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2024 (5) TMI 302 - HC - Income TaxReopening of assessment under old regime - scope of new regime - scope of TOLA - as argued notice has been issued on the basis of the provisions which have ceased to exist and are no longer in the statute - Whether TOLA is applicable for Assessment Year 2015-2016 and whether any notice issued u/s 148 of the Act after 31st March 2021 will travel back to the original date? - HELD THAT - For Assessment Year 2015-2016 the provisions of TOLA are not applicable. This is a categorical finding in Tata Communications Transformation Services Ltd. 2022 (4) TMI 44 - BOMBAY HIGH COURT and has been followed by the Siemens Financial Services (P.) Ltd. 2023 (9) TMI 552 - BOMBAY HIGH COURT Therefore there is no question of Revenue relying on TOLA to justify the impugned notice under Section 148 of the Act as being within the period of limitation. Even in New India Assurance 2024 (1) TMI 803 - BOMBAY HIGH COURT the Court held that reliance by Revenue on Instruction No. 1 of 2022 issued by CBDT is grossly misplaced and neither the provisions of TOLA nor the judgment in Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT provide that any notice issued under Section 148 of the Act after 31st March 2021 will travel back to the original date. Time limit to issue notice - In the present case in view of the fifth proviso the period to be excluded would be counted from 25th May 2022 i.e. the date on which the show cause notice was issued under Section 148A (b) of the Act by respondent no. 1 subsequent to the decision of the Hon ble Apex Court in the case of Ashish Agarwal (Supra) and upto 10th June 2022 which is a period of 16 days. Further the time period from 29th June 2022 upto 4th July 2022 cannot be excluded as the same was not based on any extension sought by petitioner but at the behest of respondent no. 1. Even if the same was to be excluded still it will mean further exclusion of 5 days. Considering the said excluded period as well the impugned notice dated 27th August 2022 is still beyond limitation. The fact that the original notice dated 8th April 2021 issued under Section 148 of the Act was stayed by this Court on 3rd August 2021 and its stay came to an end on 29th March 2022 on account of the decision of this Court will not be relevant for providing extension as per the fifth proviso. The fifth proviso provides for extension for the period during which the proceeding under Section 148A of the Act is stayed. The original stay granted by this Court was not with respect to the proceeding under Section 148A of the Act but with respect to the proceeding initiated as per the erstwhile provision of Section 148 of the Act and hence such stay would not extend the period of limitation as per the fifth proviso to Section 149 of the Act. The question of applicability of the sixth proviso does not arise on the facts of the present case. We find support for this in Godrej Industries Ltd. 2024 (3) TMI 109 - BOMBAY HIGH COURT In view of the aforesaid the impugned notice dated 27th August 2022 is clearly barred by the law of limitation. Validity of assessment order issued without a DIN - The impugned notice dated 27th August 2022 issued under Section 148 of the Act is invalid and bad in law as the same has been issued without a DIN. Faceless assessment of income escaping assessment - notice being issued by the JAO as the same was not in accordance with Section 151A - There is no question of concurrent jurisdiction of the JAO and the FAO for issuance of notice under Section 148 of the Act or even for passing assessment or reassessment order. When specific jurisdiction has been assigned to either the JAO or the FAO in the Scheme dated 29th March 2022 then it is to the exclusion of the other. To take any other view in the matter would not only result in chaos but also render the whole faceless proceedings redundant. If the argument of Revenue is to be accepted then even when notices are issued by the FAO it would be open to an assessee to make submission before the JAO and vice versa which is clearly not contemplated in the Act. Therefore there is no question of concurrent jurisdiction of both FAO or the JAO with respect to the issuance of notice under Section 148 of the Act. Automated allocation is defined in paragraph 2(b) of the Scheme to mean an algorithm for randomised allocation of cases by using suitable technological tools including artificial intelligence and machine learning with a view to optimise the use of resources. Therefore it means that the case can be allocated randomly to any officer who would then have jurisdiction to issue the notice under Section 148 of the Act. It is not the case of respondent no. 1 that respondent no. 1 was the random officer who had been allocated jurisdiction. With respect to the arguments of the Revenue i.e. the notification dated 29th March 2022 provides that the Scheme so framed is applicable only to the extent provided in Section 144B of the Act and Section 144B of the Act does not refer to issuance of notice under Section 148 