2025 (1) TMI 976 - HC - Income Tax

Validity of Notice issued for reassessment as barred by limitation - limitation period u/s153C - applicability of the timeframes prescribed under Sections 149 153A and 153C of the Income Tax Act - HELD THAT - AO exercising jurisdiction in respect of the petitioner had prepared the satisfaction note (in terms of Clause (iv) of Explanation 2 to proviso to Section 148 of the Act). However that cannot be construed as a satisfaction note by the AO of the searched person. The date of the said satisfaction note cannot be considered as the start point to consider the limitation period under Section 153C of the Act. It is also material to note the satisfaction note was prepared on 23.08.2024 and was approved on 29.08.2024 by the Chief Commissioner of Income Tax. Thus even if the limitation is computed on the basis of the aforesaid approval the same would be required to be computed from the end of the assessment year relevant to the financial year in which such satisfaction note was prepared. The petitioner has set out a tabular statement in support of his contention that the AY 2015-16 is beyond the period of ten years. In view of the above the present petition is allowed. The impugned notice and the proceedings pursuant thereto are set aside.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the notice issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2015-16 is barred by limitation.
The constitutional validity of Explanation 2 to Section 148 of the Income Tax Act.
The applicability of the timeframes prescribed under Sections 149, 153A, and 153C of the Income Tax Act, especially in light of the changes introduced by the Finance Act, 2021.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on Notice under Section 148

Relevant legal framework and precedents: The case primarily revolves around the interpretation of Sections 148, 149, 153A, and 153C of the Income Tax Act, with particular emphasis on the amendments introduced by the Finance Act, 2021. The precedents considered include the decisions in Dinesh Jindal v. Assistant Commissioner of Income Tax and The Pr. Commissioner of Income Tax - Central-1 v. Ojjus Medicare Pvt. Ltd.
Court's interpretation and reasoning: The court emphasized that the initiation of reassessment proceedings must adhere to the timeframes specified in the relevant sections. The court noted that for searches conducted after April 1, 2021, the reassessment must satisfy the conditions set out in the First Proviso to Section 149(1), which requires consideration of the timeframes as they existed before the Finance Act, 2021.
Key evidence and findings: The court found no material on record indicating that the satisfaction note required under Section 153C had been prepared by the Assessing Officer (AO) of the searched person. This absence of a satisfaction note was crucial in determining the limitation period.
Application of law to facts: The court applied the legal framework to the facts, concluding that the notice issued was beyond the permissible period. The court relied on the computation of the ten-year block period, which was explained in previous judgments.
Treatment of competing arguments: The court considered the Revenue's argument regarding the computation of the limitation period but found it inconsistent with established precedents and the statutory framework.
Conclusions: The court concluded that the notice issued under Section 148 was barred by limitation, as the relevant assessment year fell beyond the ten-year block period.

Issue 2: Constitutional Validity of Explanation 2 to Section 148

Relevant legal framework and precedents: The challenge to the constitutional validity of Explanation 2 to Section 148 was raised, but the petitioner's counsel confined the argument to the limitation issue, leaving this constitutional question largely unexplored in the judgment.
Court's interpretation and reasoning: The court did not delve into the constitutional validity of Explanation 2, focusing instead on the procedural aspects and limitations of the notice.
Conclusions: The court did not make a determination on the constitutional validity of Explanation 2 to Section 148, as the focus remained on the procedural lapse regarding the limitation period.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The First Proviso to Section 153C introduces a legal fiction on the basis of which the commencement date for computation of the six-year or the ten-year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO."
Core principles established: The judgment reinforced the principle that the timeframe for reassessment must strictly adhere to the statutory provisions, and any deviation, particularly in the absence of required procedural documentation (such as a satisfaction note), renders the notice invalid.
Final determinations on each issue: The court set aside the impugned notice and the proceedings initiated under it, concluding that the notice was issued beyond the permissible limitation period. The constitutional validity of Explanation 2 to Section 148 was not adjudicated in this judgment.

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