2025 (7) TMI 314 - AT - Income Tax

Validity of the reopening of the assessment u/s 147 - Period of limitation - notice issued under old regime - scope of TOLA - on the basis of the information that the assessee is a beneficiary of bogus long-term capital gains from the transaction in a penny stock scrip - HELD THAT - From the perusal of the aforesaid findings of the Hon ble Supreme Court in Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) it is evident that the Hon ble Supreme Court directed that while computing the time limit for issuance of notice under section 148 the time during which the show cause notice was stayed till the supply of relevant information or material by the AO and further period of two weeks allowed to the assessee to respond to the show cause notice should be excluded. We find that while examining the validity of notices issued from 01/04/2021 to 30/06/2021 under the old regime the Hon ble Supreme Court in Rajeev Bansal supra analysing the interplay of Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT with the TOLA. Thus the Hon ble Supreme Court held that the surviving time under the Act read with the TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notice including issuance of a reassessment notice under section 148 of the Act under the new regime. Computing the surviving/balance time limit as per the decision of the Hon ble Supreme Court in Rajeev Bansal (supra) we find that the Revenue had 58 days to issue notice under section 148 of the Act of the new regime in the present case i.e. till 20/07/2022 after issuance of the show cause notice issued under section 148A(b) of the Act on 23/05/2025. However undisputedly in the present case the notice under section 148 of the Act was issued on 27/07/2022 i.e. after the surviving/balance time period as per the decision of the Hon ble Supreme Court in Rajeev Bansal (supra). Therefore we are of the considered view that the notice issued under section 148 of the Act on 27/07/2022 is barred by the limitation period specified under section 149 of the Act. Assessee appeal allowed.

Summary

The core legal questions considered by the Tribunal in these appeals pertain primarily to the validity and jurisdictional competence of the notices issued under section 148 of the Income Tax Act, 1961 ("the Act") for reopening assessments for the assessment years 2013-14 and 2014-15. Specifically, the issues presented and considered include:

1. Whether the notice dated 27/07/2022 issued under section 148 of the Act is barred by limitation as per the provisions of section 149 of the Act, rendering it beyond jurisdiction and void ab initio.

2. Whether the notice under section 148 issued by the Jurisdictional Assessing Officer violates the Faceless Assessment Scheme under section 151A of the Act, thereby rendering the notice unlawful and invalid.

3. Whether the notice under section 148 contravenes the law laid down by the Bombay High Court in Hexaware Technologies Ltd. v. ACIT, making it bad in law.

4. On merits, whether the addition made under section 69A of the Act is sustainable, given the provisions of the Act and the facts of the case.

Issue-wise Detailed Analysis:

Issue 1: Limitation and Validity of Notice under Section 148

Relevant Legal Framework and Precedents: The Tribunal's analysis centrally revolves around the interplay of sections 147, 148, 149, and 148A of the Income Tax Act, 1961, as well as the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 ("TOLA"). The pivotal precedents guiding the limitation analysis are the Supreme Court decisions in Union of India v. Ashish Agarwal (2022) and Union of India v. Rajeev Bansal (2024).

In Ashish Agarwal, the Supreme Court mandated that assessing officers must provide relevant information and materials relied upon to the assessee along with the show cause notice under section 148A(b), effectively staying the operation of such notices until the assessee receives this information. Rajeev Bansal further clarified the computation of limitation periods in the context of notices issued between 1 April 2021 and 30 June 2021, under the old regime, and the effect of the legal fiction created by Ashish Agarwal on the limitation period under the new regime.

Court's Interpretation and Reasoning: The Tribunal carefully examined the timeline of notices and responses in the present case. The first notice under section 148 was issued on 19/05/2021, falling within the extended limitation period under TOLA, which extended the limitation to 30/06/2021. The show cause notice under section 148A(b) was issued on 23/05/2022, with 15 days granted to the assessee to respond. The Assessing Officer issued the final notice under section 148 on 27/07/2022.

Applying the directions in Rajeev Bansal, the Tribunal computed the surviving or balance time available to the Revenue to issue the notice under section 148 of the new regime. It was held that the total surviving time was 58 days from 23/05/2022, i.e., up to 20/07/2022. Since the notice was issued on 27/07/2022, it was beyond the permissible time limit.

