2025 (1) TMI 1548 - AT - Income Tax

Reopening of assessment u/s 147 beyond period of limitation - contention of the assessee is that the said notice is barred by limitation as per the first proviso to the un-amended provisions of section 149(1) as has been confirmed by the decision of the Hon ble Supreme Court in the case of Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) - HELD THAT - The test for checking the validity of notices issued u/s 148 under new regime for AYs 2021-22 or prior years is whether the period of six years has expired at the time of issue of such notice and in that case the notice under section 148 becomes invalid. These observations also makes it clear that the time limit of ten years as per the amended provisions of section 149(1)(b) can be applied only prospectively. In assessee s case when we apply this test for AY 2015-16 the period of six years has expired on 31.03.2022 and therefore the notice u/s 148 of the Act for AY 2015-16 is invalid since it is barred by limitation. Accordingly the assessment completed under section 147 of the Act is liable to be quashed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the reassessment proceedings initiated by the Assessing Officer (AO) under section 147 read with section 144C(13) of the Income Tax Act, 1961 (the Act) for Assessment Year (AY) 2015-16 are valid, specifically focusing on the limitation period for issuance of notice under section 148 of the Act;

(b) Whether the notice dated 28.07.2022 issued under section 148 of the Act is barred by limitation as per the provisions of section 149 of the Act, considering the amendments introduced by the Finance Act, 2021 and the application of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA);

(c) Whether the reassessment completed under section 147 read with section 144C is beyond the time limit specified under section 153 of the Act;

(d) Merits of the additions made by the AO treating certain transactions as bogus and making additions under section 68 of the Act (although these were not pressed due to the outcome on limitation).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of reassessment proceedings and limitation for issuance of notice under section 148

Relevant legal framework and precedents:

The reassessment proceedings under section 147 of the Act require issuance of a valid notice under section 148. The limitation for issuance of such notice is governed by section 149 of the Act. The Finance Act, 2021 introduced a new regime for reassessment with an extended limitation period of ten years for cases where escaped income exceeds fifty lakh rupees, replacing the earlier six-year limitation period. However, the first proviso to section 149(1)(b) preserves the old limitation period for AYs beginning on or before 1 April 2021.

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) further relaxed timelines for issuance of notices due to the COVID-19 pandemic, impacting limitation calculations.

Key precedents relied upon include the Hon'ble Supreme Court decision in Rajeev Bansal (2024 SCC OnLine SC 2693) and the Delhi High Court decision in IBIBO Group Pvt. Ltd. v. ACIT (W.P. 17639/2022 dated 13.12.2024), which clarified the application of the limitation period under the new and old regimes.

Court's interpretation and reasoning:

The Tribunal carefully examined the timeline of notices issued in the present case. The original notice under section 148 was issued on 30.06.2021, which was within the old regime's six-year limitation period. However, a subsequent notice under section 148 dated 28.07.2022 was issued after the expiry of the six-year limitation period for AY 2015-16, which ended on 31.03.2022.

The Tribunal relied on the Supreme Court's observations in Rajeev Bansal, which held that for AYs prior to 1 April 2021, the extended ten-year limitation period introduced by the Finance Act, 2021 cannot be applied retrospectively. Instead, the six-year limitation under the old regime continues to apply for such AYs. Therefore, any notice issued after the expiry of the six-year period is invalid.

The Tribunal also noted the Revenue's own concession before the Supreme Court that notices issued on or after 1 April 2021 for AY 2015-16 would have to be dropped as they would not fall within the prescribed period under TOLA.

Key evidence and findings:

The notice under section 148 dated 28.07.2022 was issued beyond the six-year limitation period which expired on 31.03.2022. The reassessment order passed pursuant to this notice was therefore held to be invalid.

Application of law to facts:

Applying the Supreme Court's test, the Tribunal found that the notice dated 28.07.2022 was barred by limitation and therefore the reassessment proceedings initiated on the basis of this notice were void. The Tribunal also referred to the Delhi High Court's decision in IBIBO Group Pvt. Ltd. which held similarly that reassessment actions initiated beyond the limitation period under the old regime cannot be sustained.

Treatment of competing arguments:

The Revenue contended that the reassessment was valid as per the directions of the Dispute Resolution Panel (DRP) and the AO's order. However, the Tribunal held that the legal limitation prescribed under the Act and interpreted by the Supreme Court and High Court decisions must prevail over procedural directions. The Tribunal rejected the Revenue's contention and upheld the assessee's plea on limitation grounds.

Conclusions:

The reassessment notice dated 28.07.2022 issued under section 148 for AY 2015-16 is invalid as it is barred by limitation under section 149 of the Act as per the old regime. Consequently, the reassessment order passed under section 147 read with section 144C is liable to be quashed.

Issue (c): Time limit for completion of reassessment under section 153

The assessee raised a ground contending that the reassessment was completed beyond the time limit specified under section 153 of the Act. However, during the hearing, the assessee did not press this ground.

The Tribunal accordingly dismissed this ground as not pressed. Since the reassessment order was quashed on limitation grounds, the issue became academic and was not adjudicated upon.

Issue (d): Merits of additions under section 68 treating transactions as bogus

Since the reassessment order was quashed on limitation grounds, the Tribunal did not consider the merits of the additions made by the AO treating the sale consideration of certain scrips as bogus and making additions under section 68. These grounds were rendered academic by the quashing of the reassessment.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following significant principles and conclusions:

"The test for checking the validity of notices issued under section 148 under the new regime for AYs 2021-22 or prior years is whether the period of six years has expired at the time of issue of such notice and in that case the notice under section 148 becomes invalid."

"The time limit of ten years as per the amended provisions of section 149(1)(b) can be applied only prospectively."

"For AY 2015-16, the period of six years expired on 31.03.2022 and therefore the notice dated 28.07.2022 under section 148 of the Act is invalid since it is barred by limitation."

"Accordingly, the assessment completed under section 147 of the Act is liable to be quashed."

These holdings affirm that the retrospective application of the extended limitation period introduced by the Finance Act, 2021 is not permissible for AYs prior to 1 April 2021, thereby protecting taxpayers from reopening of assessments beyond the erstwhile six-year period.