2025 (4) TMI 1216 - AT - Income Tax

Reopening of assessment u/s 147 - As alleged approval was not taken prior to the issuance of the notice u/s 148 - Addition u/s 69A r.w.s. 115BBE - assessee has failed to disclose details of cash deposits during demonetization in its return of income Assessee submitted that notice is barred by limitation - HELD THAT - We find that assessment order passed by the assessing officer should be quashed as the notice under section 148 of the Act is barred by limitation. That is on the basis of illegal notice assessment order should be quashed. We also note that procedure laid down u/s 148A of the Act is not followed by the assessing officer. The law for reopening of assessment u/s 147/148 of the I.T. Act has been amended w.e.f. 01/04/2021. Since the notice u/s 148 of the Act is issued on 01/04/2021 the new provisions are applicable for reopening of assessment as directed by Hon ble Supreme Court in the case of Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT However the assessment order u/s 143(3) of the Act has been passed under the old law by following the procedure as stated under the old provisions prior to amendments in the year 2021. Therefore the AO is failed to follow the procedure as laid down under the new regime of proceedings u/s 148. The phraseology of amended section 148 makes in unmistakable terms clear that there should be concrete information as defined in Explanation 1 to section 148 of the Act. Such information should be suggestive of income escaping assessment and such information should be objective in nature. In other words the arguable subjectivity in the pre-amendment provision is given a go-by. For conducting assessment u/s 147 of the Act there should be not only escapement but also the reason to believe that there is such escapement the reason being the information itself. Hence a plausible view could be taken that post-amendment of the provision; the escapement has to be established with concrete information. Now coming to the assessee s case under consideration taking into account above provisions of the Act we note that books of accounts of firm are duly audited and firm is maintaining regular books of accounts. The reopening is carried out on account of cash deposit in bank. It is established principle that merely because cash is deposited in bank does not lead to escapement of income. The cash deposits are duly recorded in the books of accounts and income from such deposits is duly considered at the time of filing of return of income. Therefore reopening is conducted merely on account of reason to believe as against escapement of income with concrete information on hand. The AO has failed to establish with concrete information that there is escapement of income. Non complaince to procedure mandated under the amended provisions of section 148A - The notice u/s 148 of the Act has been issued after obtaining the approval from JCIT Range 1 Jamnagar. The said fact is stated in notice u/s 148 of the Act. The AO is required to follow the procedure under new law and required to follow the approval as per Section 148A(d) of the I.T. Act 1961. Therefore the notice has been issued without obtaining the approval as prescribed under amended provision of section 151 of the Act. Thus we quash the reassessment order itself and allow the appeal of the assessee.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to the validity and legality of the reassessment proceedings initiated under section 147 read with section 148 of the Income-tax Act, 1961 (the Act) for Assessment Year 2017-18. Specifically, the issues include:

1. Whether the reopening of assessment under section 147/148 was valid and within the prescribed limitation period, especially considering the date of issuance and digital signing of the notice under section 148.

2. Whether the procedure mandated under the amended provisions of section 148A of the Act, effective from 01.04.2021, was duly followed before issuing the notice under section 148.

3. Whether the addition of Rs. 21,92,000/- under section 69A of the Act on account of cash deposits was justified.

4. Whether the provisions of section 115BBE were correctly applied.

5. Whether the levy of interest under sections 234A, 234B, and 234C was appropriate.

6. Whether initiation of penalty proceedings under sections 271AAC and 272A(1)(d) was warranted.

7. Ancillary issues relating to the opportunity of being heard and procedural fairness.

Issue-wise Detailed Analysis:

1. Validity and Limitation of Reopening under Section 147/148

Relevant Legal Framework and Precedents: The reopening of assessment under section 147/148 is subject to strict limitation periods as provided under section 149 of the Act. The law was amended effective 01.04.2021, introducing a monetary threshold of Rs. 50 lakhs for income escaped assessment beyond three years and mandating the procedure under section 148A. The Supreme Court in Ashish Agarwal (2022) 138 taxmann.com 64 (SC) clarified that no notice under section 148 can be issued without following the procedure under section 148A. Further, the recent Supreme Court ruling in UOI v. Rajeev Bansal [2024] 167 taxmann.com 70 (SC) emphasized that the amended provisions apply retrospectively and the threshold limits and limitation periods under the new regime are binding.

Court's Interpretation and Reasoning: The Tribunal examined the date of issuance of the notice under section 148, which was dated 31.03.2021 but digitally signed only on 01.04.2021 at 12:45 pm. The Tribunal held that the date of digital signature is the effective date of issuance, supported by the principle that issuance requires dispatch after signing. The notice was therefore issued beyond the prescribed limitation period of three years for income escaped assessment below Rs. 50 lakhs. The Tribunal relied on decisions such as Acropolis Realty (2024) 168 taxmann.com 406 (Delhi) and Suman Jeet Agarwal (2022) 143 taxmann.com 11 (Delhi) to hold that notices digitally signed on or after 01.04.2021 bear that date as the date of issue.

Key Evidence and Findings: The digital signature timestamp and email dispatch records showed issuance on 01.04.2021. The income escaped assessment was Rs. 21.92 lakhs, below the Rs. 50 lakhs threshold. The approval for reopening was obtained only after issuance of the notice, contrary to the procedural requirements.