Key Evidence and Findings: The undisputed facts regarding the dates of issuance of notices, the time granted to the assessee to respond, and the dates of the assessment orders were crucial. The Tribunal relied on the Supreme Court's detailed analysis of the limitation period, including the exclusion of the time during which the show cause notice was stayed and the time allowed to the assessee to respond.

Application of Law to Facts: The Tribunal applied the Supreme Court's ruling to the facts, concluding that the notice under section 148 dated 27/07/2022 was issued after the expiry of the surviving limitation period. Consequently, the notice was held to be void ab initio and beyond the jurisdiction of the Revenue.

Treatment of Competing Arguments: The Revenue contended that the notices and proceedings were valid and relied on the orders passed by lower authorities. However, the Tribunal found the Supreme Court's binding precedents on limitation and the legal fiction created by Ashish Agarwal and Rajeev Bansal to be determinative, overruling the Revenue's submissions.

Conclusion: The notice issued under section 148 on 27/07/2022 for the assessment years 2013-14 and 2014-15 was barred by limitation and void ab initio. Consequently, the reassessment proceedings and assessment orders passed under section 147 read with section 144 were quashed.

Issue 2: Validity of Notice under Faceless Assessment Scheme and Jurisdictional Authority

Relevant Legal Framework and Precedents: Section 151A of the Act governs the Faceless Assessment Scheme, which mandates that notices under section 148 must be issued by the Faceless Assessment Centre or in accordance with the scheme. The assessee challenged the issuance of the notice by the Jurisdictional Assessing Officer, arguing it violated the Faceless Assessment Scheme and the Bombay High Court's ruling in Hexaware Technologies Ltd. v. ACIT.

Court's Interpretation and Reasoning: Since the Tribunal quashed the notice on the jurisdictional ground of limitation, it did not adjudicate on this issue. The Tribunal observed that the other grounds, including this one, became academic in light of the primary finding.

Conclusion: The Tribunal left this issue open, as the quashing of the notice on limitation grounds rendered further examination unnecessary.

Issue 3: Merits of Addition under Section 69A

Relevant Legal Framework: Section 69A deals with unexplained investments and additions to income. The assessee contended that the addition of Rs. 1,51,97,105/- under section 69A was unsustainable and bad in law.

Court's Interpretation and Reasoning: The Tribunal did not examine the merits of the addition since the reassessment proceedings were quashed on the jurisdictional ground of limitation.

Conclusion: This ground was left open and not adjudicated.

Significant Holdings:

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts from the Supreme Court's decision in Rajeev Bansal, which the Tribunal adopted:

"106. In Ashish Agarwal (supra), this Court directed the assessing officers to provide relevant information and materials relied upon by the Revenue to the assesses within thirty days from the date of the judgment. A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). To summarize, the combined effect of the legal fiction and the directions issued by this Court in Ashish Agarwal (supra) is that the show cause notices that were deemed to have been issued during the period between 1 April 2021 and 30 June 2021 were stayed till the date of supply of the relevant information and material by the assessing officer to the assessee. After the supply of the relevant material and information to the assessee, time begins to run for the assesses to respond to the show cause notices."

"107. The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under section 149A(b) to compute the period of limitation. The third proviso excludes 'the time or extended time allowed to the assessee.' Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation."

"108. The Income Tax Act read with TOLA extended the time limit for issuing reassessment notices under Section 148, which fell for completion from 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction. Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021."

"112. Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022."

Core Principles Established:

- The limitation period for issuance of reassessment notices under section 148 must be computed by excluding the period during which the show cause notice under section 148A(b) was stayed and the time allowed to the assessee to respond, as mandated by the Supreme Court in Ashish Agarwal and Rajeev Bansal.

- The legal fiction created by Ashish Agarwal converts reassessment notices issued under the old regime into show cause notices under the new regime, allowing the Revenue to utilize the surviving time under the Income Tax Act read with TOLA to complete reassessment proceedings.

- Any notice issued beyond the surviving or balance time limit computed as per these principles is void ab initio and without jurisdiction.

Final Determinations:

- The notices issued under section 148 on 27/07/2022 for the assessment years 2013-14 and 2014-15 were barred by limitation and void ab initio.

- Consequently, the reassessment proceedings and assessment orders passed under section 147 read with section 144 of the Act for both assessment years were quashed.

- Other grounds raised by the assessee, including challenges under the Faceless Assessment Scheme and the merits of additions under section 69A, were rendered academic and left open.