2025 (7) TMI 449 - HC - Income Tax

Reopening of assessment u/s 147 - period of limitation - scope of TOLA - HELD THAT - As per the decision in case of Union of India v. Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) the notice dated 27.7.2022 would be a time barred notice and in turn the notice dated 30.6.2021 would be an invalid notice as per aforesaid observations made by the Apex Court. There is a notice dated 30.6.2021 only one day time was left for the issuance of the notice u/s 148 after granting 14 days time to the assessee from the decision of Union of India v. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT the date of issuance of the notice u/s 148 would be 13.6.2022 whereas in the facts of the case the notice u/s 148 is issued on 27.7.2022 and as such the notice dated 30.6.2021 would be an invalid notice. Petition succeeds only on this ground.

Summary

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

1. Whether the notice dated 30.6.2021 issued under Section 148 of the Income Tax Act, 1961 (as amended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA")) was valid and within the prescribed time limits.

2. Whether the subsequent notice dated 27.7.2022 issued under Section 148, pursuant to the order under Section 148A(d), was valid or barred by limitation.

3. The applicability and interpretation of the Supreme Court decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal, especially regarding the procedural safeguards and timelines for issuance of reassessment notices under the new regime post-TOLA.

4. The effect of the legal fiction created by the Supreme Court in Ashish Agarwal on the computation of limitation periods for reassessment notices issued between 1 April 2021 and 30 June 2021.

5. Whether the reassessment notices issued beyond the surviving time limit prescribed under the Income Tax Act read with TOLA were invalid and liable to be quashed.

Issue-wise Detailed Analysis:

Validity and Timeliness of the Notice dated 30.6.2021 under Section 148

The relevant legal framework includes Section 148 of the Income Tax Act, 1961, as amended by TOLA, which extended and modified the time limits for issuance of reassessment notices. The Supreme Court's ruling in Ashish Agarwal introduced a legal fiction whereby reassessment notices issued under the old regime were deemed to be show cause notices under Section 148A(b) of the new regime. This allowed the assessee an opportunity to respond and effectively paused the limitation clock until the assessing officer received the reply and took further action.

In Union of India v. Rajeev Bansal, the Supreme Court clarified the modalities for applying this legal fiction, particularly for notices issued between 31 March 2021 and 30 June 2021. The Court held that the limitation period for issuing reassessment notices under the new regime begins only after the assessee has been given an opportunity to respond to the show cause notice and the assessing officer has received the reply.

Applying this framework, the Court observed that the notice dated 30.6.2021 was issued on the last permissible day under TOLA, leaving effectively only one day for issuance of the reassessment notice after the assessee's opportunity to reply. The petitioner submitted their reply on 6.6.2022, which meant the assessing officer had until 13.6.2022 to issue the reassessment notice under Section 148 of the new regime.

The Court relied heavily on paragraphs 92, 93, and 110 to 114 of the Rajeev Bansal judgment, which explained the "legal fiction," the suspension of limitation periods, and the requirement that reassessment notices be issued within the surviving time limit after the assessee's response. The Court emphasized that the legal fiction stops the limitation clock from the date of the deemed notice until the assessing officer supplies relevant information and the assessee replies, after which the clock restarts for the surviving period.

Since the notice dated 30.6.2021 left no practical time for issuance of the reassessment notice after the assessee's reply, the Court concluded that the notice itself was invalid and time barred.

Validity and Timeliness of the Notice dated 27.7.2022 under Section 148

The notice dated 27.7.2022 was issued pursuant to the order passed under Section 148A(d) of the Income Tax Act, which proposed reopening of the assessment on the ground that income had escaped assessment to the extent of Rs. 1,80,60,000/-. The petitioner challenged both the order under Section 148A(d) and the subsequent notice under Section 148.

Applying the Supreme Court's ruling in Rajeev Bansal, the Court found that since the initial notice dated 30.6.2021 was invalid and time barred, the subsequent notice dated 27.7.2022 was also invalid. The Court held that the assessing officer must issue reassessment notices within the surviving time limit prescribed by the Income Tax Act read with TOLA, failing which the notices are time barred and without jurisdiction.

The Court noted that the Senior Standing Counsel for the Revenue did not dispute the facts or the applicability of the Supreme Court's rulings, effectively conceding that the notices were issued beyond the permissible period.

Effect of Supreme Court Precedents and Legal Fiction

The Court extensively analyzed the Supreme Court's directions in Ashish Agarwal and Rajeev Bansal. The key principles extracted include:

• The legal fiction treats reassessment notices issued under the old regime between 1 April 2021 and 30 June 2021 as show cause notices under the new regime, thereby extending procedural safeguards to the assessee.
• The limitation period for issuing reassessment notices is suspended from the date of the deemed notice until the assessing officer supplies relevant information and the assessee is given an opportunity to reply.
• The assessing officer must consider the assessee's reply under Section 149A(c), decide under Section 149A(d), and issue the reassessment notice within the surviving time limit prescribed under the Income Tax Act read with TOLA.
• Any reassessment notice issued beyond the surviving time limit is invalid and without jurisdiction.
• TOLA overrides the limitation provisions of Section 149 only to the extent of relaxing the time limit for issuance of reassessment notices, and extends the time limit for grant of sanction under Section 151.

The Court applied these principles to the facts, concluding that the notices in question did not comply with the prescribed timelines and were therefore invalid.

Treatment of Competing Arguments

The petitioner argued that the notices were time barred based on the Supreme Court's authoritative rulings and the timelines prescribed therein. The Revenue did not dispute the factual matrix or the legal principles laid down by the Supreme Court but implicitly accepted the invalidity of the notices by failing to contest these points.

The Court gave primacy to the binding Supreme Court decisions and the procedural safeguards therein, emphasizing the need to balance the equities between the Revenue and the assessee by adhering strictly to the prescribed timelines.

Conclusions

The Court concluded that the notice dated 30.6.2021 was invalid as it did not comply with the surviving time limit for issuance of reassessment notices under the new regime post-TOLA and the Supreme Court's rulings. Consequently, the notice dated 27.7.2022, which was issued pursuant to the order under Section 148A(d) based on the invalid notice, was also invalid and time barred.

Accordingly, both the impugned notices were quashed and set aside.

Significant Holdings:

"The reassessment notices issued under Section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income Tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time-barred."

"The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices."

"The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside."

These principles establish that procedural compliance with the timelines prescribed under the amended Income Tax Act and the Supreme Court's rulings is mandatory for the validity of reassessment notices. Failure to adhere to these timelines results in invalidation of such notices.