2025 (6) TMI 167 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - period of limitation - procedural requirements u/s 148A - TOLA - notice issued in accordance with the statutory regime as existed prior to 31.03.2021 - HELD THAT - The notice issued u/s 148 of the Act stands quashed and set aside. Concededly the controversy is covered in favour of the Assessee by the decision of this court in Makemytrip India Pvt. Ltd. 2025 (4) TMI 46 - DELHI HIGH COURT wherein the impugned notice was issued on 27.07.2022 which was admittedly beyond the period of limitation as prescribed under Section 149 (1). Since TOLA was not applicable in respect of the said notices u/s 148 of the Act for AY 2015-16 as conceded by the Revenue in the case of Union of India v. Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) thus the impugned notice is liable to be set aside.

Summary

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

1. Whether the notice dated 23.07.2022 issued under Section 148 of the Income Tax Act, 1961 (the Act) for reopening assessment year (AY) 2015-16 is valid, having regard to the procedural requirements introduced by the Finance Act, 2021 and the applicability of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).

2. Whether the reassessment proceedings initiated pursuant to the impugned notice comply with the amended provisions of the Act, particularly Section 148A, which prescribes the procedure for reopening assessments post 31.03.2021.

3. The effect of the Revenue's concession before the Supreme Court in Union of India and Ors. v. Rajeev Bansal, especially regarding notices issued on or after 1 April 2021 for AY 2015-16, and whether such notices must be set aside.

4. The applicability and effect of the Supreme Court's decision in Deepak Steel and Power Ltd. v. Central Board of Direct Taxes and Ors. on the present proceedings.

5. The validity of the notice dated 28.06.2021 issued under Section 148 of the Act, which was issued after 31.03.2021 but without following the procedure under Section 148A.

Issue-wise Detailed Analysis:

Issue 1 & 2: Validity of the notice dated 23.07.2022 under Section 148 and compliance with Section 148A post Finance Act 2021 amendments

The relevant legal framework involves the amendments made by the Finance Act, 2021, which introduced a new regime for reassessment proceedings under the Income Tax Act effective from 1 April 2021. The new provisions, particularly Section 148A, prescribe mandatory procedural safeguards before issuing a notice under Section 148 for reopening assessments. The procedure includes issuance of a preliminary notice under Section 148A(b) and an opportunity to the assessee to respond before the Assessing Officer (AO) passes an order under Section 148A(d) to initiate reassessment.

In the present case, the AO issued a notice dated 28.06.2021 under Section 148, post 31.03.2021, but did not follow the procedure under Section 148A, instead relying on the pre-amended provisions. Subsequently, on 23.07.2022, the AO passed an order under Section 148A(d) holding that reassessment proceedings should be initiated and issued a fresh notice under Section 148. The petitioner challenged these proceedings on the ground that the initial notice was invalid and the procedure under Section 148A was not properly followed.

The Court noted that the initial notice dated 28.06.2021 was issued without following the mandatory procedural safeguards under Section 148A, rendering the reopening invalid. The AO's attempt to cure this defect by issuing a fresh order and notice on 23.07.2022 was also scrutinized in light of the legal framework and judicial precedents.

Issue 3: Effect of Revenue's concession in Union of India and Ors. v. Rajeev Bansal

The Supreme Court's decision in Union of India and Ors. v. Rajeev Bansal is pivotal. The Court referred extensively to paragraphs 19(e) and 19(f) of the said judgment, where the Revenue conceded that for AY 2015-16, all notices issued on or after 1 April 2021 must be dropped as they would not fall within the period of limitation prescribed under TOLA. The table annexed to the decision clarified that TOLA's extended limitation period does not apply to AY 2015-16 for notices issued after 31.03.2021.

The Court emphasized that this concession by the Revenue effectively mandates that any notice for AY 2015-16 issued on or after 1 April 2021 is invalid and must be quashed. The impugned notice dated 23.07.2022 falls squarely within this category.

Issue 4: Applicability of Supreme Court decision in Deepak Steel and Power Ltd.

The Court also relied on the Supreme Court's decision in Deepak Steel and Power Ltd. v. Central Board of Direct Taxes, where similar issues regarding notices issued post 1 April 2021 for AY 2015-16 were considered. The Supreme Court, noting the concession made by the Revenue in Rajeev Bansal, allowed appeals and set aside reassessment notices issued after the prescribed limitation period.

This precedent reinforced the Court's conclusion that the impugned notice and proceedings must be quashed.

Issue 5: Validity of the initial notice dated 28.06.2021

The initial notice dated 28.06.2021 was issued after 31.03.2021 but without following the procedure mandated by Section 148A of the Act. The Court found that such non-compliance rendered the notice invalid. The AO's subsequent reliance on the Supreme Court's decision in Ashish Agarwal to treat the initial notice as deemed notice under Section 148A(b) was rejected, as the procedural safeguards are mandatory and cannot be waived or treated as deemed retrospectively.

The petitioner's failure to respond to the communication dated 25.05.2022 did not cure the defect in issuance of the initial notice.

Application of Law to Facts and Treatment of Competing Arguments

The Court applied the amended provisions of the Income Tax Act, the Supreme Court's authoritative pronouncements, and the Revenue's own concession to the facts of the case. It held that the impugned notice dated 23.07.2022 was issued beyond the limitation period as extended by TOLA and in breach of the procedural requirements under Section 148A.

The Revenue's argument relying on the initial notice and subsequent communication was countered by the binding nature of the Supreme Court's concession and the statutory mandate for procedural compliance. The Court also noted that the petitioner's non-response to the communication did not validate the reopening.

Conclusions

The Court concluded that the impugned notice dated 23.07.2022 and all proceedings initiated pursuant thereto are invalid and must be set aside. The reopening of assessment for AY 2015-16 is not permissible under the amended law and the limitation period prescribed by TOLA.

Significant Holdings

The Court held:

"The impugned notice dated 23.07.2022 issued under Section 148 of the Act stands quashed and set aside."

"In view of the concession made by the Revenue before the Supreme Court and the binding precedents, the proceedings initiated pursuant to the impugned notice are required to be set aside."

"The initial notice dated 28.06.2021 issued without following the procedure under Section 148A is invalid and cannot be treated as a deemed notice."

"For AY 2015-16, all notices issued on or after 1 April 2021 must be dropped as they do not fall within the limitation period prescribed under TOLA."

These principles confirm that reassessment proceedings must strictly comply with the amended procedural safeguards and limitation periods, and that the Revenue's own concession before the Supreme Court is binding on subsequent proceedings.