2025 (7) TMI 628 - AT - Income Tax

Reopening of assessment u/s 147 - period of limitation - Whether Final Assessment Orderis barred by limitation u/s 153(2)? - Arguments of DR that the assessee is an eligible assessee and is subjected to proceedings u/sec.144C and has undergone the process by filing objections before the DRP therefore the time limit for completion of assessment is 2 years from the end of the financial year in which notice u/sec.148 of the Act was issued HELD THAT - Even assuming for a moment the assessee is an eligible assessee in terms of sec.144C(15) of the Act still the Final Assessment Order passed by the AO dated 29.12.2023 is barred by limitation because in the present case notice u/sec.148 of the Act was issued on 30.03.2021 and if we count 2 years from the end of the financial year in which notice u/sec.148 was issued i.e. 31.03.2021 then the AO ought to have passed the Final Assessment Order on or before 31.03.2023. Since the AO has passed Final Assessment Order on 29.12.2023 in our considered view the Final Assessment Order passed by the AO is beyond the time limit provided u/sec.153 and thus invalid void ab initio and liable to be quashed. Therefore we quash the Final Assessment Order dated 29.12.2023 passed by the Assessing Officer u/sec.144C r.w.s.147 of the Income Tax Act 1961. Accordingly the grounds of appeal of the assessee are allowed.

Summary

The core legal issues considered in the appeal are as follows:

1. Whether the Final Assessment Order passed under section 147 read with section 144 of the Income Tax Act, 1961 (the Act) is barred by limitation and hence non est in law.

2. Whether the addition of Rs. 26,37,000 under section 56(2)(vii)(b)(ii) of the Act, relating to difference between stamp duty value and consideration paid for immovable property, is justified given the timing of payments and applicability of the provision.

3. Whether the stamp duty rates applicable at the time of agreement of sale (AOS) or part payment should be considered for valuation under section 56(2)(vii)(b) of the Act.

4. Whether the Assessing Officer (AO) and Dispute Resolution Panel (DRP) erred in not referring the matter to the valuation cell when the assessee disputed the application of section 56(2)(vii)(b).

5. Whether the addition of Rs. 49,62,000 under section 69 as unexplained investment is sustainable, considering the evidence submitted by the assessee regarding source of funds.

6. Whether the AO erred in making addition of Rs. 49,62,000 under section 69 when the assessee had admittedly paid only Rs. 10,09,937 during the relevant previous year.

Issue-wise Detailed Analysis:

1. Limitation of the Final Assessment Order under section 147 r.w.s.144:

Legal framework and precedents: Section 147 of the Act allows reopening of assessment if income has escaped assessment. Section 153(2) prescribes the time limit for completion of assessment after reopening: ordinarily one year from the end of the financial year in which notice under section 148 is issued, extendable to two years if the assessee opts for DRP under section 144C. Section 144C(15) defines eligible assessee for DRP proceedings.

Court's reasoning and findings: The notice under section 148 was issued on 30.03.2021, which triggers the limitation period. The AO passed the Draft Assessment Order after the expiry of one year from the end of the financial year in which the notice was issued, and the Final Assessment Order was passed on 29.12.2023, beyond the two-year extended period allowed under section 153(2) even considering DRP proceedings.

The Revenue argued that the notice was served on 16.04.2021, thus extending limitation to 31.03.2024. The Tribunal rejected this, holding that limitation runs from the date of issuance of notice, not service. The Draft Assessment Order itself was passed beyond the one-year limit, rendering the Final Assessment Order invalid.

Application of law to facts: The Tribunal held that the Final Assessment Order dated 29.12.2023 is barred by limitation under section 153(2) and therefore void ab initio.

Treatment of competing arguments: The Revenue's contention on service date was rejected. The assessee's argument on limitation was accepted.

Conclusion: The Final Assessment Order is quashed as barred by limitation.

2. Addition under section 56(2)(vii)(b)(ii) for difference between stamp duty value and consideration:

Legal framework: Section 56(2)(vii)(b) was introduced by Finance Act 2013, effective 01.04.2014, to tax difference between stamp duty value and consideration for immovable property received without consideration or inadequate consideration.

Court's interpretation: The assessee contended that since part payments were made in financial year 2010-11 and AOS was executed on 21.03.2012 (both prior to the effective date of section 56(2)(vii)(b)), the provision could not be invoked for the entire transaction.

Findings: The authorities below failed to appreciate the timing of payments and execution of AOS in relation to the effective date of the provision. The assessee also argued that stamp duty rates applicable at the time of part payments or AOS should be considered for valuation.

Application of law to facts and treatment of arguments: The lower authorities did not consider the timing of payments and AOS in applying section 56(2)(vii)(b). The assessee also requested referral to valuation cell, which was not done.

Conclusion: Although the Tribunal did not decide on merits due to limitation issue, the grounds raised indicate errors in application of section 56(2)(vii)(b) provisions.

3. Stamp duty valuation date and referral to valuation cell:

Legal framework: Valuation for section 56(2)(vii)(b) is based on stamp duty value prevailing on the date of transaction or agreement. Referral to valuation cell is standard practice when valuation disputes arise.

Findings and reasoning: The assessee argued that stamp duty rates applicable on date of part payment or AOS should be considered. The AO/DRP did not refer the matter to valuation cell despite the assessee's disagreement with valuation.

Conclusion: The failure to refer to valuation cell was an error, undermining the correctness of the addition under section 56(2)(vii)(b).

4. Addition under section 69 as unexplained investment:

Legal framework: Section 69 allows addition of unexplained investments if the assessee fails to explain the source of investments.

Court's reasoning and findings: The AO made addition of Rs. 49,62,000 as unexplained investment as the assessee could not explain the source. The assessee submitted evidence explaining the source, which the AO/DRP did not appreciate. Further, the assessee admitted payment of only Rs. 10,09,937 during the relevant previous year, challenging addition of full Rs. 49,62,000.

Treatment of competing arguments: The authorities below ignored evidence and factual admissions by the assessee.

Conclusion: The addition under section 69 is unsustainable on facts and law.

Significant Holdings:

"The Final Assessment Order passed by the Assessing Officer dated 29.12.2023 is beyond the time limit provided under section 153 of the Income Tax Act, 1961 and thus invalid, void ab initio and liable to be quashed."

"In ordinary course, where the assessment has been reopened under section 147 of the Act, the assessment order shall be passed within one year from the end of the financial year in which such notice was issued."

"Even assuming the assessee is an eligible assessee in terms of section 144C(15), the Final Assessment Order passed beyond two years from the end of the financial year in which notice under section 148 was issued is barred by limitation."

The Tribunal established that limitation period for completion of assessment after reopening runs from the date of issuance of notice under section 148, not the date of service.

The Tribunal also underscored the necessity of proper application of section 56(2)(vii)(b) with regard to timing of payments and valuation dates, and the importance of referral to valuation cell when valuation disputes arise.

On unexplained investments under section 69, the Tribunal emphasized the need to appreciate evidences submitted by the assessee and the inadmissibility of additions ignoring admitted payments.