2025 (6) TMI 987 - HC - Income Tax

Issuance of notice u/s 148 on the basis of a search conducted u/s 132 - period of limitation - HELD THAT - Writ petition should be heard. Let affidavit-in-opposition to the present writ petition be filed within a period of six weeks from date. Reply thereto if any be filed within four weeks thereafter. Considering the prima facie case made out and the jurisdictional issue raised by the petitioner inter alia including the issue of limitation we are inclined to stay the aforesaid notice issued under Section 148 of the said Act dated 27th March 2025 for the assessment year 2014-2015 till the disposal of the writ petition or until further order whichever is earlier.

Summary

The core legal questions considered by the Court revolve around the validity and jurisdictional competence of the Assessing Officer to issue a notice under Section 148 of the Income Tax Act, 1961, for the assessment year 2014-2015, following a search under Section 132. Specifically, the issues include:

• Whether the notice under Section 148 issued for the assessment year 2014-2015 is valid and within the limitation period prescribed by the Income Tax Act, 1961.
• The applicability and interpretation of Sections 153A(1)(b), 148, and 149 of the Income Tax Act, particularly in light of the proviso to Section 149 introduced by the Finance Act, 2021.
• Whether the Assessing Officer's jurisdiction to issue the notice under Section 148 for the said assessment year has been exercised in a colourable manner or is barred by limitation.

Issue-wise Detailed Analysis:

Issue 1: Validity and Limitation of Notice under Section 148 for AY 2014-2015

The legal framework governing the issuance of notices for reassessment or assessment following a search is primarily Sections 148, 149, and 153A of the Income Tax Act, 1961. Section 148 empowers the Assessing Officer to issue a notice for reassessment if there is reason to believe that income has escaped assessment. Section 153A mandates assessment or reassessment of all relevant assessment years when a search is conducted under Section 132.

Section 153A(1)(b) provides that the Assessing Officer can issue notices for assessment or reassessment for each assessment year falling within six assessment years preceding the assessment year relevant to the previous year in which the search is conducted. Explanation 1 to Section 153A defines "relevant assessment years" to include those preceding the six-year period but not exceeding ten years, subject to certain conditions.

The Finance Act, 2021, amended Section 149, which prescribes the limitation period for issuance of notices under Section 148. The first proviso to Section 149 restricts issuance of notices beyond the limitation period as it stood before the amendment for assessment years beginning on or before 1st April 2021.

The petitioner contended that the notice issued for AY 2014-2015 is barred by limitation because the extended timelines under Section 149 cannot be applied retrospectively to assessment years prior to 1st April 2021. Therefore, the Assessing Officer could only validly issue a notice under Section 148 for AY 2015-2016 and not for AY 2014-2015.

The Court acknowledged this contention as raising a jurisdictional issue concerning limitation and the applicability of the amended Section 149. The petitioner argued that the issuance of the notice for AY 2014-2015 was a colourable exercise of power and without jurisdiction.

Issue 2: Interpretation of Sections 153A and 149 in Context of Search and Limitation

The Court examined the interplay between Sections 153A and 149. Section 153A allows reassessment for multiple years following a search, but the limitation period under Section 149 governs the time within which notices can be issued. The first proviso to Section 149, introduced by the Finance Act, 2021, restricts the retrospective application of extended limitation periods for assessment years beginning on or before 1st April 2021.

The petitioner's argument highlighted that the notice under Section 148 for AY 2014-2015 was issued beyond the permissible limitation period as per the pre-amendment provisions, and thus the extended limitation period under the amended Section 149 could not be invoked. This raised the question of whether the Assessing Officer's jurisdiction was validly exercised.

The Court noted that this issue was substantial and required detailed consideration, particularly because it involved the interpretation of statutory provisions and their temporal applicability.

Issue 3: Jurisdictional Competence and Colourable Exercise of Power

The petitioner contended that issuing the notice under Section 148 for AY 2014-2015 was a colourable exercise of power, implying that the Assessing Officer acted beyond the scope of lawful authority. This was premised on the contention that the notice was barred by limitation and thus invalid.

The Court recognized that limitation is a jurisdictional bar and that issuing a notice beyond the limitation period would render the action without jurisdiction. The Court found that the petitioner had made out a prima facie case on this jurisdictional issue.

The respondent sought time to file an affidavit-in-opposition to address these contentions.

Application of Law to Facts and Treatment of Competing Arguments

The Court considered the petitioner's submission that the notice dated 27th March 2025 for AY 2014-2015 was issued beyond the limitation period prescribed by the pre-amendment Section 149 and was therefore without jurisdiction. The petitioner relied on the statutory language of the first proviso to Section 149 and the explanation to Section 153A to support this position.

The respondent did not advance substantive counterarguments at the stage of the order but sought time to respond. The Court, therefore, directed the filing of affidavits and replies to enable a full hearing of the issues.

Given the prima facie case and the serious jurisdictional question raised, the Court stayed the operation of the notice under Section 148 for AY 2014-2015 until disposal of the writ petition or further orders.

Conclusions:

The Court found that the issuance of the notice under Section 148 for AY 2014-2015 raised a substantial jurisdictional issue concerning limitation and the applicability of the amended Section 149. The petitioner's contention that the notice was issued beyond the permissible time and hence was a colourable exercise of power was prima facie plausible.

The Court granted liberty to the respondent to file an affidavit-in-opposition and stayed the notice pending final disposal, thereby preserving the petitioner's rights pending adjudication of the substantive issues.

Significant Holdings:

"Having regard to the prima facie case made out and the jurisdictional issue raised by the petitioner, inter alia, including the issue of limitation, I am inclined