2025 (6) TMI 1309 - AT - Income Tax

Validity of notice issued u/s. 148 of the new regime being beyond the period of limitation - HELD THAT - Admittedly notice under old provision of the Section 148 was issued to the assessee on 20/06/2022. As per the table in the decision Hon ble Supreme Court in case of UOI vs. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT 3 years expired on 31/03/2021. By virtue of ratio laid down by Hon ble Supreme Court in case of UOI vs. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT notices issued between 01/04/2021 and 30/06/2021 was deemed to be issued as on 31/03/2021 and thus extended period to complete the procedure as per the new provisions of Section 148A was available only till 30/06/2021 for A.Y.2017-18. Thus in the present facts of the case the revenue only had 20 days to complete the entire procedure u/s. 149(1) of the new regime and to issue notice u/s. 148 in the new regime. The procedure was completed u/s. 148A and the notice u/s. 148 of the new regime was issued on 20/07/2022. The notice thus issued is beyond the period of limitation and deserves to be quashed. As notice u/s. 148 is quashed the reassessment order passed dose not survive and will be treated as void ab initio accordingly the assessee succeeds on the legal issue raised.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the addition of Rs. 93,19,238/- under section 69 of the Income Tax Act, 1961, relating to unsecured loan given to Jeaneration Clothing Private Limited, was justified.

2. Whether the loan amount considered by the authorities was correct, given the appellant's contention that the loan given was Rs. 63,00,000/- only.

3. Whether the source of funds for the loan, specifically the borrowing from DCB Bank, was properly considered and whether the details submitted by the appellant during assessment proceedings were sufficient to explain the source.

4. Whether the reassessment notice issued under section 148 of the Income Tax Act, 1961, was validly issued within the prescribed period of limitation, especially in light of the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (TOLA) and recent Supreme Court decisions.

5. Whether the reassessment notice under the new regime (post substitution of section 148 and related provisions effective from 1 April 2021) was issued after obtaining the necessary approval under section 151 of the Act.

Issue-wise Detailed Analysis:

Validity and Limitation of Reassessment Notice under Section 148:

Relevant Legal Framework and Precedents: The reassessment provisions under the Income Tax Act underwent significant amendments effective 1 April 2021, introducing a new regime for issuance of notices under section 148 and related sections 149 and 151. The Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (TOLA) provided relief by extending limitation periods for certain actions delayed due to the COVID-19 pandemic. The Supreme Court decisions in Union of India v. Rajeev Bansal (2024) 167 taxmann.com 70 and Union of India v. Ashish Agarwal (2022) 138 taxmann.com 64 are pivotal in interpreting the interplay between the old and new reassessment regimes and the applicability of TOLA.

Court's Interpretation and Reasoning: The Tribunal carefully examined the timeline of notices issued. Initially, a notice under the old section 148 was issued on 10/06/2021, deemed to be a notice under the new regime as per Ashish Agarwal. Subsequently, a notice under section 148A(b) was issued on 24/05/2022, followed by approval under section 151 and a fresh notice under section 148 of the new regime on 20/07/2022.

The Tribunal referred to the Supreme Court's tabulation in Rajeev Bansal, which clarified that for assessment year 2017-18, the three-year limitation expired on 31/03/2021, with the surviving period under TOLA ending on 30/06/2021. Notices issued beyond this date under the new regime would be time-barred.

Since the final notice under the new regime was issued on 20/07/2022, well beyond 30/06/2021, it was held to be beyond the period of limitation and therefore invalid. The Tribunal relied on the principle that machinery provisions like sections 147 to 151 must be interpreted in harmony with both the Income Tax Act and the relief provisions of TOLA.

Key Evidence and Findings: The dates of issuance of notices and approvals were undisputed. The appellant did not dispute the facts but challenged the legal validity of the notice based on limitation.

Application of Law to Facts: The Tribunal applied the Supreme Court's ruling to the facts, concluding that the reassessment notice issued under the new regime was out of time and thus void ab initio.

Treatment of Competing Arguments: The Revenue did not dispute the appellant's legal submissions but opposed admission of additional grounds. The Tribunal admitted the additional grounds, following precedents that legal issues not requiring new facts can be admitted at the appellate stage. The Revenue's reliance on orders below was rejected in light of binding Supreme Court authority.

Conclusions: The reassessment notice issued under section 148 of the new regime on 20/07/2022 was invalid for being beyond the limitation period. Consequently, the reassessment order passed pursuant to this notice was void and liable to be quashed.

Additions under Section 69 Regarding Unsecured Loan:

Relevant Legal Framework and Precedents: Section 69 deals with unexplained investments or loans. The assessing officer must establish that the loan amount is unexplained or not satisfactorily accounted for by the assessee. The burden lies on the Revenue to prove that the source of the loan is not genuine.

Court's Interpretation and Reasoning: The appellant contended that the loan amount given was Rs. 63,00,000/- whereas the authorities added Rs. 93,19,238/-. Further, the appellant submitted that the source of funds was a bank loan from DCB Bank, details of which were furnished during assessment proceedings.

However, since the reassessment proceedings were quashed on limitation grounds, the Tribunal did not delve into the merits of the addition under section 69.

Key Evidence and Findings: The appellant produced bank loan details and argued the discrepancy in loan amounts. The Revenue relied on information received from the ITO handling Jeaneration Clothing Pvt. Ltd. and the assessment orders confirming the addition.

Application of Law to Facts: The Tribunal refrained from adjudicating this issue due to the invalidity of the reassessment notice.

Treatment of Competing Arguments: The appellant's submissions on source and amount were not contested on the merits by the Revenue at this stage.

Conclusions: This issue was not adjudicated due to the quashing of the reassessment proceedings.

Validity of Notice under Section 148 with respect to Approval under Section 151:

Relevant Legal Framework and Precedents: Section 151 mandates prior approval before issuance of reassessment notices under the new regime. The Supreme Court in Rajeev Bansal emphasized the necessity of such approval for validity of reassessment notices.

Court's Interpretation and Reasoning: Since the reassessment notice itself was quashed for being time-barred, the Tribunal did not examine the issue of approval under section 151.

Key Evidence and Findings: The record showed approval was obtained on 20/07/2022, the same day the notice was issued.

Application of Law to Facts: The Tribunal held that since the notice was invalid on limitation grounds, the question of approval became moot.

Treatment of Competing Arguments: The appellant raised this as an additional ground, but it was not adjudicated.

Conclusions: No adjudication on this ground due to quashing of reassessment notice.

Significant Holdings:

"The notice thus issued is beyond the period of limitation and deserves to be quashed. As notice u/s. 148 is quashed the reassessment order passed does not survive and will be treated as void ab initio."

"For assessment year 2017-2018, the three year period expired on 31 March 2021. The expiry of time fell within the time period contemplated by Section 3 of TOLA read with its notifications. Resultantly, the Revenue had time until 30 June 2021 to issue a reassessment notice for assessment year 2017-2018 under section 149(1)(a)."

"Machinery provisions like Sections 147 to 151 must be given an interpretation that is consistent with the object and purpose of the Income-tax Act."

Core principles established include the overriding effect of TOLA in extending limitation periods for reassessment notices issued during the COVID-19 period, the necessity to harmonize old and new reassessment regimes, and the strict adherence to limitation periods for validity of reassessment notices.

The final determination was that the reassessment notice under section 148 of the new regime issued on 20/07/2022 was invalid for being beyond the limitation period, leading to the quashing of the reassessment order and allowing the appeal.