2025 (6) TMI 140 - AT - Income Tax

Reopening of assessment - period of limitation - scope of TOLA - HELD THAT - Computing the surviving/balance time limit as per the decision of the Hon ble Supreme Court in Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) we find that the Revenue had only 2 days (i.e. between 29/06/2021 to 30/06/2021) to issue notice under section 148 of the Act of the new regime in the present case i.e. till 15/06/2022 after receipt of the response from the assessee on 13/06/2022 to the show cause notice issued under section 148A(b) of the Act. However undisputedly in the present case the notice under section 148 of the Act was issued on 22/07/2022 i.e. 37 days after the surviving/balance time period as per the decision of the Hon ble Supreme Court in Rajeev Bansal (supra). We find that even if the benefit of the fourth proviso to section 149 of the Act is granted to the Revenue since the remaining period in the present case after the exclusion of time period as provided in the third proviso to section 149 is less than 7 days even then the notice dated 22/07/2022 under section 148 of the Act was issued much beyond the 7 days extension provided in the fourth proviso to section 149 of the Act. Therefore having considered the provisions of the Act pre as well as post the amendment by the Finance Act 2021 and the TOLA in the light of the decision of Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT and Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) we are of the considered view that the notice issued under section 148 of the Act on 22/07/2022 is barred by limitation period specified under section 149 - Assessee appeal allowed.

Summary

The core legal questions considered by the Appellate Tribunal (AT) in this appeal pertain primarily to the validity and limitation of the reassessment notice issued under section 148 of the Income Tax Act, 1961 ("the Act") for the assessment year 2013-14. Specifically, the issues include:

1. Whether the notice issued under section 148 of the Act on 22/07/2022 is valid and within the prescribed limitation period under section 149 of the Act, considering the amendments introduced by the Finance Act, 2021, and the effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA").

2. Whether the reassessment proceedings initiated pursuant to the said notice are valid or liable to be quashed on the ground of limitation.

3. Ancillary issues raised by the assessee regarding the correctness of additions made under section 69A of the Act for unexplained money and purchase of shares, the validity of reopening grounds, and procedural fairness including opportunity to rebut evidence and natural justice principles.

Issue-wise Detailed Analysis

Validity and Limitation of Reassessment Notice under Section 148

Relevant Legal Framework and Precedents: The Tribunal analyzed the provisions of section 149 of the Act, which governs the time limit for issuing reassessment notices under section 148. The section was examined both in its pre-amendment form (prior to Finance Act, 2021) and post-amendment form. The amended section 149(1) prescribes a three-year limitation period from the end of the relevant assessment year, extendable up to ten years if the escaped income relates to assets exceeding fifty lakh rupees. The Tribunal also considered the first proviso to section 149(1) which restricts issuance of notices for assessment years beginning on or before 01/04/2021 if the notice could not have been issued within the earlier time limits.

Further, the Tribunal relied heavily on two landmark Supreme Court decisions: Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal. The former clarified the procedure for issuance of show cause notices under section 148A(b) and the legal fiction deeming certain notices issued during 1 April 2021 to 30 June 2021 as stayed until relevant information is supplied to the assessee. The latter elucidated the interplay between the TOLA, the amended provisions of the Act, and the Supreme Court's earlier directions, providing a methodology to compute the surviving or balance time available for issuance of reassessment notices after the extended limitation period under TOLA.

Court's Interpretation and Reasoning: The Tribunal noted that the original notice under section 148 was issued on 29/06/2021 and was deemed to be a notice under section 148A(b) due to the Ashish Agarwal ruling. The Tribunal held that the time period from 20/03/2020 to 31/03/2021 was extended by TOLA, allowing reassessment notices issued during this period to be valid up to 30/06/2021. Since the six-year limitation period for the assessment year 2013-14 expired on 31/03/2020, the extended period under TOLA applied, making the notice dated 29/06/2021 within the extended limitation.

However, the Tribunal emphasized the Rajeev Bansal decision which mandates excluding the period during which the show cause notice was stayed (from issuance till supply of relevant information) and the two weeks granted to the assessee to respond, from the limitation computation. After excluding these periods, the Tribunal computed the surviving time available to the Revenue to issue a notice under section 148 of the new regime (post 01/04/2021) as only two days (from 29/06/2021 to 30/06/2021).

The assessee responded to the show cause notice on 13/06/2022, and the Revenue issued the second notice under section 148 on 22/07/2022, which was 37 days beyond the surviving time limit. Even considering the fourth proviso to section 149 allowing extension of the limitation period to seven days if the remaining period is less than seven days, the notice dated 22/07/2022 exceeded this extended period.

Application of Law to Facts and Findings: The Tribunal concluded that the notice issued on 22/07/2022 was barred by limitation under section 149 and hence void ab initio. Consequently, the reassessment proceedings and the assessment order passed under section 147 read with section 144B were also quashed. This conclusion was reached after a detailed analysis of the statutory provisions, the effect of TOLA, and the Supreme Court's authoritative clarifications in Ashish Agarwal and Rajeev Bansal.

Treatment of Competing Arguments: The Revenue contended that the notice was valid as it was issued pursuant to the Supreme Court's directions in Ashish Agarwal and was protected by TOLA's extended limitation period. The Tribunal acknowledged this but held that the surviving time for issuance of the notice under the new regime had expired before the notice was issued. The Revenue's argument that the notice was within the extended limitation was rejected based on the detailed computation of surviving time and exclusion periods mandated by Rajeev Bansal.

Ancillary Issues Regarding Additions under Section 69A and Procedural Grounds

The assessee challenged the additions made under section 69A relating to unexplained money and purchase of shares, contending that the transactions were explained and supported by bank statements, broker reports, and ledger accounts. It was also argued that the Assessing Officer (AO) did not provide details of purchases or an opportunity to file replies, violating principles of natural justice. The assessee further contended that the reopening was based on different grounds than those stated in the notice under section 148A(b), and that the AO failed to prove that the cash originated from the assessee.

The Tribunal noted these grounds but observed that since the jurisdictional issue regarding the validity of the reassessment notice was decided in favour of the assessee, these additional grounds became academic and were left open without adjudication.

Significant Holdings

"The notice issued under section 148 of the Act on 22/07/2022 is barred by limitation period specified under section 149 of the Act. Accordingly, we are of the considered view that the notice issued under section 148 of the Act on 22/07/2022 is void ab initio and bad in law."

"Consequently, the entire reassessment proceedings and assessment order passed under section 147 read with section 144B of the Act is also quashed."

"The surviving/balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30/06/2021."

"While computing the time limit for issuance of notice under section 148, the time during which the show cause notice was stayed till the supply of relevant information or material by the AO and further period of two weeks allowed to the assessee to respond to the show cause notice should be excluded."

The core principles established include:

• The limitation period for issuance of reassessment notices under section 148 must be strictly adhered to, with careful computation of surviving time post-application of TOLA and judicial directions.
• The legal fiction created by Ashish Agarwal and the methodology prescribed by Rajeev Bansal are binding for computing limitation and surviving time for reassessment proceedings initiated in the transitional period.
• Issuance of reassessment notices beyond the surviving time limit, even if within the extended period under TOLA, renders such notices void ab initio.
• Jurisdictional challenges to reassessment notices take precedence and must be adjudicated before delving into substantive grounds of additions or procedural irregularities.

On the principal issue of limitation, the Court decisively quashed the reassessment notice and the consequent proceedings, thereby allowing the appeal of the assessee.