2024 (12) TMI 1274 - HC - Income Tax

Reopening of assessment u/s 147 beyond period of limitation - validity of order passed after the expiry of the period of limitation as prescribed u/s 153 - Time limit for completion of assessment, reassessment and recomputation - HELD THAT - the expression direction and in consequence of or to give effect to are the key words which are common expressions used in the second proviso to Section 34 (3) of the IT Act, as it stood at the relevant time, and presently as falling under clause (i) of sub-section (6) of Section 153 of the IT Act. The Supreme Court in Murlidhar Bhagwan Das 1964 (1) TMI 5 - SUPREME COURT interpreting the said expressions held that the expression finding has not been defined in the IT At. Referring to Order XX Rule 5 of the Code of Civil Procedure, it was observed that a finding is, therefore, a decision on an issue framed in a suit and a finding shall be one which by its own force or in combination with findings on other issues should lead to the decision of the suit itself. It was observed that this was to say, the finding shall be one which is necessary for the disposal of the suit. It was held that a finding , therefore, can only be that which is necessary for the disposal of an appeal in respect of an assessment of a particular year as the Appellate Assistant Commissioner may hold in the facts, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. Thus, applying the principles of law as laid down in the decisions in Income Tax Officer vs. Murlidhar Bhagwan Das 1964 (1) TMI 5 - SUPREME COURT , Rajinder Nath vs. Commissioner of Income Tax, Delhi 1979 (8) TMI 3 - SUPREME COURT and Tally India Pvt. Ltd. 2021 (4) TMI 547 - KARNATAKA HIGH COURT it is clear that the order dated 21 September 2021 passed by the Division Bench (supra) does not contain any findings necessary for disposal of the writ petition in a particular manner, so as to govern the issues which would be decided by the Assessing Officer. As observed that the words in consequence of or to give effect to do not create any difficulty, for they have to be collated with, and cannot enlarge, the scope of the finding or direction under the proviso. It was further observed that if the scope is limited in such event, the said words also must be related to the scope of the findings and directions. As as rightly contended on behalf of the petitioner, applying the provisions of clause (ii) below Explanation 1 read with the first proviso below Explanation 1, certainly the limitation for the Assessing Officer to pass the Assessment Order had come to an end on 20 November 2021 i.e. sixty days from 21 September 2021 (orders passed by the High Court) by applying the extended period as per the first proviso below Explanation 1, whereas the impugned assessment order has been passed almost ten months after the limitation expired. Thus, the case of the Revenue in regard to applicability of the extended period under sub-section (6) (i) of Section 153 cannot be accepted. WP allowed.

Issues Involved:

1. Legality of the reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Validity of the assessment order dated 30 September 2022 in light of the limitation period prescribed under Section 153 of the IT Act.
3. Requirement of approval under Section 151 of the IT Act for issuing notice under Section 148.
4. Applicability of the extended period of limitation under Section 153(6) of the IT Act.
5. Compliance with principles of natural justice in the reassessment proceedings.

Issue-wise Detailed Analysis:

1. Legality of the Reassessment Proceedings:
The petitioner challenged the order dated 14 October 2021 passed by the Assessing Officer, which rejected the petitioner's objections against the reopening of assessment under Section 147 of the IT Act. The petitioner contended that the reasons to believe that income had escaped assessment were vague and lacked nexus with the conclusion arrived at by the assessing officer. The court noted that the initial notice under Section 148 was issued on 29 March 2019, and the reasons furnished for reopening were related to a transaction of sale of property. The court examined whether the procedural requirements for reopening the assessment were met and whether the reasons were adequately communicated to the petitioner.

2. Validity of the Assessment Order in Light of Limitation Period:
The primary contention was whether the assessment order dated 30 September 2022 was barred by limitation as prescribed under Section 153(2) of the IT Act. The court analyzed the timeline, noting that the notice under Section 148 was issued on 29 March 2019. The financial year ended on 31 March 2019, and the nine-month period ended on 31 December 2019. However, the proceedings were stayed by the High Court from 13 December 2019 to 21 September 2021. The court applied Explanation 1(ii) to Section 153, which allows exclusion of the period during which proceedings were stayed by a court order. The court concluded that the limitation period was extended to 60 days from the date the stay was vacated, making the last date for passing the order 20 November 2021. Since the assessment order was passed on 30 September 2022, it was held to be barred by limitation.

3. Requirement of Approval under Section 151:
The petitioner argued that the notice under Section 148 was issued without obtaining the necessary approval from the Principal Commissioner of Income Tax as required under Section 151 of the IT Act. The court noted that the petitioner had requested a copy of the approval, which was not furnished. The absence of such approval rendered the notice void ab initio, supporting the petitioner's contention.

4. Applicability of Extended Period under Section 153(6):
The Revenue contended that the High Court's order dated 21 September 2021 constituted a direction, thereby allowing an extended period of 12 months under Section 153(6). The court examined whether the High Court's order contained any finding or direction necessary for the disposal of the case. Referring to precedents, the court held that the order did not contain any findings or directions as contemplated under Section 153(6), and thus, the extended period was not applicable.

5. Compliance with Principles of Natural Justice:
The petitioner alleged non-compliance with principles of natural justice, particularly regarding the denial of a personal hearing and non-furnishing of requested documents. The court emphasized the importance of procedural fairness and noted that the petitioner was not given a fair opportunity to present its case. The court highlighted the requirement for the Assessing Officer to provide a personal hearing and relevant documents to the petitioner.

Conclusion:
The court allowed the petition, quashing the impugned assessment order dated 30 September 2022 and the order rejecting the petitioner's objections. The court held that the reassessment proceedings were barred by limitation, and the notice under Section 148 was void due to the absence of requisite approval. The court emphasized adherence to procedural requirements and principles of natural justice in reassessment proceedings.

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