2025 (6) TMI 726 - HC - Income Tax

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

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the notice dated 30.06.2022 issued under Section 148 of the Income Tax Act, 1961 (the Act) for reopening the assessment year (AY) 2015-16 is valid and sustainable in law.
• Whether the procedure prescribed under Section 148A of the Act was mandatorily required to be followed for reopening assessments after 31.03.2021, and if non-compliance with the same vitiates the notice.
• The applicability of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and the effect of the Revenue's concession in the Supreme Court decision in Union of India and Ors. v. Rajeev Bansal (2024) on the limitation period for issuance of reassessment notices for AY 2015-16.
• The impact of the Supreme Court's ruling in Deepak Steel and Power Ltd. v. Central Board of Direct Taxes (2025) on the validity of notices issued post 1 April 2021 for AY 2015-16.
• Whether the impugned notice and consequent proceedings should be quashed and set aside in light of the above legal framework and precedents.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of the Notice Issued Under Section 148 for AY 2015-16

Legal Framework and Precedents: Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reopen an assessment if there is reason to believe that income has escaped assessment. Post 31.03.2021, the procedure under Section 148A was introduced, requiring the AO to issue a notice and provide the assessee an opportunity to respond before issuing a notice under Section 148.

Court's Interpretation and Reasoning: The AO initially issued a notice on 01.06.2021 under Section 148, but did not comply with the mandatory procedural safeguards under Section 148A, as the notice was premised on the pre-31.03.2021 regime. Subsequently, the AO sought to cure this procedural defect by relying on the Supreme Court's decision in Union of India & Ors. v. Ashish Agarwal, treating the earlier notice as deemed notice under Section 148A(b). However, the Court noted that this procedural lapse was material, and the subsequent notice dated 30.06.2022 under Section 148 was issued without proper adherence to the new regime.

Application of Law to Facts: The petitioner filed the return for AY 2015-16 declaring a modest income. The AO's failure to follow the procedure under Section 148A for notices issued after 31.03.2021 rendered the impugned notice legally infirm.

Treatment of Competing Arguments: The Revenue relied on the Supreme Court's Ashish Agarwal decision to validate the notice. The petitioner contended that the procedural irregularity was fatal, especially in light of subsequent authoritative rulings and concessions by the Revenue.

Conclusion: The Court found the procedural non-compliance significant and not curable by the AO's subsequent actions.

Applicability of TOLA and the Limitation Period for Reassessment Notices

Legal Framework and Precedents: The Finance Act, 2021 introduced a new regime for reassessment, and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) provided extended limitation periods for issuance of notices. Section 3 of TOLA applies to the entire Income Tax Act, including Sections 149 and 151 under the new regime.

Court's Interpretation and Reasoning: The Supreme Court in Union of India and Ors. v. Rajeev Bansal made a critical concession on behalf of the Revenue that for AY 2015-16, all notices issued on or after 1 April 2021 must be dropped as they would not fall within the limitation period prescribed under TOLA. The Court reproduced the tabulation from the Rajeev Bansal decision clarifying that TOLA does not apply to AY 2015-16 for extending limitation beyond 31.03.2022, and thus notices issued after 1 April 2021 are time-barred.

Application of Law to Facts: The impugned notice dated 30.06.2022 was issued well after 1 April 2021, and thus falls outside the permissible period under the limitation framework recognized by the Supreme Court.

Treatment of Competing Arguments: The Revenue's concession in Rajeev Bansal was decisive, and the petitioner relied heavily on it to argue for quashing the impugned notice.

Conclusion: The Court held that the notice dated 30.06.2022 is barred by limitation and must be set aside.

Impact of Supreme Court Decision in Deepak Steel and Power Ltd.

Legal Framework and Precedents: The Supreme Court in Deepak Steel and Power Ltd. considered appeals arising from High Court orders refusing to entertain petitions challenging notices issued post 1 April 2021. The Revenue conceded that notices for AY 2015-16 issued on or after 1 April 2021 must be dropped.

Court's Interpretation and Reasoning: The Supreme Court allowed the appeals in Deepak Steel and Power Ltd., relying on the concession made in Rajeev Bansal, reinforcing the principle that notices issued after 1 April 2021 for AY 2015-16 are invalid.

Application of Law to Facts: The present case involved a notice dated 30.06.2022, which is post the cut-off date recognized by the Supreme Court. The Court found the Deepak Steel decision directly applicable.

Treatment of Competing Arguments: The Revenue did not dispute the applicability of Deepak Steel and Power Ltd. and the concession made therein.

Conclusion: The Court held the impugned notice invalid in light of the Supreme Court's ruling.

Whether the Impugned Notice and Proceedings Should Be Quashed

Legal Framework and Precedents: The principle that notices issued beyond the limitation period are liable to be quashed is well-settled. The Court also referred to its own decision in Make My Trip India Pvt. Ltd. v. Deputy Commissioner of Income Tax, which supports quashing of such notices.

Court's Interpretation and Reasoning: Given the procedural irregularities, the limitation bar under TOLA, and the Supreme Court's binding precedents and concessions, the Court found no basis to sustain the impugned notice or the proceedings initiated thereunder.

Application of Law to Facts: The petitioner's challenge to the notice was upheld, and the Court set aside the notice dated 30.06.2022 and all consequential proceedings.

Treatment of Competing Arguments: The Revenue's arguments were overridden by the binding precedents and the concession made before the Supreme Court.

Conclusion: The Court allowed the petition and quashed the impugned notice and related proceedings.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning is encapsulated in the following verbatim excerpts:

"The Revenue concedes that for the assessment year 2015-2016, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020."

"In view of the aforesaid, in such circumstances referred to above the original writ petition nos.2446 of 2023, 2543 of 2023 and 2544 of 2023 respectively filed before the High Court of Orissa at Cuttack stands allowed."

"The impugned notice dated 30.06.2022 issued under Section 148 of the Act stands quashed and set aside."

Core principles established by the Court include:

• Strict adherence to the procedural requirements under Section 148A post 31.03.2021 is mandatory for reopening assessments.
• The limitation period for issuance of reassessment notices for AY 2015-16 is governed by the TOLA framework as interpreted by the Supreme Court, which excludes notices issued after 1 April 2021.
• Revenue's concession before the Supreme Court is binding and decisive in determining the validity of notices issued beyond the limitation period.
• Notices issued beyond the limitation period and without adherence to procedural safeguards are liable to be quashed.

Final determinations on each issue are:

• The notice dated 30.06.2022 under Section 148 for AY 2015-16 is invalid due to procedural non-compliance and limitation bar.
• The reassessment proceedings initiated pursuant to the impugned notice are quashed and set aside.
• The Revenue's concession in Rajeev Bansal and the Supreme Court's decision in Deepak Steel and Power Ltd. are binding and dispositive on the issue of limitation.