Reassessment notice under section 148 held invalid; TOLA cannot extend timelines beyond new Finance Act regime

HC quashed the reassessment proceedings for AY 2015-16, holding the notice issued under section 148 as invalid. It ruled that the notice, though issued between 01.04.2021 and 30.06.2021, could not derive validity from the extended timelines under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) once the new reassessment regime introduced by the Finance Act, 2021 came into effect. The court held that the Revenue could not invoke the old law through TOLA to issue notice beyond the limitation prescribed under the new scheme.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment notice issued under section 148 of the Income Tax Act, 1961 for Assessment Year 2015-2016, during the period 01.04.2021 to 30.06.2021 under TOLA, is valid in light of the amended limitation under section 149 and subsequent judicial pronouncements.

1.2 Whether any further adjudication is required on the reassessment for Assessment Year 2015-2016 in view of the concession recorded and the law declared by the Supreme Court in relation to notices issued on or after 01.04.2021.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of section 148 notice for A.Y. 2015-2016 issued between 01.04.2021 and 30.06.2021 under TOLA

Legal framework (as discussed by the Court)

2.1 The Court refers to: (i) section 148 and section 148A of the Income Tax Act; (ii) the amended limitation regime under section 149 with effect from 01.04.2021; and (iii) the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), including section 3(1) thereof, under which the Revenue purported to extend the time limit for issuing section 148 notices up to 30.06.2021.

2.2 The Court notes the intervention of the Supreme Court in Union of India v. Ashish Agarwal, wherein notices issued under section 148 between 01.04.2021 and 30.06.2021 were deemed to be notices under section 148A(b) and a fresh procedure under section 148A(d) followed, resulting in fresh notices under section 148 in July-August 2022.

2.3 The Court further relies upon the subsequent three-judge bench decision of the Supreme Court in Union of India v. Rajeev Bansal, which examined limitation under the amended section 149 and the effect of TOLA, and upon Deepak Steel and Power Ltd v. CBDT, where Rajeev Bansal was followed.

Interpretation and reasoning

2.4 The Court records that the Assessing Officer issued the original notice under section 148 on 04.06.2021, after 31.03.2021, by invoking the extended time limit under TOLA, and that, pursuant to Ashish Agarwal, the said notice was treated as a section 148A(b) notice for A.Y. 2015-2016, followed by orders under section 148A(d) and fresh notices under section 148 in 2022.

2.5 The Court notes the finding and concession recorded before the Supreme Court in Rajeev Bansal that, for Assessment Year 2015-2016, the time period under the amended section 149 is such that: - three years from the end of the relevant assessment year expired on 31.03.2019 (before TOLA came into force); and - six years from the end of the relevant assessment year expired on 31.03.2022 (after the operation of TOLA), and that, in this situation, notices for Assessment Year 2015-2016 issued under section 3(1) of TOLA on or after 01.04.2021 were held to be invalid.

2.6 The Court relies on paragraph 19(f) of Rajeev Bansal, as reiterated in Deepak Steel and Power Ltd, where the Revenue expressly conceded that for Assessment Year 2015-2016, all notices issued on or after 01.04.2021 must be dropped as they would not fall for completion during the period prescribed under TOLA.

2.7 The Court notes that the Supreme Court, applying the above concession and legal position, has quashed similar notices for A.Y. 2015-2016 issued after 31.03.2021 in multiple matters, and that several High Courts, including Delhi, Punjab and Haryana, Rajasthan, Karnataka, and this Court (in Mayurkumar Babubhai Patel), have followed the same approach.

2.8 Referring specifically to its own earlier decision in Mayurkumar Babubhai Patel, the Court reiterates that where (i) notices under section 148A(b) were issued after six years from the end of the relevant assessment year, and (ii) such notices were issued on or after 01.04.2021 for A.Y. 2015-2016, they are time barred and must be dropped in view of Rajeev Bansal and Deepak Steel and Power Ltd.

Conclusions

2.9 The Court concludes that, for Assessment Year 2015-2016, any notice under section 148 issued during the extended period from 01.04.2021 to 30.06.2021 under TOLA is invalid, as it falls foul of the limitation regime under section 149 as interpreted by the Supreme Court and in light of the binding concession recorded therein.

2.10 Accordingly, the impugned notice issued under section 148 for Assessment Year 2015-2016 during the said extended period is held to be invalid and is quashed, thereby allowing the petition.

Issue 2: Necessity of further adjudication in view of Supreme Court precedent and Revenue concession

Interpretation and reasoning

2.11 The Court observes that the Supreme Court, in Deepak Steel and Power Ltd (following Rajeev Bansal), has explicitly treated the Revenue's concession that all notices for Assessment Year 2015-2016 issued on or after 01.04.2021 must be dropped as determinative, holding that "nothing further is required to be adjudicated" in such cases.

2.12 The Court adopts the same reasoning, treating the Supreme Court's pronouncements and recorded concession as fully covering the controversy regarding the validity of notices for Assessment Year 2015-2016 issued under TOLA after 31.03.2021.

Conclusions

2.13 In view of the binding decisions of the Supreme Court and the Revenue's concession recorded therein, the Court holds that no further adjudication on other grounds is required once it is found that the impugned notice for Assessment Year 2015-2016 was issued during the extended TOLA period after 31.03.2021.

2.14 The petition is disposed of by declaring the impugned notice under section 148 for Assessment Year 2015-2016 invalid on the ground of limitation and its issuance during the extended period under TOLA, without entering into any other issues.

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