Application of Law to Facts: Since the notice was issued beyond the limitation period and without following the amended procedural safeguards, the reopening was held invalid. The Tribunal emphasized that the new regime requires concrete information suggesting escapement of income and prior approval before issuing notice.

Treatment of Competing Arguments: The Revenue contended that section 292B deems notices valid if the assessee participates, and cited COVID-19 related extensions and Supreme Court rulings allowing time limits. The Tribunal distinguished these and held that the procedural and limitation requirements under the new law must be strictly complied with.

Conclusion: The reopening notice under section 148 was barred by limitation and issued without following mandatory procedural safeguards under section 148A and section 151. Consequently, the reassessment order under section 147 was quashed.

2. Compliance with Procedure under Section 148A

Relevant Legal Framework and Precedents: Section 148A prescribes a mandatory procedure before issuance of notice under section 148, including conducting enquiry with approval, issuing a show-cause notice, providing opportunity of hearing, considering replies, and passing a reasoned order. The Supreme Court in Ashish Agarwal emphasized that these are conditions precedent to reopening.

Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer did not follow the procedure under section 148A. No show-cause notice was issued, no opportunity of hearing was given, and no reasoned order was passed before issuing the section 148 notice. The approval obtained post issuance was also non-compliant with section 151 as amended.

Key Evidence and Findings: The record showed absence of any enquiry or show-cause notice under section 148A, and the approval for reopening was obtained only after notice issuance.

Application of Law to Facts: The non-compliance with mandatory procedural safeguards rendered the reopening invalid. The Tribunal underscored that the new law requires concrete information and procedural fairness, which were lacking.

Treatment of Competing Arguments: The Revenue's reliance on earlier procedural norms and COVID-19 extensions was rejected as the amended provisions are retrospective and binding.

Conclusion: The reopening was procedurally defective and thus invalid.

3. Addition under Section 69A on Cash Deposits

Relevant Legal Framework and Precedents: Section 69A permits addition of unexplained cash credits. However, mere cash deposits in bank accounts do not ipso facto indicate escapement of income if properly recorded in books and returns.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee maintained regular audited books of accounts and declared income accordingly. The cash deposits were recorded in the books and no concrete information suggested escapement of income beyond declared income.

Key Evidence and Findings: The assessee's books and audit reports showed proper accounting of cash deposits. No evidence was brought to show that the deposits were unexplained or concealed.

Application of Law to Facts: Since the reopening itself was invalid, the addition could not stand. Even on merits, mere cash deposits without evidence of concealment do not justify addition under section 69A.

Treatment of Competing Arguments: The Revenue's reliance on cash deposits during demonetization period as suspicious was not supported by concrete evidence.

Conclusion: The addition under section 69A was not sustainable.

4. Applicability of Section 115BBE

The Tribunal did not delve into the merits of this issue as the reassessment itself was quashed. However, section 115BBE imposes tax at a flat rate on undisclosed income. Since reassessment was invalid, application of this section was rendered academic.

5. Levy of Interest under Sections 234A, 234B, and 234C

Similarly, since the reassessment was quashed, the levy of interest under these sections was not adjudicated upon.

6. Initiation of Penalty under Sections 271AAC and 272A(1)(d)

The Tribunal did not consider penalty issues in view of the quashing of reassessment.

7. Opportunity of Being Heard

The assessee contended that the Learned Commissioner of Income Tax (Appeals) passed the appellate order without providing proper opportunity of hearing. The Tribunal noted that the appellate order merely narrated facts and confirmed the assessing officer's findings without adequate adjudication. However, this issue became academic after quashing the reassessment.

Significant Holdings:

"The process of digitally generating the notice on the system was carried out on 01/04/2021. The impugned notice could not have been issued prior to the same being signed. The date of the said notice is duly reflected as on 01/04/2021. It has been consistently held that the expression 'issue' in its common parlance and its legal interpretation means that the issuer of the notice must after drawing up the notice and signing the notice, make an obvious act to ensure due dispatch of the notice to the addressee. It is only upon due dispatch, that the notice can be said to have been 'issued'."

"Under the substituted provisions of the I.T. Act vide Finance Act, 2021, no notice under section 148 can be issued without following the procedure prescribed under section 148A. Along with the notice under section 148, the Assessing Officer is required to serve the order passed under section 148A. Section 148A is a new provision which is in the nature of a condition precedent."

"The phraseology of amended section 148 makes in unmistakable terms clear that there should be concrete information as defined in Explanation 1 to section 148 of the Act. Such information should be suggestive of income escaping assessment and such information should be objective in nature. In other words, the arguable subjectivity in the pre-amendment provision is given a go-by."

"Merely because cash is deposited in bank does not lead to escapement of income. The cash deposits are duly recorded in the books of accounts and income from such deposits is duly considered at the time of filing of return of income."

"The notice u/s 148 of the Act has been issued without obtaining the approval as prescribed under amended provision of section 151 of the Act."

"Considering the above facts and circumstances and position in law, as narrated above, we quash the reassessment order itself, and allow the appeal of the assessee. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous."

The Tribunal's final determination was that the reassessment proceedings initiated under section 147/148 were invalid due to issuance of notice beyond limitation and non-compliance with mandatory procedural safeguards under section 148A and section 151 of the Act. Consequently, the reassessment order and all consequential additions, interest, and penalties were quashed. The appeal of the assessee was allowed accordingly.