2025 (1) TMI 819 - HC - Income Tax

Validity of reopening of assessment beyond period of limitation - initial notice was preceded by other notice issued under Section 148A (b) - notice issued u/s 148A(b) is a continuation of the first notice or a standalone notice? - HELD THAT - The information on which the first notice (notice dated 31.03.2024) is based, is not the information on which the second notice dated 18.04.2024 is premised. The information, which according to the AO, was suggestive of the petitioner s income escaping assessment for the AY 2020-21, as set out in the second notice, is completely different from the information as set out in the first notice. The transactions in respect of which it is alleged that the petitioner s income may have escaped assessment as set out in the second notice, is not the transaction which had led the AO to issue the first notice. There is considerable merit in the petitioner s contention that the second notice issued under Section 148A(b) of the Act must be viewed as a standalone notice and not in continuation of the first notice dated 31.03.2024. The short note filed on behalf of the Revenue also states that the notice dated 18.04.2024 (the second notice) issued under Section 148A(b) of the Act pertains to the commission income in connection with the search conducted on the JM Jain Group on 28.05.2022. It is relevant to note that the first notice (notice dated 31.03.2024) referred to lose papers and documents found during the course of search action in respect of SBP Group . Plainly, the information as mentioned in the second notice cannot be said to be in continuation of the information as referred to in the first notice. There is no dispute that if the second notice (notice dated 18.04.2024) issued under Section 148A (b) of the Act is considered as a standalone notice, the same would be beyond the period as stipulated under Section 149 (1) (a) of the Act as was in force at the material time. This is because the amount of income, which is alleged to have escaped income, is less than Rs. 50,00,000/- and a period of more than three years have elapsed from the end of the relevant assessment year (AY 20-21). The impugned order passed under Section 148A (d) of the Act as well as the notice issued u/s 148A(b) of the Act, is set aside. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

Whether the notice dated 18.04.2024 issued under Section 148A(b) of the Income Tax Act is a continuation of the notice dated 31.03.2024 or a standalone notice.
Whether the notice dated 18.04.2024 is valid under the provisions of Section 149(1)(a) of the Income Tax Act, considering the time elapsed and the amount of income alleged to have escaped assessment.
Whether the impugned order dated 02.05.2024 and the subsequent notice under Section 148 of the Act are valid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Continuation or Standalone Notice

Relevant Legal Framework and Precedents: Section 148A of the Income Tax Act allows for the issuance of notices based on information suggesting income has escaped assessment. The distinction between a continuation notice and a standalone notice is crucial for determining the validity of the notice.
Court's Interpretation and Reasoning: The court found that the second notice dated 18.04.2024 was based on different information than the first notice dated 31.03.2024. The first notice concerned a specific property transaction, while the second notice was based on different transactions and information.
Key Evidence and Findings: The court noted that the second notice was based on information from a search related to the JM Jain Group, distinct from the SBP Group mentioned in the first notice.
Application of Law to Facts: The court applied the legal framework to determine that the notices were based on separate sets of information, thus treating the second notice as standalone.
Treatment of Competing Arguments: The petitioner argued that the second notice was standalone, while the Revenue contended it was a continuation. The court sided with the petitioner based on the evidence.
Conclusions: The court concluded that the second notice was a standalone notice, not a continuation of the first.

Issue 2: Validity of the Second Notice under Section 149(1)(a)

Relevant Legal Framework and Precedents: Section 149(1)(a) limits the time frame for issuing notices based on the amount of income alleged to have escaped assessment.
Court's Interpretation and Reasoning: The court noted that the second notice was issued beyond the permissible period as the alleged escaped income was less than Rs. 50,00,000 and more than three years had elapsed since the relevant assessment year.
Key Evidence and Findings: The court highlighted that the amount in question was Rs. 29,87,213, which did not meet the threshold for extending the time limit under Section 149(1)(a).
Application of Law to Facts: The court applied the statutory time limits to determine the invalidity of the second notice.
Treatment of Competing Arguments: The Revenue's argument for the validity of the notice was rejected based on the clear statutory limits.
Conclusions: The court concluded that the second notice was invalid due to being issued beyond the statutory period.

Issue 3: Validity of the Impugned Order and Subsequent Notice

Relevant Legal Framework and Precedents: Sections 148 and 148A of the Income Tax Act govern the issuance of notices and orders for reassessment.
Court's Interpretation and Reasoning: Given the invalidity of the second notice, the court found that the subsequent order and notice were also invalid.
Key Evidence and Findings: The invalidity of the second notice directly impacted the validity of the subsequent actions.
Application of Law to Facts: The court applied the legal principle that an invalid notice cannot form the basis for further legal actions.
Treatment of Competing Arguments: The petitioner's argument for setting aside the order and notice was accepted based on the invalidity of the foundational notice.
Conclusions: The court set aside the impugned order and notice as they were based on an invalid notice.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The assertion that the second notice is the continuation of the first notice, is ex facie erroneous."
Core Principles Established: Notices under Section 148A must be based on distinct and specific information. The statutory time limits under Section 149(1)(a) are strict and must be adhered to.
Final Determinations on Each Issue: The second notice was found to be standalone and invalid. Consequently, the impugned order and subsequent notice were also set aside.

← Previous Next →