2017 (9) TMI 744 - HC - Income Tax

Reassessment proceedings validity - Assessment order in terms of Section 153(2) - Penalty u/s 271(1)(c) - period of limitation - Held that - In the present case, on the date that the stay order stood vacated only 13 days were left for completion of the proceedings. Since this period was less than 60 days, the period of limitation got extended to 60 days from the date of such vacation of stay, i.e. 60 days from 9th November 2016. This, therefore, meant that the order in the re-assessment proceedings had to be necessarily passed on or before 8th January 2017. This is the only interpretation that is possible on a collective reading of Section 153 (2), Explanation 1, clause (ii) and the first proviso thereto. The decision of the Madras High Court in Thanthi Trust (1988 (11) TMI 77 - MADRAS High Court ) turned on the fact that the Madras High Court narrowly interpreted that the word assessment occurring in Explanation 1 (ii) to not take within its ambit reassessment proceedings. Yet, there appears to be a contradiction in terms because the Madras High Court proceeded to exclude the period during which there was stay of the proceedings in terms of that very Explanation. Further, no reference was made to the proviso below Explanation 1. The Madras High Court proceeded on the assumption that there was a time of period of 4 years from the last date of the assessment year in which the notice was served. Going by that yardstick in the present case, the reassessment order would still be time-barred. Court holds that in the present case the impugned assessment order dated 30th January 2017 was time barred and it is accordingly hereby set aside. Consequently, demand notice dated 30th January 2017 and the penalty order dated 26th July 2017, passed by the AO under Section 271(1) (c) of the Act, are also hereby set aside.

Issues Involved:
1. Validity of the assessment order dated 30th January 2017.
2. Validity of the consequential notice of demand dated 30th January 2017.
3. Validity of the penalty order dated 26th July 2017 under Section 271(1)(c) of the Income Tax Act, 1961.
4. Timeliness of the reassessment proceedings under Section 148 and Section 153 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Assessment Order Dated 30th January 2017
The Assessee challenged the assessment order dated 30th January 2017, arguing it was time-barred. The reassessment proceedings were initiated with a notice under Section 148 of the Act on 27th March 2012. The Assessee contended that the reassessment should have been completed by 31st March 2013 per Section 153(2). However, due to an interim stay order by the Court, the period was extended. The Court found that the stay order was vacated on 9th November 2016, leaving only 13 days for completion of the reassessment. According to the first proviso to Explanation 1 of Section 153, this period should be extended to 60 days, making the deadline 8th January 2017. Since the assessment order was passed on 30th January 2017, it was deemed time-barred and set aside.

2. Validity of the Consequential Notice of Demand Dated 30th January 2017
The notice of demand dated 30th January 2017, issued alongside the assessment order, was also challenged. Given that the assessment order was found to be time-barred and set aside, the consequential notice of demand was similarly invalidated.

3. Validity of the Penalty Order Dated 26th July 2017 Under Section 271(1)(c) of the Income Tax Act, 1961
The penalty order dated 26th July 2017, issued under Section 271(1)(c) of the Act, was also contested. Since the foundational assessment order was set aside as time-barred, the penalty order, being consequential, was also invalidated and set aside.

4. Timeliness of the Reassessment Proceedings Under Section 148 and Section 153 of the Income Tax Act, 1961
The Court examined whether the reassessment proceedings were completed within the stipulated time frame. The Revenue argued that the period should be counted from the date they received the Court's order vacating the stay (2nd December 2016). However, the Court found no documentary evidence to support this claim and noted that the AO issued a notice under Section 142(1) on 30th November 2016, indicating awareness of the Court's order. The Court concluded that the period of 60 days should commence from 9th November 2016, making the reassessment order passed on 30th January 2017 time-barred.

Conclusion
The Court held that the assessment order dated 30th January 2017 was time-barred and set it aside. Consequently, the notice of demand dated 30th January 2017 and the penalty order dated 26th July 2017 were also set aside. The writ petition was allowed with no orders as to costs. The application for amendment of the writ petition was allowed, and the amended petition was taken on record.

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