2023 (7) TMI 1552 - HC - Income Tax

Reopening of assessment - Scope of new regime - notice under the old regime - notice issued u/s 148 is invalid under the amended provisions - HELD THAT - The assessment order which has been passed on 24.03.2022 is in the teeth of the judgment of Hon ble the Supreme Court in the case of Union of India Vs. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT .The order does not survive in the eye of law. Consequently all subsequently demand notices which have been issued also are rendered ineffective and inoperative in law. What survives is an order passed u/s 148A (d) on 26.07.2022 under the new regime of law after amendment in the Income Tax Act with effect from 01.04.2021. Therefore in view of the above the appeal which has been filed by the petitioner assailing legality and validity of scrutiny assessment order dated 24.03.2022 is also rendered infructuous. It goes without saying that the pre deposit amount if any made by the petitioner while filing appeal against the order dated 24.03.2022 is required to be refunded forthwith to the petitioner. The impugned demand notice dated 24.03.2022 is also rendered ineffective and inoperative in law. This petition is accordingly partly allowed declaring the scrutiny assessment order dated 24.03.2022 as also demand notice dated 24.03.2022 ineffective and inoperative in law. The pre-deposit amount if any shall be refunded to the petitioner.

Summary

The judgment from the Rajasthan High Court addresses several legal issues related to the issuance and validity of notices and orders under the Income Tax Act, particularly Sections 147, 148, and 148A. The case revolves around the reassessment procedures following amendments to the Act and a Supreme Court decision impacting these procedures.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the notice issued under Section 148 of the Income Tax Act, which was served after the amendment effective from 01.04.2021, is valid.
• The impact of the Supreme Court's decision in Union of India Vs. Ashish Agarwal on the validity of such notices and subsequent orders.
• The legality and validity of the scrutiny assessment order dated 24.03.2022 and the associated demand notice.
• The consequences of treating a Section 148 notice as a Section 148A(b) notice under the amended legal framework.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Section 148 Notice

• Relevant Legal Framework and Precedents: The case primarily involves the interpretation of Sections 147, 148, and 148A of the Income Tax Act, especially post-amendment, and the Supreme Court's ruling in Union of India Vs. Ashish Agarwal.
• Court's Interpretation and Reasoning: The Court noted that the notice under Section 148, issued on 31.03.2021 but served on 01.04.2021, falls under the purview of the amended provisions. According to the Supreme Court's direction, such notices must be treated as notices under Section 148A(b).
• Key Evidence and Findings: The Court relied on the timeline of the notice issuance and service, and the Supreme Court's interpretation that all notices served on or after 01.04.2021 should be treated under the new regime.
• Application of Law to Facts: The Court applied the Supreme Court's directive to conclude that the earlier notice under Section 148 should be considered as a notice under Section 148A(b), rendering any subsequent actions based on the original notice invalid.
• Treatment of Competing Arguments: The respondent's argument that the notice was valid under the old regime was dismissed in light of the Supreme Court's ruling.
• Conclusions: The notice issued under Section 148 is invalid under the amended provisions, as it should be considered under Section 148A(b).

Issue 2: Legality of the Scrutiny Assessment Order and Demand Notice

• Relevant Legal Framework and Precedents: The scrutiny assessment order's validity is contingent upon the validity of the notice under Section 148, as per the Income Tax Act and the Supreme Court's decision.
• Court's Interpretation and Reasoning: The Court found that since the notice under Section 148 was invalid, the scrutiny assessment order dated 24.03.2022, based on this notice, is also invalid.
• Key Evidence and Findings: The Court noted the procedural impropriety in issuing the scrutiny assessment order based on an invalid notice.
• Application of Law to Facts: The invalidity of the notice under Section 148 directly impacts the validity of the scrutiny assessment order, rendering it ineffective.
• Treatment of Competing Arguments: The Court dismissed any arguments supporting the validity of the scrutiny assessment order, given the foundational invalidity of the notice.
• Conclusions: The scrutiny assessment order and the associated demand notice are declared ineffective and inoperative in law.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court stated, "The order under Section 148A (d) of the Act dated 26.07.2022 clearly records that in view of the judgment of Hon'ble Supreme Court, no scrutiny assessment could be made on the basis of show cause notice hence scrutiny assessment order passed by AO has become infructuous."
• Core Principles Established: Notices under Section 148 served on or after 01.04.2021 must be treated under Section 148A(b) as per the Supreme Court's directive, impacting the validity of subsequent assessment orders.
• Final Determinations on Each Issue: The Court declared the scrutiny assessment order dated 24.03.2022 and the demand notice ineffective. The pre-deposit amount, if any, is to be refunded. The order dated 26.07.2022 under Section 148A(d) remains unaffected, and the petitioner retains the right to challenge any future reassessment orders.

The judgment clarifies the application of amended provisions of the Income Tax Act in light of the Supreme Court's guidance, ensuring procedural compliance in reassessment proceedings.