2024 (9) TMI 1573 - HC - Income Tax

Proceedings for reassessment initiated after the decision of the Supreme Court in Abhisar Buildwell Private Limited 2023 (4) TMI 1056 - SUPREME COURT - Determination of period of limitation - writ petitioners assail the validity of the reassessment action principally on the ground of being barred by time -It is their case that the reassessment action which had come to be initiated after the promulgation of Finance Act, 2021 would not qualify the pre-conditions which are introduced by virtue of the First Proviso to Section 149 (1) - HELD THAT - Today there cannot possibly be any dispute or contestation on the discovery of incriminating material constituting the foundation for any assessment that may be made under Sections 153A or 153C of the Act. Any dispute that could have possibly be said to exist was ultimately laid to rest by the Supreme Court in Abhisar Buildwell. The only aspect which thus survives for consideration is whether the observations as appearing in Abhisar Buildwell could be read as enabling the respondents to overcome the limitation which stands created in terms of Section 149 of the Act. It is pertinent to note that a reference to Sections 147 and 148 of the Act in Abhisar Buildwell firstly appears where the Supreme Court observed that in cases where a search does not result in any incriminating material being found, the only remedy that would be available to the Revenue would be to resort to reassessment. The liberty which the Supreme Court accorded and the limited right inhering in the Revenue to initiate reassessment was subject to that power being otherwise compliant with the Chapter pertaining to reassessment as contained in the Act. The observations of the Supreme Court cannot possibly be read or construed as a carte blanche enabling the respondents to overcome and override the restrictions that otherwise appear in Section 149 of the Act. The observations of the Supreme Court in Abhisar Buildwell were thus intended to merely convey that the annulment of the search assessments would not deprive or denude the Revenue of its power to reassess and which independently existed. However, the Supreme Court being mindful of the statutory prescriptions, which otherwise imbue the commencement of reassessment, qualified that observation by providing that such an action would have to be in accordance with law. This note of caution appears at more than one place in that judgment and is apparent from the Supreme Court observing that the power to reassess would be subject to the fulfilment of the conditions mentioned in Sections 147 and 148 of the Act. We also bear in mind the order passed on the Miscellaneous Application which was moved by the Revenue before the Supreme Court and more particularly to the prayers that were made therein. The Revenue had specifically alluded to Section 150 of the Act and sought appropriate clarifications enabling it to proceed afresh. It had also sought the liberty to commence proceedings for reassessment within 60 days of the disposal of that application. The said application, however, came to be dismissed with it being left open to the respondents to move a formal application for review, if so chosen and advised. It appears, however, that no such review was ultimately moved. Undisputedly, none of the clauses of Explanation 1 would be attracted in the facts and circumstances of the present batch. The statute incorporates no provisions in terms of which the period which may have been consumed while pursuing an assessment under Sections 153A or 153C is liable to be excluded if such an action were to be ultimately annulled. The fact that the statute seeks to create rigid time frames within which a reassessment action may be initiated stands fortified by the First Proviso appearing in Section 149, and which came to be introduced in the statute book by Finance Act 2021. It is pertinent to note that both Sections 153A and 153C saw significant amendments which came to be made by virtue of Finance Act, 2021. Both those provisions saw the introduction of a sunset clause and the statute mandating that the scheme of search assessment as introduced in the Act originally by way of Finance Act, 2003 would cease to apply to a search initiated on or after 01 April 2021. Notwithstanding the curtains thus being wrung down on Sections 153A and 153C, the Proviso to Section 149 (1) in unambiguous terms provides that in case reassessment is sought to be initiated for a relevant AY falling prior to 01 April 2021, such an action would have to be in conformity with the time limits specified in Sections 149 (1) (b), Sections 153A or 153C, whichever be applicable, and as those provisions stood immediately before the commencement of Finance Act, 2021. The Proviso is thus representative of a clear legislative policy of reassessments being required to be compliant with time frames which existed in the provisions aforenoted and as they stood before the commencement of Finance Act, 2021. The respondents despite the clear enunciation of the legal position with respect to search assessments in terms of our judgements in Kabul Chawla, RRJ Securities and a host of others that followed neither chose to initiate any remedial action nor did they adopt a course correction. Nothing fettered the right of the respondents to commence reassessment if they were of the opinion that, notwithstanding absence of incriminating material, escapement of income had occurred. It was open for the respondents to establish that an action for reassessment was warranted independently and irrespective of no adverse material having been found in the course of a search. We thus find ourselves unable to hold in their favour. Consequently, and for all the aforesaid reasons, we find ourselves unable to sustain the reassessment action. The writ petitions are accordingly allowed. We hereby quash the impugned notices under Section 148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment action post-Supreme Court decision in Abhisar Buildwell.
2. Limitation period for reassessment under Section 148 of the Income Tax Act, 1961.
3. Interpretation of "finding or direction" under Section 150 of the Income Tax Act.
4. Impact of CBDT Instruction No. 1/2023 on reassessment proceedings.
5. Applicability of Supreme Court's observations in Abhisar Buildwell to reassessment actions.

