2025 (3) TMI 995 - AT - Income Tax

Reassessment beyond period of limitation - notice u/s 148A(b) of the Act having been initiated after six years from the assessment year - scope of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 (TOLA) HELD THAT - Admittedly the notice u/s 148 of the Act was issued on 30.06.2022 i.e. beyond the TOLA period and such a notice under the old regime could have been issued only up to 31.03.2022 and the benefit of extension of due date as per TOLA would be applicable only to the notices issued between 01.04.2021 to 30.06.2021 if the limitation for issuing such notices was expiring between 20 March 2020 and 31 March 2021. The limitation for A.Y. 2015-16 was expiring on 31.03.2022 i.e. beyond the period of 20.03.2020 to 31.03.2022 therefore the benefit of TOLA would not be applicable. Further in view of the first proviso to section 149(1) of the Act. The time limit for reopening assessments has been reduced from four years to three years. However in cases where income that escaped assessment amounts to Rs.50 lakhs or more assessments can be reopened within ten years. The new regime prohibits reopening of assessments that were time-barred under the old regime. In this case the notice u/s 148 of the Act was earlier issued on 09.04.2021 which was treated as show cause notice u/s 148A(b) of the Act but the order u/s 148A(d) of the Act has been passed on 30.06.2022 and as per the old provisions of reassessment the notice u/s 148 of the Act after complying with the procedural requirement as per the amended provisions ought to have been issued by 31.03.2022 after excluding the period granted to file the reply in response to the notice u/s 148A(b) of the Act. Since the limitation for issue of notice u/s 148 of the Act expired on 31.03.2022 under the old regime and for AY 2015-16 of the assessment order the notice u/s 148 has been issued on 30.06.2022 the benefit of TOLA for extending the limitation for issue of notice u/s 148 of the Act will not be available to the Revenue. Thus notice issued u/s 148 of the Act on 30.06.2022 is barred by limitation and the assessment order is hereby quashed and appeal of the assessee is allowed.

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, was barred by limitation, particularly in light of the Supreme Court's decision in the case of Union of India vs. Rajeev Bansal.
Whether the reassessment proceedings were valid given the procedural requirements and timelines under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and the amended provisions of the Income Tax Act.
Whether the reassessment order was valid when the original assessment was completed under Section 143(3) with full disclosure of facts by the assessee.
Whether the procedural requirements for issuing a notice under Section 148A(b) and the subsequent order under Section 148A(d) were complied with.
Whether the disallowance of derivative loss and addition of unexplained expenditure were justified under the circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation and Validity of Notice under Section 148

Relevant Legal Framework and Precedents: The Court considered the provisions of Section 148 and Section 149 of the Income Tax Act, as amended by the Finance Act, 2021, alongside TOLA. The Supreme Court's decision in Rajeev Bansal was pivotal, which clarified the time limits for issuing reassessment notices.
Court's Interpretation and Reasoning: The Court interpreted that the notice issued on 30.06.2022 was beyond the permissible period as per the amended provisions and the Supreme Court's ruling. The decision emphasized that the benefit of TOLA was not available for notices issued after 31.03.2022.
Key Evidence and Findings: The notice under Section 148 was issued on 30.06.2022, which was beyond the extended period allowed under TOLA, making it time-barred.
Application of Law to Facts: The Court applied the legal principles established in Rajeev Bansal and concluded that the notice was issued beyond the allowable period, rendering the reassessment proceedings invalid.
Treatment of Competing Arguments: The Tribunal considered the arguments presented by the assessee regarding the limitation period and found them consistent with the Supreme Court's interpretation.
Conclusions: The notice under Section 148 was barred by limitation, and the reassessment order was quashed.

Issue 2: Procedural Validity of Reassessment Proceedings

Relevant Legal Framework and Precedents: The procedural requirements under Sections 148A(b) and 148A(d) were examined, along with the necessity for timely issuance of notices and orders as per the amended Income Tax Act.
Court's Interpretation and Reasoning: The Court noted that the procedural requirements were not met, as the notice and order were issued beyond the permissible timeline, violating the statutory provisions.
Key Evidence and Findings: The reassessment notice was issued after the deadline, and the procedural requirements for prior approval and issuance of notices were not adhered to.
Application of Law to Facts: The Tribunal applied the statutory requirements and found that the procedural lapses invalidated the reassessment proceedings.
Treatment of Competing Arguments: The Tribunal acknowledged the arguments regarding procedural lapses and found them valid in light of the statutory framework.
Conclusions: The reassessment proceedings were procedurally invalid, leading to the quashing of the reassessment order.

Issue 3: Merits of Disallowance and Additions

Relevant Legal Framework and Precedents: The disallowance of derivative loss and addition under Section 69C were considered under the provisions of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal did not delve into the merits of these issues, as the reassessment order was quashed on procedural grounds.
Key Evidence and Findings: The Court noted the lack of evidence to support the disallowance and addition but did not make a determination due to the procedural quashing.
Application of Law to Facts: The Tribunal refrained from applying the law to these facts, given the procedural invalidity of the reassessment order.
Treatment of Competing Arguments: The Tribunal acknowledged the arguments but did not adjudicate them due to the procedural outcome.
Conclusions: The issues on merits were not adjudicated as the reassessment order was quashed on procedural grounds.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The notice issued u/s 148 of the Act on 30.06.2022 is barred by limitation and the assessment order is hereby quashed."
Core Principles Established: The judgment reinforced the principle that procedural compliance with statutory timelines is crucial for the validity of reassessment proceedings.
Final Determinations on Each Issue: The reassessment proceedings were quashed due to the notice being time-barred, and other issues were not adjudicated.

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