2025 (6) TMI 1230 - HC - Income Tax

Reopening of assessment - Period of limitation under new tax regime - validity of the notice issued under TOLA between 31.3.2021 and 30.6.2021 - HELD THAT - Respondent could not controvert the facts that as per the decision of the Hon ble Apex Court in case of Union of India v. Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) the notice dated 21.7.2022 would be a time barred notice and in turn the notice dated 30.6.2021 would be an invalid notice as per aforesaid observations made by the Apex Court. Considering the above facts there is a notice dated 30.6.2021 only one day time was left for the issuance of the notice under Section 148 after granting 14 days time to the assessee from the decision of Union of India v. Ashish Agarwal the date of issuance of the notice under Section 148 would be 12.6.2022 whereas in the facts of the case the notice under Section 148 is issued on 21.7.2022 and as such the notice dated 30.6.2021 would be an invalid notice. In the result the petition succeeds only on this ground.

Summary

The core legal questions considered by the Court were:

1. Whether the reassessment notice dated 21.7.2022 issued under Section 148 of the Income Tax Act, 1961 ("the Act") read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA") was valid and within the prescribed time limits.

2. Whether the initial notice dated 30.6.2021 under Section 148 of the Act was valid, having regard to the procedural and temporal requirements laid down by the Supreme Court in recent authoritative rulings.

3. Whether the assessment order dated 27.5.2023 passed under Section 147 read with Section 144B of the Act and the subsequent demand notice under Section 156 could be sustained in view of the validity or invalidity of the reassessment notices.

4. The applicability and interpretation of the Supreme Court decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal, particularly concerning the procedural safeguards and time limits for issuance of reassessment notices under the new regime introduced by TOLA.

5. The effect of the stay granted by the Supreme Court on earlier High Court judgments quashing reassessment notices and the consequent impact on the reassessment proceedings in the present matter.

Issue-wise Detailed Analysis

1. Validity and Timeliness of the Reassessment Notices under Section 148

Legal Framework and Precedents: The reassessment proceedings were initiated under Section 147 read with Section 144B of the Income Tax Act. The issuance of notices under Section 148 is governed by time limits prescribed under Section 149(1) of the Act, which were modified and relaxed by TOLA due to the COVID-19 pandemic. The Supreme Court's rulings in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal provided authoritative guidance on the modalities for issuance of reassessment notices during the transitional period between the old and new regimes.

Court's Interpretation and Reasoning: The Court observed that the notice dated 30.6.2021 was issued under the old regime but was subject to the provisions of TOLA, which provided a legal fiction deeming such notices as show-cause notices under Section 148A(b) of the new regime. The Supreme Court in Ashish Agarwal clarified that the limitation period was effectively frozen from the date of issuance of the old regime notice until the assessing officer supplied relevant information to the assessee and allowed a period of two weeks for response.

The Court noted that the petitioner was given 14 days to respond to the show-cause notice issued on 21.5.2022, making the last date for response 5.6.2022. Accordingly, the assessing officer had 61 days thereafter to issue a valid reassessment notice under Section 148 of the new regime, which would expire on 12.6.2022. However, the impugned notice was issued on 21.7.2022, well beyond the surviving time limit.

Key Evidence and Findings: The Court relied on the Supreme Court's detailed exposition in paragraphs 92, 93, and 110-114 of the Rajeev Bansal decision, which prescribed the timeline and procedural safeguards for reassessment notices. The petitioner's uncontested submission that the notice dated 21.7.2022 was issued beyond the prescribed time was accepted. The respondent did not dispute the applicability of these principles.

Application of Law to Facts: Applying the Supreme Court's framework, the Court concluded that the notice dated 21.7.2022 was time-barred and consequently invalid. Since the 21.7.2022 notice was predicated on the earlier notice dated 30.6.2021, the latter was also invalid as it did not comply with the procedural requirements and time limits.

Treatment of Competing Arguments: The respondent relied on the stay granted by the Supreme Court on the earlier High Court judgment quashing the reassessment notice. However, the Court observed that the stay did not validate the issuance of notices beyond the prescribed time limit under the new regime. The petitioner's argument based on the Rajeev Bansal ruling was accepted as determinative.

Conclusions: Both the notice dated 30.6.2021 and the subsequent notice dated 21.7.2022 were held invalid and time-barred, rendering the reassessment proceedings initiated thereunder unsustainable.

2. Validity of the Assessment Order and Demand Notice

Legal Framework and Precedents: The assessment order dated 27.5.2023 was passed under Section 147 read with Section 144B of the Act, based on the reassessment notices. The demand notice under Section 156 was consequential to the assessment order.

Court's Interpretation and Reasoning: Since the reassessment notices were invalid and quashed, the Court held that the assessment order and the demand notice could not survive independently. The assessment order was passed without jurisdiction due to the invalidity of the foundational notices.

Key Evidence and Findings: The Court relied on the principle that an assessment order passed without valid notice is void. The petitioner's challenge to the assessment order was thus upheld on the ground of invalid reassessment notices.

Application of Law to Facts: The Court quashed the assessment order dated 27.5.2023 and the demand notice, effectively setting aside the entire reassessment proceeding.

Treatment of Competing Arguments: The respondent did not advance substantive arguments on the validity of the assessment order independent of the reassessment notices, conceding the procedural infirmity.

Conclusions: The assessment order and demand notice were quashed as they were predicated on invalid reassessment notices.

3. Effect of Supreme Court's Stay and Applicability of Apex Court Decisions

Legal Framework and Precedents: The respondent relied on the Supreme Court's stay of the High Court's judgment in Keenara Industries Pvt. Ltd. v. ITO, which had earlier quashed the reassessment notice. The Supreme Court's decisions in Ashish Agarwal and Rajeev Bansal clarified the procedural regime for reassessment notices during the transitional period.

Court's Interpretation and Reasoning: The Court observed that the stay did not override the statutory time limits and procedural safeguards prescribed by the Supreme Court in Rajeev Bansal. The stay only preserved the status quo but did not validate notices issued beyond the surviving time limit.

Key Evidence and Findings: The Court relied on the detailed analysis in the Rajeev Bansal judgment, which emphasized the necessity of compliance with time limits and the procedural steps of issuing show-cause notices, allowing replies, and obtaining prior approval under Section 151.

Application of Law to Facts: The Court found that the reassessment notices in the present case failed to comply with these requirements and were therefore invalid despite the stay.

Treatment of Competing Arguments: The respondent's reliance on the stay was rejected to the extent that it could not cure the fundamental defect of time-barred issuance.

Conclusions: The Supreme Court's decisions on procedural safeguards and time limits govern the validity of reassessment notices, and the stay does not validate notices issued beyond the surviving time limit.

Significant Holdings

"The reassessment notices issued under Section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income Tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time-barred."

"The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices."

"The reassessment notice dated 21.7.2022 was issued beyond the surviving time limit and is therefore invalid and liable to be quashed."

"Consequently, the notice dated 30.6.2021 which relates to the impugned notice dated 21.7.2022 is also invalid."

"The assessment order dated 27.5.2023 passed under Section 147 read with Section 144B of the Act and the subsequent demand notice under Section 156 are quashed as they are predicated on invalid reassessment notices."

"The directions in Ashish Agarwal (supra) will extend to all reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021, and the assessing officers are required to issue reassessment notices under the new regime within the surviving time limit."