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2025 (4) TMI 1038 - AT - Income TaxReassessment proceedings u/s 147 as barred by limitation u/s 149 - HELD THAT - By virtue of section 3(1) OF TOLA time for completion of specified acts was extended till 30-06-2021. Thus the notice dated 22-06-2021 was issued 8 days prior to the expiry of period of limitation for issuing a notice u/s 148 of the Act as the extended time by TOLA. The period between 04-05-2022 to 30- 05-2022 the date on which the AO has issued the notice u/s 148A(b) of the Act in furtherance of his earlier notice dated 22- 06-2021 is also required to be excluded by virtue of the third proviso to section 149(1) of the Act as held in Rajeev Bansal Case 2024 (10) TMI 264 - SUPREME COURT (LB) AO has issued notice to the assessee dated 19-05-2022 and the two weeks-time was granted to respond the notice. The assessee had furnished its response to the notice u/s 148A(b) of the Act on 02-06-2022. AO was issued the second notice dated 06-07-2022 to the assessee and the assessee has filed the response in the compliance on 11-07-2022.Thus the period of limitation began running from that date i.e11-07-2022. By virtue of TOLA the AO had period of 8 days limitation left on the date of commencement of the reassessment proceedings which began on 22-06-2021 to issue a notice u/s 148 of the Act. AO was required to pass an order u/s 148A(d) of the Act within the 8 days notwithstanding the time stipulated u/s 148A(b) of the Act. This period expired on 19-07-2022. Since the period of limitation as provided u/s 149(1) of the act had expired prior to issuance of the reassessment order dated 23-07-2022. Thus the reassessment order is beyond the period of limitation. Decided in favour of the assessee.
The core legal questions considered by the Tribunal in this appeal pertain primarily to the validity and legality of reassessment proceedings initiated under the Income Tax Act, 1961 for the Assessment Year 2013-14. The principal issues addressed are:
1. Whether the reassessment proceedings initiated under Section 147 read with Section 144C of the Act are barred by limitation under Section 149 and thus invalid ab initio. 2. Whether there was any escaped income justifying initiation of reassessment proceedings under Section 147. 3. Whether the Assessing Officer (AO) complied with the procedural safeguards mandated under Sections 148, 148A, and 151 of the Act, including the requirement of a speaking order and sanction for reassessment. 4. Whether the additions made by the AO and confirmed by the Dispute Resolution Panel (DRP), treating long-term capital gains (LTCG) as unexplained money under Sections 69A and unexplained expenditure under Section 69C, are justified on the facts and law. 5. Whether the exemption claimed under Section 10(38) for LTCG on sale of listed shares, subject to Securities Transaction Tax (STT), was wrongly disallowed. 6. Whether the DRP's order passed under Section 144C(5) violated principles of natural justice by not providing reasonable opportunity to the assessee. Issue-wise Detailed Analysis: Limitation and Validity of Reassessment Proceedings (Issues 1, 3, 5, 6, 7): The legal framework governing reassessment proceedings includes Sections 147, 148, 148A, 149, and 151 of the Income Tax Act. Section 149 prescribes the time limit for issuance of notice under Section 148, which is generally six years from the end of the relevant assessment year. The procedure under Section 148A, introduced by amendment, mandates issuance of a show-cause notice and passing of a speaking order before initiating reassessment. The Tribunal extensively examined the timeline of notices issued in the present case, contextualized with the Supreme Court's ruling in Union of India v. Ashish Agarwal and subsequent judgments, including Rajeev Bansal v. Union of India and the Delhi High Court decision in Ram Balram Build Home (P) Ltd. v. Income-tax Officer. These decisions clarified that:
Applying these principles to the facts, the Tribunal found that the AO issued the initial notice under Section 148 on 22.06.2021, eight days prior to the extended limitation period under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA). However, the AO failed to pass the mandatory order under Section 148A(d) within the truncated limitation period (which expired on 19.07.2022) and issued the final notice and order under Section 148 and 148A(d) on 30.07.2022, beyond the limitation period. The Tribunal relied heavily on the detailed reasoning in the Ram Balram Build Home case, which held that the AO's power to initiate reassessment proceedings under Section 148 is subject to the limitation period calculated after excluding the periods mandated by the Supreme Court's ruling and the TOLA extensions. The AO's failure to comply with these timelines rendered the reassessment proceedings