2024 (8) TMI 129 - HC - Income Tax

Validity of reassessment proceedings - Time limit for notice u/s 149 - whether a proposed reassessment pertaining to a period prior to 01 April 2021 would sustain based on the time frames as they existed prior to the promulgation of Finance Act, 2021? - HELD THAT - Undisputedly, Section 149 (1)(b) as it stood prior to the introduction of the amendments by way of Finance Act, 2021 prescribed that no notice u/s 148 shall be issued if four years but not more than six years have elapsed from the end of the relevant assessment year. Thus the period of six years stood erected as the terminal point which when crossed would have rendered the initiation of reassessment impermissible in law. The impugned notice when tested on the anvil of the pre-amendment Section 149 (1) (b) in order to be sustained would have to meet the prescription of six years. Undisputedly that period in respect of AY 2016-17 came to an end on 31 March 2023. We thus find ourselves unable to sustain the impugned action of reassessment and which was commenced pursuant to the notice dated 29 April 2024. It would be important to note that the respondents also do not attempt to sustain the initiation of action on any other statutory provision and which could be read as extending the time limit that applied. We also find ourselves unable to read Twylight Infrastructure as empowering them to reopen assessments contrary to the negative covenant which forms part of Section 149 of the Act. We accordingly allow the present writ petition and quash the impugned order under Section 148A (d) as well as the consequential notice u/s 148 of even date.

Summary

Issues Involved:
1. Validity of the reassessment notice dated 29 April 2024 under Section 148 of the Income Tax Act, 1961.
2. Applicability of the Proviso to Section 149 (1) of the Income Tax Act, 1961.
3. Compliance with procedural requirements post-01 April 2021 amendments.
4. Interpretation of previous court decisions and their impact on the reassessment process.

Detailed Analysis:

1. Validity of the Reassessment Notice Dated 29 April 2024:
The primary issue in this case is the challenge to the reassessment notice issued on 29 April 2024 under Section 148 of the Income Tax Act, 1961, for the Assessment Year (AY) 2016-17. The petitioners argue that the reassessment action is invalid due to the statutory limitation period prescribed under the Act. The notice represents the third attempt by the respondents to initiate reassessment proceedings, following previous annulments by the court.

2. Applicability of the Proviso to Section 149 (1):
The petitioners contend that under the Proviso to Section 149 (1), the reassessment action is time-barred. The Proviso mandates that no notice under Section 148 shall be issued for any assessment year prior to 01 April 2021 if the time limit for issuing such notice, as per the provisions before the Finance Act, 2021, has expired. This provision essentially requires a retrospective examination of whether the reassessment notice could have been issued within the original statutory time frame.

3. Compliance with Procedural Requirements Post-01 April 2021 Amendments:
The procedural requirements for reassessment underwent significant changes with the Finance Act, 2021. The Supreme Court, in Union of India vs. Ashish Agarwal (2023) 1 SCC 617, provided directions to treat notices issued under the unamended Section 148 as show-cause notices under the new Section 148-A. Despite these directions, the respondents issued fresh notices, which led to further litigation. The court had previously quashed similar notices in Mon Mohan Kohli v. Assistant Commissioner of Income-tax and Another 2021 SCC OnLine Del 5250, emphasizing that reassessment must comply with the new procedural requirements.

4. Interpretation of Previous Court Decisions:
The court in Twylight Infrastructure (P) Ltd. v. CIT 2024 SCC OnLine Del 330 and subsequent decisions had quashed reassessment notices due to non-compliance with the procedural requirements. The Supreme Court's decision in Ashish Agarwal aimed to harmonize the conflicting directions from various High Courts and provided a framework for reassessment notices issued post-01 April 2021. However, the court reiterated that any reassessment action must still comply with the statutory limitations and procedural requirements.

Conclusion:
The court concluded that the reassessment notice dated 29 April 2024 is invalid as it does not comply with the statutory limitation period prescribed under the pre-amendment Section 149 (1) (b). The six-year period for issuing such a notice for AY 2016-17 ended on 31 March 2023. The court also found that the respondents did not attempt to justify the reassessment action under any other statutory provision that could extend the time limit. Consequently, the court quashed the impugned order under Section 148A (d) dated 29 April 2024 and the consequential notice under Section 148 of the same date.