2024 (1) TMI 803 - HC - Income Tax

Reopening of assessment u/s 147 - Time limit for notice - period of limitation to issue notice - validity of a notice issued under Section 148/148A - scope of Taxation and other laws (Relaxation and Amendment of certain provisions) Act, 2020 (TOLA) application - provisions of the new reassessment law introduced by the Finance Act, 2021 - HELD THAT - As per the unamended Section 149(1)(b) of the Act, the outer time limit to issue a notice under Section 148 was 6 years from the end of the relevant assessment year and thus, for AY 2013-14, the time limit expired on 31st March 2020. Under the amended provision, a notice under Section 148 can be issued within a period of 3 years or 10 years, the latter available only after fulfilling certain stipulated additional conditions, including the limitation provided for by the first proviso to Section 149(1) of the Act. The first proviso to Section 149(1) stipulates that no notice under Section 148 can be issued at any time in a case for any assessment year, if a notice under Section 148 could not have been issued at that time on account of being beyond the time limit specified under the unamended Section 149(1)(b), i.e., as it stood prior to the Finance Act, 2021. Applicability of Section 149 to be seen qua the notice under Section 148 and not with respect to the notice issued under Section 148A(b) or the order passed under Section 148A(d) of the Act. In the present case, as for AY 2013-14, the 6 years period expired on 31st March 2021, extended under Section 3(1) of TOLA. Therefore, the impugned notice dated 28th July 2022, which is under challenge in the petition, is barred by limitation. Reassessment notices issued for AY 2013-14 are patently barred by limitation as the six years limitation period under the Act (as extended by Section 3 of TOLA) expired by 31st March 2021. However, even on the Revenue s demurrer and assuming that such reopening notices could travel back in time and that the provisions of TOLA protected such reopening notices (we do not agree), even then, in so far as the notices issued for AY 2013-14 is concerned, would in any case be barred by limitation. As stated earlier, under the erstwhile Section 149, a notice under Section 148 could have been issued within a period of six years from the end of the relevant assessment year. The Notifications issued under TOLA, viz., Notification No. 20/2021, which is relied upon by the Revenue, only cover those cases where 31st March, 2021 was the end date of the period during which the time limit, specified in, or prescribed or notified under the Income Tax Act falls for completion. The limitation under the Income Tax Act, 1961 (erstwhile Section 149) for reopening the assessment for the AY 2013-14 expired on 31st March 2020. Hence, Notification No. 20/2021 did not apply to the facts of the present case, viz., reopening notice for the AY 2013-14. Therefore, the Revenue could not issue any notice under Section 148 beyond 31st March 2021 and hence, even the relate back theory of the Revenue could not safeguard the reassessment proceedings initiated after 1st April 2021 for AY 2013-14 Therefore, in the present case, as the foundation of the entire reassessment proceeding, viz., the notice issued in June 2021 itself was barred by limitation in view of non-applicability of Notification No. 20/2021, the superstructure sitting thereon, viz., the reassessment proceedings initiated pursuant to judgment in Ashish Agarwal will also be regarded as beyond time limit. Therefore, on this ground as well, the impugned reopening notice dated 28th July 2022 issued for AY 2013-14 in petitioner s case is barred by limitation and deserves to be quashed and set aside. Alternatively, it is well settled that a notice under Section 148 of the Act cannot be issued in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was already barred under the pre-amended Act on the date when the new legislation came into force - The notice issued under Section 148 of the Act, impugned in this petition, for AY 2013-14 is issued beyond the period of limitation. Decide in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the statutory procedure under Sections 148, 148A, 149, and 151 of the Act.
3. Applicability of the Central Board of Direct Taxes (CBDT) Instruction No. 1 of 2022.
4. Limitation period for issuing the notice.
5. Compliance with the Supreme Court's directives in Union of India V/s. Ashish Agarwal.

Summary:

Issue 1: Validity of Notice under Section 148
The petitioner challenged the notice dated 28th July 2022 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2013-14. The petitioner argued that the notice was illegal, without jurisdiction, arbitrary, and in violation of the principles of natural justice. The court held that the validity of a notice issued under Section 148 must be judged based on the law existing on the date of issuance. The notice dated 28th July 2022 was found to be issued beyond the period of limitation.

Issue 2: Compliance with Statutory Procedure
The petitioner argued that the Assessing Officer did not follow the mandatory procedure stipulated under Sections 148, 148A, 149, and 151 of the Act before issuing the notice. The court noted that the Assessing Officer must follow the stipulated mandatory procedure before assuming jurisdiction and issuing any notice under Section 148.

Issue 3: Applicability of CBDT Instruction No. 1 of 2022
The petitioner contended that the CBDT Instruction No. 1 of 2022 was beyond jurisdiction, illegal, contrary to the directions of the Apex Court, and ultra vires. The court observed that instructions/circulars are binding on the Revenue but not on the assessees or the courts. The court also noted that the Delhi High Court had declared paragraphs 6.1 and 6.2(ii) of the Instructions as bad in law.

Issue 4: Limitation Period
The court focused on the preliminary issue of whether the notice was issued beyond the period of limitation. The court held that the limitation for AY 2013-14 expired on 31st March 2020, extended under Section 3(1) of TOLA to 31st March 2021. The impugned notice dated 28th July 2022 was thus barred by limitation. The court referred to similar judgments by the Calcutta High Court and Rajasthan High Court, confirming that notices issued after 1st April 2021 must comply with the amended provisions of the Act.

Issue 5: Compliance with Supreme Court's Directives
The court noted that the Supreme Court, in Union of India V/s. Ashish Agarwal, had modified the orders passed by various High Courts to the effect that the notices issued under Section 148 of the Act shall be deemed to have been issued under Section 148A(b) of the Act. The court held that the validity of the reopening notice must be decided based on the law existing at the time of issuance, i.e., 28th July 2022.

Conclusion:
The court quashed and set aside the impugned notice dated 28th July 2022, holding it to be barred by limitation. The petition was disposed of accordingly, with no order as to costs. The court did not delve into other grounds of challenge, allowing the petitioner to raise those contentions independently in any other proceeding.