Notices under s.153(3) invalidated as time-barred; earlier assessment deemed accepted and excess tax must be refunded

HC held the revenue's notices dated 21.07.2023, 09.08.2023 and 16.08.2023 invalid as barred by the statutory limitation in s.153(3) following the Tribunal's remand order. Because no fresh assessment was completed within the prescribed period, the earlier assessment could not be reopened; the taxpayer's returned income is deemed accepted and the excess tax paid for the relevant year must be refunded by the department. The court ordered the impugned notices set aside for failure to act within the mandated timeframe.

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Issues Involved:

1. Issuance of refund of INR 71,54,104/- along with applicable interest under Section 244A of the Income Tax Act.
2. Quashing of impugned notices dated 21.07.2023, 09.08.2023, and 16.08.2023.
3. Compliance with the Tribunal's directions and the limitation period under Section 153(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Issuance of Refund:

The petitioner sought a writ of mandamus for issuing a refund of INR 71,54,104/- (including interest under Section 244A of the Income Tax Act) for AY 2004-05. The petitioner had filed the return of income declaring INR 45,000/- which was initially accepted. However, reassessment proceedings added INR 1 crore to the income, which was contested through appeals up to the Tribunal. The Tribunal remitted the matter to the AO, who again made the same additions on a protective basis. Despite subsequent appeals and directions from the Tribunal, the AO failed to comply with the Tribunal's directions within the stipulated time. The court held that the failure to pass a fresh assessment order within the limitation period resulted in the acceptance of the income as returned by the petitioner, thereby entitling the petitioner to a refund.

2. Quashing of Impugned Notices:

The petitioner challenged the notices dated 21.07.2023, 09.08.2023, and 16.08.2023, arguing they were time-barred and invalid since no appeal effect order was passed within the time period granted by the Tribunal. The court observed that the AO did not pass any assessment order pursuant to the Tribunal's order dated 11.10.2019, and the statutory limitation period prescribed under Section 153(3) of the Act expired on 30.09.2021. Consequently, the court held that the impugned notices could not be sustained and needed to be set aside.

3. Compliance with Tribunal's Directions and Limitation Period:

The court examined whether the limitation period for remand by the Tribunal should be strictly construed under Section 254 read with Section 153(3) of the Act. The court noted that the AO failed to comply with the Tribunal's directions within the stipulated six months, and no appeal was filed challenging the Tribunal's order. The statutory limitation period for passing a fresh assessment order expired, and the court emphasized strict adherence to this period. The court referred to the Supreme Court's decision in Commissioner of Income Tax, Bhopal vs. Shelly Products, which held that failure to make an assessment within the limitation period results in deemed acceptance of the income as returned by the assessee. Therefore, the court concluded that the income returned by the petitioner must be accepted, and the excess tax paid should be refunded.

Conclusion:

The court allowed the petition, setting aside the impugned notices and directing the respondents to refund the amount of INR 37,73,012/- along with applicable interest within eight weeks. The judgment emphasized the importance of adhering to statutory limitation periods and the consequences of failing to comply with Tribunal directions.

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