2024 (6) TMI 75 - HC - Income Tax

Validity of reassessment action u/s 148 - Time limit for notice u/s 149 - Computation of the relevant assessment year for reassessment purposes - computation of the six or the block of ten AYs - HELD THAT - AY 2013-14 would fall beyond the block period of ten years. It becomes pertinent to note that the First Proviso to Section 149 (1) compels us to test the validity of initiation of action for reassessment commenced pursuant to a search, based upon it being found that the proceedings would have sustained bearing in mind the timelines prescribed in Sections 149, 153A and 153C, as they existed prior to the commencement of Finance Act, 2021. This necessarily requires us to advert to the timeframes comprised in both Section 149 (1) (b) as well as Section 153C as it existed on the statute book prior to 01 April 2021, which undisputedly was the date from when Finance Act, 2021 came into effect. Regard must also be had to the statutory scheme for search assessments as it existed prior to Finance Act, 2021 and the indubitable fact that while in the case of the searched person, the six year or the ten year block period is liable to be computed with reference to the date of search, in the case of the non-searched entity, it has to necessarily be the date when the material is handed over to the jurisdictional AO of the other person . All that would happen in the case of a search which takes place on or after 01 April 2021, and which warrants a reassessment action being commenced in relation to an AY prior to the first day of April, 2021, since no transmission of material would have occurred, we would necessarily have to bear in mind, the date when a decision may be taken by the jurisdictional AO to proceed against the non-searched entity in terms of the amended scheme pertaining to search assessments, and which now stands merged with the larger power of reassessment which stands comprised in Sections 147 and 148 of the Act. We find ourselves unable to construe or read the First Proviso to Section 149 (1) as requiring us to ignore the First Proviso to Section 153C (1), and for the purposes of computation, reconstruct the point from which the relevant assessment year is liable to be computed in the case of a non-searched person. Notwithstanding the procedure under Section 153C having not been adhered to, by virtue of the search having been conducted after 31 March 2021, there exists no justification to reconstruct the point from which the computational exercise would have to be undertaken. It is therefore ex facie evident that AY 2013-14 falls beyond the ten-year block period as set out under Section 153C read with Section 153A of the Act. Consequently, the impugned notice dated 30 March 2023 has been issued beyond limitation and is liable to be quashed and set aside on this score alone. All consequential actions pursuant to the impugned notice would thus meet a similar fate.

Summary

Issues Involved:
1. Validity of reassessment action u/s 148 of the Income Tax Act, 1961.
2. Applicability of the First Proviso to Section 149(1) in the context of search assessments.
3. Computation of the "relevant assessment year" for reassessment purposes.

Summary:

1. Validity of reassessment action u/s 148 of the Income Tax Act, 1961:
The petitioner challenged the initiation of reassessment action u/s 148 for AY 2013-14, which was based on a search conducted on 09 February 2022. The notice for reassessment was issued on 30 March 2023. The respondents argued that they were exempt from following the procedure prescribed by clauses (b), (c), and (d) of Section 148A due to the First Proviso in that provision, which applies to searches initiated on or after 01 April 2021.

2. Applicability of the First Proviso to Section 149(1) in the context of search assessments:
The Court initially found that the reassessment action might violate Section 149(1) due to the timeframes within which an assessment could be reopened. The petitioner cited previous judgments, including Filatex India Ltd. vs. Deputy Commissioner of Income Tax and Principal Commissioner of Income Tax-1 vs. Ojjus Medicare Pvt. Ltd., to argue that the reassessment for AY 2012-13 would not sustain due to the limitation period specified in Section 149(1)(b).

3. Computation of the "relevant assessment year" for reassessment purposes:
The Court noted that the First Proviso to Section 153C introduces a legal fiction, shifting the reference point for the computation of the six or ten-year block to the date of receipt of books of accounts by the jurisdictional AO. This shift is crucial for determining the "relevant assessment year." The Court found that the reassessment action initiated for AY 2013-14 fell beyond the ten-year block period, making the notice dated 30 March 2023 invalid.

Conclusion:
The Court quashed the impugned notice dated 30 March 2023 and all consequential actions, as the reassessment action was initiated beyond the limitation period. The issue of reading down Explanation 2(iv) to Section 148 was kept open for future consideration in a separate case. The writ petition was allowed, and the impugned order dated 18 May 2023 was quashed.