of the Act and hence the notice cannot be issued by the FAO as per the said Scheme - An act which is done by an authority contrary to the provisions of the statue itself causes prejudice to assessee. All assessees are entitled to be assessed as per law and by following the procedure prescribed by law. Therefore when the Income Tax Authority proposes to take action against an assessee without following the due process of law the said action itself results in a prejudice to assessee. Therefore there is no question of petitioner having to prove further prejudice before arguing the invalidity of the notice. With respect to the Office Memorandum dated 20th February 2023 the said Office Memorandum merely contains the comments of the Revenue issued with the approval of Member (L S) CBDT and the said Office Memorandum is not in the nature of a guideline or instruction issued under Section 119 of the Act so as to have any binding effect on the Revenue. Moreover the arguments advanced by the Revenue on the said Office Memorandum dated 20th February 2023 is clearly contrary to the provisions of the Act as well as the Scheme dated 29th March 2022. Hon ble Telangana High Court in the case of Kankanala Ravindra Reddy 2023 (9) TMI 951 - TELANGANA HIGH COURT has held that in view of the provisions of Section 151A of the Act read with the Scheme dated 29th March 2022 the notices issued by the JAOs are invalid and bad in law. We are also of the same view. Reason to believe - AO has restricted the escapement of income only with regard on the claim of deduction under Section 80JJAA of the Act and disallowance of excess claim of Forex loss - On the Forex loss respondent has prima facie accepted the contentions of petitioner that there was a Forex loss. Therefore the same cannot be justified as an escapement of income. Respondent no. 1 has also accepted that the transactions of Calibre Point Business Solutions Ltd. have been duly incorporated in the accounts of petitioner and that no deduction is claimed in respect of the deduction allowed under Section 10AA of the Act. None of the issues raised in the impugned order show an alleged escapement of income represented in the form of asset as required in Section 149(1) (b) of the Act. As regards the claim of deduction under Section 80JJAA of the Act an issue of correctness of claim of deduction under Chapter VI of the Act in our view cannot be covered by Section 149(1) (b) of the Act.The term asset is defined in Explanation to Section 149 of the Act to include immovable property being land or building or both shares and securities loans and advances deposit in bank account. The present case does not fall in any of the types of the assets as mentioned above. Further the alleged claim of disallowance of deduction also can never fall under the category of either clause (b) or clause (c) as it is neither a case of expenditure in relation to an event nor a case of an entry in the books of account as no entries are passed in the books of account for claiming a deduction under the provisions of the Act. On this ground also the impugned notice will be invalid. Power of review - We agree with petitioner that there cannot be a reopening based on a change of opinion. The claim of deduction under Section 80JJAA of the Act was made by petitioner in the return of income and petitioner had filed Form 10DA being the report of the Chartered Accountant. In the said Form a note has been filed alongwith Form 10DA and it has specifically been submitted by petitioner that software development activity constitutes manufacture/ production of article or thing . The claim of deduction under Section 80JJAA of the Act was also disclosed in the Tax Audit Report filed by petitioner alongwith the return of income. AO has passed the assessment order dated 30th November 2017 allowing the claim of deduction under Section 80JJAA of the Act. The claim for deduction under Section 80JJAA of the Act was allowed by the Assessing Officer in the previous years as well. Hence the present case is clearly a case of change of opinion or review of the original assessment order which is not permissible even under the new provisions. Therefore the concept of change of opinion being an in-built test to check abuse of power by the Assessing Officer and the Assessing Officer having allowed the claim of deduction under Section 80JJAA of the Act in the assessment order dated 13th November 2017 now to disallow the same is based on a clear change of opinion. Reassessment proceedings initiated on the basis of a mere change of opinion is invalid and without jurisdiction. On this ground also the impugned notice issued under Section 148 of the Act has to be quashed and set aside. No question of reopening the assessment for the relevant assessment to disallow the deduction under Section 80JJAA of the Act. Valid approval for passing the order under Section 148A (d) or not? - The approval is invalid and bad in law. We are unable to agree with Mr. Mistri to hold in the facts and circumstances of the case there was non application of mind by the approving authority.
