2025 (6) TMI 1917 - AT - Income Tax

Reopening of assessment - Period of limitation - AO had received an information that the assessee was beneficiary of accommodation entry in the form of fictitious short term capital loss in equity/derivative trading in penny scrip - HELD THAT - As the notice u/s 148 was issued on 29.07.2022. In view of the principles laid down in the case of Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) as well as in the case of Deepak Steel and Power Limited 2025 (4) TMI 1367 - SC ORDER it is held that the notice issued on 29.07.2022 under Section 148 in this case for the A.Y. 2015-16 was void ab initio and bad in law. As the notice was barred by limitation accordingly the entire reassessment proceeding and the assessment order passed u/s 147 read with Section 144B of the Act is quashed. Appeal of the assessee is allowed.

Summary

The core legal questions considered in this appeal revolve around the validity and limitation of reassessment proceedings initiated under Section 147 read with Section 148 of the Income Tax Act, 1961, specifically for the Assessment Year (A.Y.) 2015-16. The principal issues are:

1. Whether the notice issued under Section 148 of the Act on 29.07.2022 was valid, given the limitation period prescribed under Section 149 of the Act for A.Y. 2015-16.

2. Whether the reassessment proceedings initiated without issuance of notice under Section 143(2) within the prescribed time were valid.

3. Whether the issuance of a second notice under Section 148 on 29.07.2022 was valid, considering the pendency of proceedings initiated by the first notice dated 18.05.2021.

4. Whether the Assessing Officer complied with procedural requirements under Sections 148, 149, and 151 of the Act.

5. Whether the disallowance of short-term capital loss of Rs. 93,98,910/- on sale of shares of JRI Industries & Infrastructure Limited was justified.

Issue-wise Detailed Analysis:

1. Validity and Limitation of Notice Issued Under Section 148 for A.Y. 2015-16

Relevant Legal Framework and Precedents: The limitation period for issuance of notice under Section 148 is governed by Section 149 of the Act. For A.Y. 2015-16, the limitation expired on 31.03.2022. The Finance Act 2021 and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 ("TOLA") amended relevant provisions affecting limitation periods. The Supreme Court's decisions in Union of India vs. Ashish Agarwal (444 ITR 1), Union of India vs. Rajeev Bansal (2024 SCC OnLine SC 2693), and Deepak Steel and Power Limited vs. CBDT (Civil Appeal No.5177 of 2025) are critical precedents.

Court's Interpretation and Reasoning: The Court noted that the original notice under Section 148 issued on 18.05.2021 was deemed to be issued under Section 148A(b) following the Ashish Agarwal decision. The Assessing Officer issued a show cause notice under Section 148A(b) on 27.05.2022, and after considering the assessee's reply, issued a fresh notice under Section 148 on 29.07.2022 with PCCIT approval.

The appellant contended that the notice dated 29.07.2022 was beyond the limitation period prescribed under Section 149 and was therefore void ab initio. Reliance was placed on Supreme Court rulings and various High Court and Tribunal decisions holding that notices issued after 31.03.2022 for A.Y. 2015-16 were invalid.

The Revenue argued that the limitation period was extended by the provisions of TOLA and that the notice was validly issued with competent authority approval. Further, the Revenue contended that the Supreme Court decision in Ashish Agarwal supported the procedure followed.

The Court examined the Supreme Court's decision in Rajeev Bansal, where the Revenue conceded that notices issued on or after 1.4.2021 for A.Y. 2015-16 must be dropped as they cannot be completed within the prescribed period under TOLA. The Court also referred to the Deepak Steel and Power Limited decision which upheld this concession and quashed notices issued after that date.

The Court further noted that even if the Revenue's submission before the Supreme Court in Rajeev Bansal was not a formal decision, the Apex Court's subsequent rulings and the principle of judicial discipline render the concession binding.

Key Evidence and Findings: The notice under Section 148 was issued on 29.07.2022, clearly beyond the limitation period of 31.03.2022. The Apex Court's rulings and concessions by the Revenue establish that such notices are void.

Application of Law to Facts: The Court applied the binding Supreme Court precedents and found the notice dated 29.07.2022 invalid and void ab initio. Consequently, the reassessment proceedings and assessment order passed under Sections 147 read with 144B were quashed.

Treatment of Competing Arguments: The Court rejected the Revenue's contention that the notice was valid due to procedural compliance and TOLA amendments, emphasizing the overriding effect of the Supreme Court's rulings and the limitation period applicable for A.Y. 2015-16.

Conclusion: The notice under Section 148 dated 29.07.2022 was barred by limitation and void ab initio, invalidating the reassessment proceedings.

2. Validity of Reassessment Proceedings Without Notice Under Section 143(2)

Relevant Legal Framework: Section 143(2) requires issuance of a notice within prescribed time limits to proceed with assessment or reassessment.

Court's Reasoning and Findings: The appellant argued no notice under Section 143(2) was issued within the permissible time after the notice under Section 148 dated 18.05.2021. However, since the primary notice under Section 148 itself was held invalid and the reassessment proceedings quashed, the issue became academic.

Conclusion: The Court did not delve into this issue further as the invalidity of the notice under Section 148 rendered this ground moot.

3. Validity of Second Notice Under Section 148 While Proceedings from First Notice Were Pending

Relevant Legal Framework: The procedural provisions of Sections 148, 149, and 151 govern issuance of reassessment notices and continuation or closure of proceedings.

Court's Analysis: The appellant contended that the second notice dated 29.07.2022 was invalid as the proceedings from the first notice dated 18.05.2021 were still live and the limitation period for issuing the second notice had expired.

The Court, having found the second notice void due to limitation, did not separately adjudicate this point. The invalidity of the second notice subsumed this issue.

4. Compliance with Procedural Provisions of Sections 148, 149, and 151

The appellant challenged the Assessing Officer's compliance with procedural requirements for reassessment. Given the notice under Section 148 was held void ab initio, the Court treated this ground as academic and did not examine it in detail.

5. Disallowance of Short-term Capital Loss on Sale of Shares of JRI Industries & Infrastructure Limited

The appellant challenged the disallowance of short-term capital loss of Rs. 93,98,910/-. However, since the reassessment proceedings themselves were quashed on limitation grounds, the Court held this issue to be academic and did not adjudicate on the merits.

Significant Holdings:

"The notice issued on 29.07.2022 under Section 148 in this case for the A.Y. 2015-16 was void ab initio and bad in law. As the notice was barred by limitation, accordingly, the entire reassessment proceeding and the assessment order passed under Section 147 read with Section 144B of the Act, is quashed."

"The Revenue concedes that for the assessment year 2015-16, all notices issued on or after 1st April 2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA."

Core principles established include the binding effect of the Supreme Court's concession in Rajeev Bansal and the consequent invalidity of reassessment notices issued beyond the prescribed limitation period for A.Y. 2015-16, notwithstanding procedural compliance or subsequent approvals.

The final determination is that the reassessment notice dated 29.07.2022 is invalid, the reassessment proceedings and assessment order are quashed, and other grounds raised by the assessee are rendered academic.