2025 (6) TMI 211 - AT - Income Tax

Reopening of assessment u/s 147 as barred by limitation - addition made towards receipt of foreign income pertaining to previous financial year - HELD THAT - As per clause (b) to sub-section (1) of section 149 of the Act the time limit for issuing notice under section 148 of the Act is three years but not more than ten years. We find that the AO issued notice u/s 148 dated 27.04.2021 whereas on or after 01.04.2021 the AO was required to issue notice under section 148A of the Act. We note that the reassessment notice issued on or after 01.04.2021 under unamended section 148 in the case of Union of India v. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT held that the such notice should not be set aside rather deemed to have been issued under substituted section 148A of the Act. Thus the prayer of the assessee that the notice issued u/s 148 is barred by limitation under section 149 of the Act stands ruled out. We also note from the assessment order that by following the guidelines of the Hon ble Supreme Court the AO issued order u/s 148A(d) of the Act dated 25.07.2022 by obtaining approval of the competent authority and thereafter issued notice u/s 148 of the Act dated 25.07.2022 and served on the assessee. Thus we find that the AO has legally initiated the reassessment proceedings as per amended provisions of section 147 of the Act and completed the assessment under section 147 dated 25.03.2023 and the same stands confirmed. Thus Grounds No. 5 to 7 raised by the assessee are dismissed. Receipt of foreign income - Assessment of income earned by the assessee the shortfall due to foreign income declared by the assessee and the information available with the department the assessee could not furnish any explanation with documentary evidence before the Assessing Officer as well as before the ld. CIT(A). However before the Tribunal the assessee furnished copy of calculation of foreign income tallying with Indian ITR and foreign ITR ITR Form filed in Norway for calendar year 2015 and Indian ITR Form filed for AY 2016-17 (FY 2015-16) and assessee submitted that the Assessing Officer has incorrectly added the income earned in the previous financial year as income of the current financial year and prayed to delete the addition. We note that the authorities below have no occasion to verify the details furnished by the assessee before the Tribunal. Considering the above facts and circumstances of the case and to meet the ends of natural justice we deem it proper to remand the matter to the file of the Assessing Officer to examine and decide the issue afresh. Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the reopening of assessment under section 147 of the Income Tax Act, 1961 (the Act) was valid and within the prescribed time limits, especially in light of amendments introduced by the Finance Act, 2021 and the procedural safeguards under section 148A of the Act.
• Whether the Assessing Officer was justified in making an addition towards foreign income allegedly earned by the assessee but not declared in the return for the relevant Assessment Year (AY) 2016-17.
• Whether the addition of foreign income was correctly computed and attributed to the relevant financial year, or whether the Assessing Officer erred in including income pertaining to a previous financial year.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Limitation of Reopening under Section 147 of the Act

Relevant Legal Framework and Precedents: The reopening of assessment under section 147 is subject to strict time limits prescribed under section 149 of the Act. The Finance Act, 2021 introduced amendments to sections 147 to 151, including procedural safeguards under section 148A, effective from 1 April 2021. The Supreme Court decision in Union of India v. Ashish Agarwal clarified that notices issued under the unamended section 148 on or after 1 April 2021 would be deemed to have been issued under the substituted section 148A and would not be invalidated merely on that ground.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer issued the initial notice under section 148 on 27 April 2021, post-amendment. While the notice was issued under the unamended section 148, the Supreme Court's ruling in Ashish Agarwal established that such notice should be deemed to have been issued under section 148A, thus validating the reopening. Further, the Assessing Officer followed the procedural requirements by issuing an order under section 148A(d) dated 25 July 2022, obtaining approval from the competent authority, and issuing a fresh notice under section 148 on the same date. This sequence complied with the amended provisions and procedural safeguards.

Key Evidence and Findings: The record showed issuance of notices and orders in compliance with the amended statutory framework. The time limits under section 149 were not breached, and the Assessing Officer followed due process including providing reasons and obtaining requisite approvals.

Application of Law to Facts: The Tribunal applied the amended provisions and Supreme Court precedent to conclude that the reopening was valid and not barred by limitation.