barred by limitation and void ab initio. The Tribunal rejected the Revenue's contention that the AO could pass the order under Section 148A(d) within the month following receipt of the assessee's reply, emphasizing that the limitation under Section 149(1) truncates the time available for passing such order. The fourth proviso to Section 149 was held inapplicable as the truncated period exceeded seven days. Consequently, the reassessment notice dated 30.07.2022, the order under Section 148A(d) dated 30.07.2022, and the assessment order dated 30.05.2023 framed pursuant thereto were held to be invalid for being beyond limitation. Escaped Income and Merits of Additions (Issues 2, 8, 9, 10, 11, 13, 14): The AO, relying on information from the Investigation Wing and a search operation on PMC Fincorp Ltd., alleged that the assessee was a beneficiary of accommodation entries in the form of bogus LTCG amounting to Rs. 55,37,075. The AO treated the LTCG as unexplained money under Section 69A and added Rs. 1,66,112 as unexplained expenditure under Section 69C, representing 3% commission paid to entry operators. The DRP upheld these additions, holding that the transactions were not genuine and were part of a rigged price movement orchestrated by entry operators and scrip brokers. The DRP emphasized the failure of the assessee to prove genuineness despite banking channel receipts and the overwhelming evidence from investigation reports and inquiries. The Tribunal noted that the DRP's jurisdiction under Section 144C is limited to merits and cannot entertain jurisdictional or technical objections, as clarified in the DRP's own order. The DRP found no infirmity in the AO's conclusion that the LTCG was bogus and rightly added the amounts under Sections 69A and 69C. The assessee challenged these findings, asserting that the LTCG was genuine and exempt under Section 10(38) as the shares were sold through a recognized stock exchange and subject to STT. However, the Tribunal refrained from adjudicating these merit-based grounds, given its decision on the limitation issue, leaving them open for future consideration if necessary. Procedural Compliance and Natural Justice (Issues 3, 5, 6, 7, 12): The assessee contended that the AO failed to comply with the mandatory procedural requirements of issuing a proper show-cause notice under Section 148A(b), considering the assessee's reply, passing a speaking order under Section 148A(d), and obtaining valid sanction under Section 151. The assessee also alleged violation of natural justice due to non-provision of reasonable opportunity before the DRP passed orders under Section 144C(5). The DRP clarified that its jurisdiction is confined to merits and does not extend to jurisdictional or procedural objections. The Tribunal did not delve into these procedural contentions in detail, as the limitation issue was dispositive. The Tribunal kept these grounds open without adjudication. Conclusions: The Tribunal conclusively held that the reassessment proceedings initiated by the AO were barred by limitation under Section 149 of the Act. The failure to pass the order under Section 148A(d) within the truncated limitation period rendered the subsequent notice and assessment order invalid and void ab initio. Consequently, the appeal was allowed, and the impugned orders were set aside. Due to this finding, the Tribunal refrained from adjudicating the merits of additions made under Sections 69A and 69C or the procedural objections raised by the assessee, leaving those issues open. Significant Holdings: "The AO was required to pass an order under Section 148A(d) of the Act within the period available for issuance of notice under Section 148, as prescribed under Section 149 of the Act. This period was truncated due to the exclusion of time mandated by the Supreme Court's ruling in Ashish Agarwal and subsequent judgments, as well as TOLA extensions. The failure to pass the order within this truncated period renders the reassessment proceedings barred by limitation and void ab initio." "The scope of the Dispute Resolution Panel under Section 144C is limited to issues on merits and does not extend to jurisdictional or technical matters." "The period from the issuance of the original notice under the unamended Section 148 regime until the Supreme Court's decision in Ashish Agarwal, the period from the Supreme Court decision until supply of material to the assessee under Section 148A(b), and the time granted to the assessee to respond to the show-cause notice are to be excluded from limitation under the third proviso to Section 149(1) of the Act." "Additions made on the basis of accommodation entries involving bogus LTCG and unexplained commission payments are sustainable on merits, subject to adjudication, where the assessee fails to prove genuineness."
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