashish Agarwal.

Following the Apex Court's judgment, the respondent issued a fresh notice under section 148 on 26.07.2022 and passed an order under section 148A(d) confirming escapement of income. The petitioner argued that once the reassessment notice dated 26.07.2022 was issued and the corresponding order passed, the earlier assessment order dated 29.03.2022 ceased to have any legal effect.

The Court agreed with this contention, holding that the assessment order dated 29.03.2022 is void and non-existent in view of the subsequent valid reassessment proceedings initiated on 26.07.2022. Consequently, the appeal filed against the 29.03.2022 order also became infructuous.

Issue 3: Impact of the decisions in Keenara Industries and Rajiv Bansal on the reassessment proceedings

The petitioner had earlier succeeded in quashing the reassessment proceedings based on the decision in Keenara Industries Private Limited, which held certain reopening notices issued during the transitional period to be invalid. However, the Supreme Court later stayed the Keenara Industries decision and ultimately reversed it in Union of India vs. Rajiv Bansal.

The Rajiv Bansal judgment clarified that TOLA provisions apply only to extend time limits and procedural requirements for notices issued between 20.03.2020 and 31.03.2021, and that the directions in Ashish Agarwal apply to all reassessment notices issued under the old regime during 01.04.2021 to 30.06.2021. It further held that any notices issued beyond the surviving time limits are time-barred and liable to be set aside.

The Court noted that in light of Rajiv Bansal, the reassessment proceedings initiated on 26.07.2022 are valid, and the assessment order dated 29.03.2022 passed pursuant to the earlier reopening notice cannot survive.

Issue 4: Validity of demand and recovery notices issued pursuant to the assessment and rectification orders

The petitioner challenged the recovery notices dated 20.07.2022, 06.11.2023, 22.12.2023, and subsequent notices calling for payment of outstanding demand raised under the assessment order dated 29.03.2022 and rectification order dated 04.07.2024.

The Court held that since the assessment order dated 29.03.2022 is void and non-existent, the consequential demand and recovery notices issued pursuant to it cannot be sustained. Similarly, the rectification order passed under section 154 of the Act and related demand notices also do not survive.

The Court accordingly quashed the impugned assessment order, rectification order, and all consequential demand and recovery notices.

Issue 5: Levy of interest under sections 234A and 234B of the Income Tax Act

Following the assessment order dated 29.03.2022, the respondent issued a notice dated 17.01.2024 demanding payment of interest under sections 234A and 234B for non-levy or short levy of interest. The petitioner filed a reply opposing the levy, but the respondent rejected the prayer by order dated 04.07.2024.

The Court observed that since the assessment order dated 29.03.2022 is void and non-existent, the basis for levy of interest under sections 234A and 234B also falls away. Therefore, the order levying interest and the consequential demand notice cannot be sustained.

Conclusions and Application of Law to Facts

The Court applied the principles laid down by the Supreme Court in Ashish Agarwal and Rajiv Bansal to the facts of the case, particularly focusing on the timing of the reopening notice and the procedural requirements under the amended law. It concluded that the reopening notice dated 31.03.2021 served after 01.04.2021 did not comply with the new regime, rendering the assessment order dated 29.03.2022 invalid.

Further, the Court held that the reassessment proceedings initiated pursuant to the valid notice dated 26.07.2022 stand, and the earlier assessment order and consequential appeals and recovery actions have no legal effect. The Court also rejected the levy of interest under sections 234A and 234B as based on the void assessment order.

The competing arguments of the parties were considered with reference to the Apex Court's binding precedents. The petitioner's reliance on the quashing of reassessment proceedings under Keenara Industries was noted but superseded by the Rajiv Bansal decision reversing that position. The respondent's contention to sustain the assessment under Rajiv Bansal was accepted only for the reassessment notice dated 26.07.2022 and not for the earlier assessment order.

Significant Holdings

"The assessment order dated 29.03.2022 passed pursuant to the notice dated 31.03.2021 shall not survive and consequently, the appeal preferred by the petitioner would also not survive as the assessment order passed pursuant to the notice dated 31.03.2021 would not be a valid assessment order."

"The petition succeeds and the impugned order dated 29.03.2022 is declared as void and non existent order in view of the subsequent notice issued by the respondent under section 148 of the Act dated 26.07.2022."

"The respondent shall be at liberty to conclude assessment proceedings as per the notice dated 26.07.2022 issued under section 148 of the Act as per the decision in case of Rajeev Bansal (supra)."

Core principles established include the recognition that reopening notices issued before but served after 01.04.2021 must comply with the new procedural safeguards under TOLA and the amended Income Tax Act provisions, and that assessment orders passed pursuant to invalid reopening notices are void and cannot sustain appeals or recovery actions. The judgment also confirms the binding effect of the Supreme Court's rulings in Ashish Agarwal and Rajiv Bansal on the validity of reopening notices and assessment proceedings in the transitional period.