2025 (6) TMI 414 - HC - Income Tax

Reopening of assessment as barred by limitation - HELD THAT - The present appeal was also heard along with a batch of matters in U.K. Paints (Overseas) Ltd. 2025 (6) TMI 244 - DELHI HIGH COURT raising the identical issue as raised in the present appeal. The question whether clause (c) of subsection (1) of Section 149 of the Act is applicable retrospectively by virtue of Explanation to Section 149 has been referred to the larger bench. The present appeal be also directed to be taken up with U.K. Paints (Overseas) Ltd. supra List on 25.07.2025.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(i) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal (ITAT) was justified in upholding the order of the Commissioner of Income Tax (Appeals) (CIT(A)) in quashing the assessment order on the ground that the Assessing Officer (AO) had no power to assume jurisdiction under Section 147 of the Income Tax Act, 1961 (the Act)?

(ii) Whether the ITAT was justified in holding that the amendment to Section 149 of the Act by the Finance Act, 2012, which extended the limitation period for initiation of reassessment proceedings to 16 years, is prospective in nature, despite the Explanation to Section 149(3) categorically making the amendment retrospective?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Jurisdiction of the Assessing Officer under Section 147 to reopen assessment

Relevant legal framework and precedents: Section 147 of the Income Tax Act empowers the Assessing Officer to reopen an assessment if there is reason to believe that income chargeable to tax has escaped assessment. However, the power to reopen is circumscribed by strict limitation periods and procedural safeguards. The CIT(A) and ITAT relied on the precedent set by this Court in Brahm Datt v. Assistant Commissioner of Income-Tax & Others, which dealt with similar facts and held that the AO's jurisdiction to reopen the assessment was barred by limitation and hence invalid.

Court's interpretation and reasoning: The Court noted that the AO received information from the Foreign Tax and Tax Research (FT&TR) department regarding a joint foreign bank account and significant credit entries, which prompted issuance of notice under Section 148. However, the notice was issued after the expiry of the statutory limitation period applicable prior to the 2012 amendment. The CIT(A) and ITAT found that the AO's assumption of jurisdiction under Section 147 was without lawful authority as the notice was barred by limitation.

Key evidence and findings: The key factual finding was that the AO's notice under Section 148 was issued on 30.03.2019 for AY 2002-03, well beyond the original limitation period of 4 years or 6 years (depending on circumstances) prior to the 2012 amendment. The AO's reliance on information from FT&TR was not sufficient to extend the limitation period retrospectively.

Application of law to facts: Applying the legal principles and the limitation provisions extant at the relevant time, the Court concurred with the CIT(A) and ITAT that the reopening was barred by limitation and the AO had no jurisdiction to assume reassessment proceedings under Section 147.

Treatment of competing arguments: The Revenue contended that the AO's jurisdiction was valid and that the amendment to Section 149 by the Finance Act, 2012, extending limitation to 16 years, applied retrospectively, thereby validating the reopening. The Court, however, deferred this question to the larger bench, noting that the issue was pending adjudication in connected matters and that the ITAT had correctly followed the existing precedent in Brahm Datt.

Conclusions: The Court upheld the ITAT's decision that the AO's reopening of assessment was barred by limitation and that the AO had no jurisdiction under Section 147 in the facts of the case.

Issue (ii): Retrospective applicability of the amendment to Section 149 by Finance Act, 2012

Relevant legal framework and precedents: Section 149 of the Income Tax Act prescribes the limitation period for reopening assessments. The Finance Act, 2012 amended Section 149 to extend the limitation period from 6 years to 16 years for certain cases involving income escaping assessment by reason of failure to disclose fully and truly material facts. The Explanation to Section 149(3) states that the amendment shall be deemed to have come into force on 01.04.1962, thereby indicating retrospective operation. The question of whether this amendment applies retrospectively or prospectively has been a subject of judicial debate and was referred to a larger bench in connected matters.

Court's interpretation and reasoning: The ITAT held that the amendment was prospective in nature, rejecting the Revenue's contention that the Explanation rendered it retrospective. The Court in the present case observed that the issue was pending before a larger bench and that the ITAT's approach was consistent with the then prevailing judicial view.

Key evidence and findings: The Court noted the literal language of the Explanation to Section 149(3), which explicitly states retrospective effect, but also recognized the complexity and conflicting judicial opinions on the matter. The Court acknowledged that the larger bench was seized of the issue in the connected batch of cases.

Application of law to facts: The Court refrained from expressing a definitive view on the retrospective applicability of the amendment, instead directing the present appeal to be heard along with the connected matters pending before the larger bench.

Treatment of competing arguments: The Revenue argued for retrospective application based on the Explanation, while the Assessee and the ITAT maintained that the amendment should be construed prospectively to avoid prejudice and to uphold principles of legal certainty. The Court did not resolve this conflict but deferred to the larger bench.

Conclusions: The Court held that the question of retrospective applicability of the amendment to Section 149 remains open and is to be decided by the larger bench. The present appeal was accordingly directed to be heard along with the connected matters raising identical issues.

3. SIGNIFICANT HOLDINGS

"Whether on facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in upholding the order of the Commissioner of Income Tax (Appeals) in quashing the assessment order on the ground that the Assessing Officer has no power to assume jurisdiction under Section 147 of the Income Tax Act, 1961?"

The Court upheld the ITAT's decision affirming that the Assessing Officer's reopening of the assessment was barred by limitation and hence without jurisdiction.

"Whether on facts and circumstances of the case, the ITAT was justified in holding that amendment to Section 149, by Finance Act, 2012, which extended limitation for initiation for reassessment proceedings to 16 years is prospective in nature, ignoring the provisions of Explanation to Section 149(3) which categorically made the amendment retrospective?"

The Court noted the conflicting judicial opinions and the pending larger bench decision, declining to express a final view and directing the present appeal to be heard along with the connected matters.

Core principles established include the strict adherence to limitation periods in reopening assessments under Section 147, the necessity of clear legislative intent for retrospective application of amendments, and the importance of judicial consistency through larger bench rulings on contentious issues.

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