2025 (6) TMI 574 - HC - Income Tax

Reopening of assessment beyond period of limitation - Petitioner submits that the impugned order and the impugned notices issued u/s 148A/148 for the AY 2014-15 have been issued beyond the block period of ten assessment years as set out under Section 153C read with Section 153A of the Act. HELD THAT - Since the satisfaction note was recorded during Financial Year FY 2024-25 which is relevant to the AY 2025-26 the period of ten years is required to be considered from the end of the AY 2025-26. The issue regarding the calculation of the block of ten years is covered by the decision of a Coordinate bench of this Court in Ojjus Medicare Pvt. Ltd. 2024 (4) TMI 268 - DELHI HIGH COURT as held ten AY period consequently is to be reckoned from the end of the AY pertaining to the previous year in which the search was conducted as distinct from the preceding year which is spoken of in the case of the six relevant AYs. It is apparent that the AO cannot proceed to take any steps for assessment in relation to AY 2014-15 as the same is barred by limitation. The petition is accordingly allowed and the impugned notice issued under Section 148 of the Act and the proceedings initiated pursuant thereto are set aside.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961 (the Act) for the Assessment Year (AY) 2014-15 is valid and within the limitation period prescribed under the Act.
• How the limitation period for issuing notices under Sections 148, 148A, 153A, and 153C of the Act is to be computed, particularly in the context of search and seizure proceedings under Section 132 of the Act.
• Whether the satisfaction note recorded by the Assessing Officer (AO) during the Financial Year (FY) 2024-25 can serve as a basis for reopening assessment for AY 2014-15, given the block period restrictions.
• The applicability and interpretation of the ten-year block period under Section 149 of the Act as amended by the Finance Act, 2021, particularly in relation to notices issued post-search and seizure operations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and limitation of the notice issued under Section 148 for AY 2014-15

Relevant legal framework and precedents: Section 148 empowers the AO to issue a notice for reopening assessment if there is reason to believe that income chargeable to tax has escaped assessment. The limitation for such reopening is governed by Section 149, which prescribes a block period of ten years for certain cases involving search and seizure under Section 132. Sections 153A and 153C provide for special assessment procedures following search or requisition of documents. The Court relied heavily on the decision of a Coordinate Bench in Principal Commissioner of Income Tax-Central-1 v. Ojjus Medicare Pvt. Ltd. (2024), which clarified the computation of the block period.

Court's interpretation and reasoning: The Court examined the date on which the AO recorded the satisfaction note (27.08.2024) and held that this date falls in FY 2024-25, which is relevant to AY 2025-26. Therefore, the ten-year block period for issuing notices under Section 148 must be computed from the end of AY 2025-26.

Key evidence and findings: The impugned notice dated 31.08.2024 was issued for AY 2014-15. The petitioner contended that this AY falls outside the ten-year block period when computed from AY 2025-26. The Court accepted the petitioner's tabular computation showing AY 2014-15 as the 12th year preceding AY 2025-26, thus beyond the permissible ten-year limit.

Application of law to facts: Applying the principles laid down in the Ojjus Medicare case, the Court held that the limitation period for reopening AY 2014-15 had expired. Hence, the AO's issuance of notice under Section 148 for AY 2014-15 was barred by limitation.

Treatment of competing arguments: The Revenue argued that the notice was valid as it related to escaped income discovered during search proceedings. However, the Court found that the limitation period must be strictly adhered to and that the satisfaction note date governs the computation of the block period, not the date of search or seizure alone.

Conclusions: The Court concluded that the impugned notice and proceedings for AY 2014-15 were barred by limitation and could not be sustained.

Issue 2: Computation of the block period under Sections 153A and 153C read with Section 149

Relevant legal framework and precedents: Section 153A applies to searched persons and Section 153C to non-searched persons whose documents or assets are requisitioned or seized during search. Explanation 1 to Section 153A prescribes that the ten-year block period is to be computed from the end of the AY relevant to the FY in which the search or requisition took place. The Court relied on the detailed analysis in the Ojjus Medicare judgment, which clarified the distinction between the six-year and ten-year blocks and the relevant AYs for computation.

Court's interpretation and reasoning: The Court interpreted the block period computation as follows:

• For the six-year block under Sections 153A and 153C, the starting point is the AY relevant to the FY in which the search or handover of seized material occurred.
• For the ten-year block under Section 149, the computation begins from the end of the AY relevant to the FY of the search or requisition.

The Court reproduced the tabular computations from the Ojjus Medicare case, illustrating that AY 2014-15 falls outside the ten-year block period when reckoned from AY 2025-26.

Key evidence and findings: The Court examined the timeline of the search (10.10.2021), the date of satisfaction note (27.08.2024), and the AYs involved. It found that the relevant AY for computing the ten-year block was AY 2022-23 (FY 2021-22 being the year of search), making AY 2014-15 the 9th or 12th year prior depending on the reckoning method, both beyond the permissible block.

Application of law to facts: The Court applied the statutory provisions and the precedent to the facts, holding that the AO's attempt to reopen AY 2014-15 was impermissible as it was beyond the ten-year block period.

Treatment of competing arguments: The Revenue's position that the search and seizure justified reopening was rejected on the ground that limitation cannot be extended beyond statutory block periods, even in cases involving search.

Conclusions: The Court held that the ten-year limitation under Section 149 read with Sections 153A and 153C is mandatory and the AO cannot issue notices beyond this period.

3. SIGNIFICANT HOLDINGS

The Court made the following crucial legal determinations and established core principles:

"The ten AY period consequently is to be reckoned from the end of the AY pertaining to the previous year in which the search was conducted as distinct from the preceding year which is spoken of in the case of the six relevant AYs'."

"It is apparent that the AO cannot proceed to take any steps for assessment in relation to AY 2014-15, as the same is barred by limitation."

Core principles established include:

• The limitation period for reopening assessments following search and seizure under Sections 148, 153A, and 153C must be computed strictly as per the statutory provisions and relevant AYs.
• The satisfaction note recorded by the AO in the FY relevant to the AY governs the commencement of the limitation period for reopening assessments.
• The ten-year block period under Section 149 is mandatory and cannot be circumvented by reliance on search and seizure proceedings.
• Notices issued beyond the prescribed block period are invalid and liable to be quashed.

Final determination: The impugned notice dated 31.08.2024 issued under Section 148 of the Act for AY 2014-15 and the proceedings initiated pursuant thereto are set aside as barred by limitation.