Issues Involved:
1. Applicability of TOLA for Assessment Year 2015-2016. 2. Limitation of notice dated 27th August 2022 under Section 148. 3. Validity of the notice dated 27th August 2022 without a DIN. 4. Validity of the notice dated 27th August 2022 issued by JAO under Section 151A. 5. Alleged escapement of income represented in the form of an asset or expenditure. 6. Reopening based on change of opinion. 7. Consistent allowance of deduction under Section 80JJAA. 8. Validity of the approval granted by the Sanctioning Authority. Detailed Analysis: 1. Applicability of TOLA for Assessment Year 2015-2016: The court held that TOLA is not applicable for Assessment Year 2015-2016. This conclusion was supported by previous judgments, including Tata Communications Transformation Services Ltd. and Siemens Financial Services (P.) Ltd. The court emphasized that TOLA cannot be used to justify the impugned notice under Section 148 as being within the period of limitation. 2. Limitation of Notice Dated 27th August 2022: The notice dated 27th August 2022 was found to be barred by limitation as per the first proviso to Section 149 of the Act. The court clarified that the term "at that time" refers to the date on which the notice under Section 148 is issued. Since the notice was issued beyond the six-year limit for Assessment Year 2015-2016, it was deemed invalid. 3. Validity of the Notice Dated 27th August 2022 Without a DIN: The notice was invalid and bad in law as it was issued without a DIN. The court referred to CBDT Circular No. 19 of 2019, which mandates that any communication without a DIN is invalid. The separate intimation letter dated 27th August 2022 could not validate the notice as it referred to a different date and did not comply with the prescribed procedure. 4. Validity of the Notice Dated 27th August 2022 Issued by JAO: The notice was invalid as it was not issued in accordance with Section 151A of the Act. The court noted that the Scheme dated 29th March 2022 framed under Section 151A mandates that notices under Section 148 should be issued through automated allocation and in a faceless manner. The notice issued by JAO did not comply with this requirement. 5. Alleged Escapement of Income Represented in the Form of an Asset: The issues raised in the impugned order did not show an alleged escapement of income represented in the form of an asset or expenditure as required in Section 149(1)(b) of the Act. The court found that the alleged escapement of income pertained to the correctness of the claim of deduction, which does not fall under the categories specified in Section 149(1)(b). 6. Reopening Based on Change of Opinion: The court held that respondent no. 1 has no power to review his own assessment when the same information was provided and considered during the original assessment proceedings. The reopening was based on a change of opinion, which is not permissible even under the new provisions. The claim of deduction under Section 80JJAA was allowed in previous years, and the present case was deemed a clear case of change of opinion. 7. Consistent Allowance of Deduction Under Section 80JJAA: The court noted that the claim of deduction under Section 80JJAA had been consistently allowed to the petitioner since Assessment Year 2010-2011. Therefore, the Assessing Officer could not allege that income chargeable to tax had escaped assessment on account of such a claim being allowed for Assessment Year 2015-2016. 8. Validity of the Approval Granted by the Sanctioning Authority: The court found that the approval granted by the Sanctioning Authority was valid. There was no evidence to suggest non-application of mind by the approving authority. Conclusion: The court ruled in favor of the petitioner, making the rule absolute in terms of prayer clause (a), thereby quashing and setting aside the impugned initial notice dated 25th May 2022, the impugned order dated 26th August 2022, and the impugned notice dated 27th August 2022.
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