2018 (12) TMI 832 - HC - Income Tax

Validity of reassessment proceedings - assessment time barred and the Revenue have no jurisdiction in the matter - Time limit for notice - assessee was a non-resident - Held that - The ratio of K.M Sharma 2002 (4) TMI 7 - SUPREME COURT and S.S. Gadgil 1964 (4) TMI 19 - SUPREME COURT in the opinion of this court covers the facts of this case. Reassessment for 1998-99 could not be reopened beyond 31.03.2005 in terms of provisions of Section 149 as applicable at the relevant time. The petitioner s return for assessment year 1998-99 became barred by limitation on 31.03.2005. The question of revival of the period of limitation for reopening assessment for AY 1998-99 by taking recourse to the subsequent amendment made in Section 149 in the year 2012, i.e., more than 8 years after expiration of limitation on 31.03.2005, has been dealt with by the Supreme Court in K.M. Sharma (supra). AO has conceded in the order rejecting the petitioner s objection that It is also found that the assessee was a non-resident as contended by him, in the AY 1998-99. There can be no question about the applicability of the then existing provision- Section 149 (b), which stated that the normal time limit for reopening assessment was four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. It has been said that the government in all its actions is bound by rules fixed and announced beforehand-rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances, and to plan one s affairs on the basis of this knowledge (Ref. FA Hayek, Road to Serfdom , 1944). In this case, the interpretation proposed by the revenue has the potential of arming its authorities to re-open settled matters, in respect of issues where the citizen could genuinely be sanguine and had no obligation of the kind which the Revenue seeks to impose by the present amendment. All the more significant, is the fact that absent a clear indication, every statute is presumed to be prospective. The revenue had sought to contend that the amendment (to Section 149) is merely procedural and no one has a vested right to procedure; and that procedural amendments can be given effect any time, even in ongoing proceedings. No merit in the revenue s contention. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment notice under Section 148 of the Income Tax Act, 1961.
2. Applicability of the limitation period for reassessment under Section 149 of the Income Tax Act, 1961.
3. Impact of amendments to Section 149 by the Finance Act, 2012 on concluded assessments.
4. Petitioner's residential status and its effect on the reassessment.

Detailed Analysis:

1. Validity of Reassessment Notice under Section 148:
The petitioner challenged the reassessment notice dated 24.03.2015 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 1998-99. The petitioner argued that the notice was time-barred and the Revenue had no jurisdiction to initiate reassessment proceedings. The petitioner contended that the reassessment was based on a suspicion that income had escaped assessment, which is not a valid ground for reopening a concluded assessment.

2. Applicability of the Limitation Period for Reassessment under Section 149:
The petitioner argued that the reassessment notice was barred by the limitation period prescribed under Section 149. Initially, Section 149 allowed reassessment within ten years from the end of the relevant assessment year, which was later reduced to six years by the Finance Act, 2001. Therefore, for the assessment year 1998-99, the limitation period expired on 31.03.2005. The petitioner contended that the reassessment notice issued in 2015 was beyond this limitation period.

3. Impact of Amendments to Section 149 by the Finance Act, 2012:
The Revenue argued that the reassessment notice was valid under the amended Section 149 (1)(c), introduced by the Finance Act, 2012, which extended the limitation period to sixteen years for income related to any asset located outside India. However, the petitioner argued that the amendment could not revive the limitation period for assessments that had already attained finality. The petitioner relied on the Supreme Court's decisions in K.M. Sharma vs. Income Tax Officer and S.S. Gadgil v. Lal & Co., which held that amendments to limitation periods cannot retrospectively reopen assessments that had already become time-barred.

4. Petitioner's Residential Status and its Effect on the Reassessment:
The petitioner, a senior citizen, was a non-resident/not ordinarily resident in India from AY 1984-85 to AY 2003-04. The petitioner clarified during search proceedings that he did not maintain any foreign bank accounts in his individual capacity but had settled an offshore trust with income earned outside India. The Revenue, however, contended that the petitioner failed to provide evidence of his non-resident status or the sources of income used to settle the trust. The Revenue argued that the reassessment was justified as the petitioner had financial interests in the offshore trust, which were not disclosed.

Conclusion:
The court held that the reassessment notice and subsequent proceedings were barred by limitation. The court emphasized that the law of limitation confers certainty and finality to legal proceedings and prevents reopening of concluded assessments unless the amended provision is expressly retrospective. The court found that the amendment to Section 149 by the Finance Act, 2012, could not retrospectively extend the limitation period for assessments that had already attained finality. The court quashed the reassessment notice and all consequent proceedings, allowing the petition without costs.

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