Treatment of Competing Arguments: The assessee argued that the reopening notice was time barred and invalid. The Tribunal rejected this contention based on statutory amendments and judicial precedent.

Conclusion: The reopening of assessment under section 147 was valid and legally initiated in accordance with the amended provisions and Supreme Court guidance.

Issue 2: Justification for Addition of Foreign Income

Relevant Legal Framework: Income earned abroad is taxable in India if it is chargeable under the Act and relevant to the AY. The Assessing Officer must verify the correctness of declared foreign income and ensure no escapement of income has occurred.

Court's Interpretation and Reasoning: The Assessing Officer found a discrepancy between foreign income declared by the assessee (Rs. 17,53,342) and information available with the Department (Rs. 21,33,342), resulting in a shortfall of Rs. 3,80,000. The Assessing Officer added this shortfall to the returned income. The CIT(A) confirmed this addition on appeal.

Key Evidence and Findings: The assessee did not furnish documentary evidence or explanation before the Assessing Officer or CIT(A) to justify the discrepancy. However, before the Tribunal, the assessee submitted a detailed paper book including foreign ITR filed in Norway for calendar year 2015, Indian ITR for AY 2016-17, and calculations supporting the income declared. The assessee contended that the Assessing Officer incorrectly attributed income earned in a previous financial year to the current year.

Application of Law to Facts: The Tribunal noted that the lower authorities did not have the opportunity to verify the documents and explanations submitted before the Tribunal. Given the new evidence and submissions, the Tribunal found it appropriate to remit the matter to the Assessing Officer for fresh examination.

Treatment of Competing Arguments: The Assessing Officer relied on departmental information and found the addition justified. The assessee contended that the income was wrongly attributed to the AY and submitted documentary evidence only before the Tribunal. The Tribunal balanced procedural fairness and the need for proper verification by remanding the issue.

Conclusion: The addition of foreign income was not upheld outright. The matter was remanded for fresh consideration after affording the assessee a reasonable opportunity to present evidence and explanations.

Issue 3: Attribution of Foreign Income to Relevant Financial Year

Relevant Legal Framework: Income must be assessed in the correct AY corresponding to the financial year in which it was earned. Misattribution can lead to erroneous additions.

Court's Interpretation and Reasoning: The assessee argued that the Assessing Officer incorrectly included income pertaining to the previous financial year (2015) in the AY 2016-17. The Tribunal acknowledged this contention but noted that the lower authorities had no occasion to verify the detailed submissions made before the Tribunal.

Key Evidence and Findings: The assessee submitted foreign and Indian ITRs and calculations to support correct attribution. The Tribunal found it necessary to remit the issue for fresh verification and decision.

Application of Law to Facts: The Tribunal emphasized the need for proper examination of the documentary evidence to ascertain correct attribution of income to the relevant AY.

Treatment of Competing Arguments: The Assessing Officer treated the income as pertaining to the AY 2016-17 based on available information. The assessee challenged this on factual and legal grounds. The Tribunal deferred to the Assessing Officer's fresh scrutiny.

Conclusion: The question of correct attribution of foreign income to the relevant financial year remains open and is to be re-examined on remand.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The reopening of assessment under section 147 of the Act was valid and not barred by limitation in view of the amended provisions of section 148A and the Supreme Court decision in Union of India v. Ashish Agarwal."

"The Assessing Officer followed the due procedure by obtaining approval of the competent authority and issuing notices in compliance with the amended statutory framework."

"The addition of Rs. 3,80,000 towards foreign income shortfall was confirmed by the CIT(A), but on the basis of documentary evidence and submissions made before the Tribunal, the matter is remanded for fresh examination in accordance with law after affording reasonable opportunity of being heard to the assessee."

"The issue of correct attribution of foreign income to the relevant financial year requires re-examination and verification of documentary evidence submitted by the assessee."

In conclusion, the appeal was partly allowed for statistical purposes, with the reassessment proceedings upheld but the addition on account of foreign income remanded for fresh consideration. This preserves the procedural integrity of reassessment while ensuring fairness in the substantive tax determination.