Issue-wise Detailed Analysis:

1. Validity of reassessment action post-Supreme Court decision in Abhisar Buildwell:
The batch of writ petitions challenged the reassessment proceedings initiated after the Supreme Court's decision in Principal Commissioner of Income Tax, Central-3 v. Abhisar Buildwell Private Limited. The petitioners argued that the reassessment action was barred by time and did not meet the pre-conditions introduced by the First Proviso to Section 149(1) of the Income Tax Act, 1961. The Supreme Court in Abhisar Buildwell held that no additions could be made in respect of completed or unabated assessments in the absence of any incriminating material found during a search. The Court also allowed for reassessment under Sections 147/148 if conditions mentioned therein were fulfilled.

2. Limitation period for reassessment under Section 148 of the Income Tax Act, 1961:
The petitioners contended that the reassessment action initiated after the promulgation of the Finance Act, 2021, did not qualify the pre-conditions of the First Proviso to Section 149(1). The Court noted that the First Proviso to Section 149(1) compels the validity of reassessment to be tested based on the time limits specified under Sections 149, 153A, and 153C as they stood immediately before the commencement of the Finance Act, 2021. The Court found that the notices under Section 148 fell beyond the date computed in terms of the First Proviso to Section 149(1).

3. Interpretation of "finding or direction" under Section 150 of the Income Tax Act:
The petitioners argued that the Supreme Court's observations in Abhisar Buildwell did not constitute a "finding or direction" as contemplated under Section 150. The Court referred to the Constitution Bench judgment in Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das, which explained that a "finding" is a conclusion on a material question necessary for the disposal of the appeal, and a "direction" is one which the appellate authority is empowered to give under the Act. The Court concluded that the observations in Abhisar Buildwell did not amount to a finding or direction enabling the respondents to overcome the statutory prescription of limitation.

4. Impact of CBDT Instruction No. 1/2023 on reassessment proceedings:
The Central Board of Direct Taxes (CBDT) issued Instruction No. 1/2023 following the Supreme Court's decision in Abhisar Buildwell, directing Assessing Officers (AOs) to re-examine all search assessment cases annulled by the Tribunal or High Courts and consider the feasibility of commencing reassessment action. The Court noted that the CBDT Instruction emphasized that completed assessments could be reopened under Sections 147/148, subject to the fulfillment of the conditions mentioned therein. However, the Court found that the Instruction did not override the statutory prescriptions of limitation.

5. Applicability of Supreme Court's observations in Abhisar Buildwell to reassessment actions:
The Supreme Court in Abhisar Buildwell observed that the annulment of search assessments would not deprive the Revenue of its power to reassess, subject to the reassessment being in accordance with the law. The Court clarified that these observations did not constitute a carte blanche for the respondents to override the limitations prescribed under Section 149. The Court emphasized that the power to reassess must be exercised in compliance with the statutory conditions and limitations.

Conclusion:
The Court quashed the impugned notices under Section 148 and all consequential proceedings emanating therefrom, finding that the reassessment actions were barred by limitation and not in accordance with the statutory prescriptions of the Income Tax Act, 1961.