2025 (1) TMI 827 - HC - Income Tax

Reopening of assessment - benefit of the new regime - scope of provisions of TOLA applicable for reopening an assessment pertaining to AY 2015-16 - validity of reassessment notices issued after the promulgation of Finance Act, 2021 - pecuniary quantification of income which had allegedly escaped assessment - whether grant of approval u/s 151 would have to be in consonance with the extended time limits which came to be introduced by TOLA - HELD THAT - As is manifest by virtue of GKN Driveshafts 2002 (11) TMI 7 - SUPREME COURT the respondents were placed under an obligation to communicate the reasons for formation of opinion of income having allegedly escaped assessment to the assessee and providing him an opportunity to object to the commencement of a reassessment action on jurisdictional grounds. It was this procedural safeguard, as formulated in GKN Driveshafts, which finds resonance in clauses (b) and (d) of Section 148A of the Act. The respondents had substantially complied with the principles underlying Section 148A (b) and (d) by providing an opportunity to the petitioner to question the assumption of jurisdiction under Section 148. We are thus of the firm opinion that, notwithstanding a formal communication having not been addressed to the petitioner of the 09 April 2021 notice being liable to be treated as one under Section 148A (b), the impugned notice and the consequential proceedings are not liable to be faulted on this score. Validity of approval for reassessment granted by the Joint Commissioner was valid u/s 151 - The reasons to believe which were provided to the writ petitioner had pegged the escaped assessment at INR 46,17,000/- and thus ex facie falling below the threshold prescribed by Section 149 (1) (b). The Supreme Court in Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) has categorically held that an action of reassessment commenced post 01 April 2021 would have to be compliant with the pecuniary threshold which now applies. Tested on that basis it becomes apparent that the impugned action would not sustain on this score. Supreme Court in Rajeev Bansal had merely alluded to the time frames within which approval could be sought and obtained and that being regulated by the extended timelines which TOLA had introduced. However, Rajeev Bansal cannot possibly be construed or read as affirming the authority of a Joint Commissioner to accord approval or the said authority being viewed as the competent authority for the purposes of grant of approval post 01 April 2021. We thus come to conclude that the reassessment action impugned before us in this petition cannot be sustained basis the pecuniary threshold as comprised in Section 149 (1) (b) as well as on the action having not been approved by the competent authority under Section 151. We allow the instant writ petition and quash the impugned notice digitally signed referrable to Section 148 and the order thereon. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2015-16, was valid given the digital signature date and the procedural requirements introduced by the Finance Act, 2021.
• Whether the reassessment action initiated was barred by time or jurisdictionally flawed under the amended provisions of the Income Tax Act, particularly considering the pecuniary threshold introduced by the Finance Act, 2021.
• Whether the approval for reassessment granted by the Joint Commissioner was valid under Section 151 of the Income Tax Act, as amended.
• The applicability and impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on the reassessment notice issued.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Notice under Section 148

• Legal Framework and Precedents: Section 148 of the Income Tax Act deals with the issuance of notices for reassessment. The Finance Act, 2021, introduced procedural changes requiring notices to comply with Section 148A.
• Court's Interpretation and Reasoning: The court examined whether the notice, digitally signed on April 9, 2021, should be treated as issued under the new regime post-April 1, 2021, and thus subject to the procedures under Section 148A.
• Key Evidence and Findings: The notice was digitally signed after April 1, 2021, which the court interpreted as falling under the new procedural requirements.
• Application of Law to Facts: The court applied the precedent from the case of Suman Jeet Agarwal, which held that the date of digital signature is the effective date of issuance.
• Treatment of Competing Arguments: The respondents argued that the notice was valid under the old regime, but the court rejected this, emphasizing the new procedural requirements.
• Conclusions: The notice was deemed invalid as it did not comply with the procedural requirements of Section 148A.

Issue 2: Time Bar and Jurisdictional Validity

• Legal Framework and Precedents: The amended Section 149 introduced a pecuniary threshold for reassessment notices, requiring income escaping assessment to be INR 50 lakhs or more.
• Court's Interpretation and Reasoning: The court held that the reassessment action was invalid as the escaped income was below the INR 50 lakh threshold.
• Key Evidence and Findings: The income alleged to have escaped assessment was INR 46,17,000, below the statutory threshold.
• Application of Law to Facts: The court applied the amended Section 149 and the Supreme Court's interpretation in Rajeev Bansal, which confirmed the applicability of the new pecuniary threshold.
• Treatment of Competing Arguments: The petitioner argued that the reassessment was invalid due to the income amount, which the court accepted.
• Conclusions: The reassessment was invalid due to non-compliance with the pecuniary threshold.

Issue 3: Approval by Joint Commissioner

• Legal Framework and Precedents: Section 151 of the Income Tax Act specifies the authority required for approval of reassessment notices.
• Court's Interpretation and Reasoning: The court found that the Joint Commissioner was not the competent authority to grant approval under the amended Section 151.
• Key Evidence and Findings: Approval was granted by the Joint Commissioner, contrary to the requirements of the amended Act.
• Application of Law to Facts: The court applied the precedent from Abhinav Jindal HUF, which clarified the competent authority for approval post-amendment.
• Treatment of Competing Arguments: The respondents argued that TOLA extended the Joint Commissioner's authority, which the court rejected.
• Conclusions: The approval was invalid as it was not granted by the competent authority.

Issue 4: Impact of TOLA

• Legal Framework and Precedents: TOLA extended certain statutory timelines due to the COVID-19 pandemic.
• Court's Interpretation and Reasoning: The court held that TOLA did not alter the hierarchical structure or authority distribution for approvals under Section 151.
• Key Evidence and Findings: The court emphasized that TOLA was intended to extend timelines, not confer new jurisdiction.
• Application of Law to Facts: The court applied the statutory interpretation principles to conclude that TOLA did not impact the authority required for approval.
• Treatment of Competing Arguments: The respondents' reliance on TOLA for extending the Joint Commissioner's authority was rejected.
• Conclusions: TOLA did not affect the requirement for approval by the appropriate authority under the amended Act.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The impugned notices falling under category 'A' shall be held to be dated as on the date digital signature certificate was affixed."
• Core principles established: The date of digital signature determines the applicability of procedural requirements; reassessment notices must comply with the pecuniary threshold; approval must be obtained from the competent authority as per the amended Act.
• Final determinations on each issue: The notice under Section 148 was quashed due to non-compliance with procedural and pecuniary requirements, and the assessment order was set aside.