2025 (1) TMI 1534 - HC - Income Tax

Reopening of assessment Beyond period of limitation - HELD THAT - Admittedly in the present case there is no material on record which indicates that satisfaction note as required under Section 153C of the Act as in force at the material time had been prepared by the AO of the searched person and the relevant material belonging to or containing the information pertaining to the petitioner had been handed over by the AO of the searched person to the AO of the assessee. The date of the issuance of the notice is required to be considered for the purpose of computing the period of limitation as would be applicable to the notice under Section 153C of the Act. In cases the search is conducted after 31.03.2021 the period of limitation under Section 153C of the Act would have to be construed with reference to the date on which the AO decides to initiate action against a non-searched person. It is relevant to note that in the present case the AO exercising jurisdiction in respect of the petitioner had prepared the satisfaction note (in terms of Clause (iv) of Explanation 2 to proviso to Section 148 of the Act). However that cannot be construed as a satisfaction note by the AO of the searched person. The date of the said satisfaction note cannot be considered as the start point to consider the limitation period under Section 153C of the Act. It is material to note the satisfaction note dated 28.03.2024 was approved on 29.08.2024 by the Chief Commissioner of Income Tax. Thus even if the limitation is computed on the basis of the aforesaid approval the same would be required to be computed from the end of the assessment year relevant to the financial year in which such satisfaction note was prepared. Thus AY 2015-16 is beyond the period of ten years - Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the notice issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2015-16, is barred by limitation.
The constitutional validity of Explanation 2 to Section 148 of the Income Tax Act.
The applicability of the timeframes specified under Sections 149, 153A, and 153C of the Income Tax Act, particularly in the context of searches conducted after April 1, 2021.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on Notice Issuance under Section 148

Relevant Legal Framework and Precedents: The legal framework involves Sections 148, 149, 153A, and 153C of the Income Tax Act. The court refers to precedents such as Dinesh Jindal v. Assistant Commissioner of Income Tax and The Pr. Commissioner of Income Tax - Central-1 v. Ojjus Medicare Pvt. Ltd.
Court's Interpretation and Reasoning: The Court notes that the initiation of reassessment proceedings pursuant to a search conducted after April 1, 2021, must adhere to the timeframes specified in Section 153A. The reassessment period is computed from the end of the assessment year relevant to the financial year in which the satisfaction note is recorded.
Key Evidence and Findings: There is no material on record indicating that a satisfaction note, as required under Section 153C, was prepared by the Assessing Officer (AO) of the searched person.
Application of Law to Facts: The Court applies the legal provisions to determine that the notice issued is beyond the permissible period, as the relevant assessment year 2015-16 falls outside the ten-year block period.
Treatment of Competing Arguments: The Court considers arguments from both parties and concurs with the petitioner's view that the notice is barred by limitation.
Conclusions: The notice dated August 30, 2024, is barred by limitation as the assessment year 2015-16 is beyond the ten-year period.

Issue 2: Constitutional Validity of Explanation 2 to Section 148

This issue was not pursued by the petitioner during the proceedings, as the focus was on the limitation aspect.

Issue 3: Applicability of Timeframes under Sections 149, 153A, and 153C

Relevant Legal Framework and Precedents: The legal framework involves Sections 149, 153A, and 153C, with significant precedents such as SSP Aviation, RRJ Securities, and CIT v. Jasjit Singh & Ors.
Court's Interpretation and Reasoning: The Court emphasizes that for searches conducted after March 31, 2021, the period of limitation under Section 153C must be construed with reference to the date on which the AO initiates action against a non-searched person.
Key Evidence and Findings: The satisfaction note dated March 28, 2024, was approved on August 29, 2024, but this cannot be considered the start point for the limitation period under Section 153C.
Application of Law to Facts: The Court applies the legal framework to establish that the assessment year 2015-16 is beyond the ten-year block period, rendering the notice invalid.
Treatment of Competing Arguments: The Court considers the Revenue's contention but finds it contrary to established precedents.
Conclusions: The notice and proceedings are set aside as the assessment year falls beyond the permissible block period.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The First Proviso to Section 153C introduces a legal fiction on the basis of which the commencement date for computation of the six year or the ten year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO."
Core Principles Established: The computation of limitation periods for reassessment must adhere to the legal fiction established by the First Proviso to Section 153C, and the assessment year must be determined based on when the material is handed over to the jurisdictional AO.
Final Determinations on Each Issue: The Court determines that the notice issued under Section 148 is barred by limitation, and the proceedings are set aside.

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