2025 (5) TMI 1967 - HC - Income Tax

Tax Reassessment Notice Under Section 148 Invalidated Due to Procedural Defects and Limitation Constraints

Mectech Knitfabs Pvt. Ltd. Versus DCIT Circle 16 (1) New Delhi & Anr.

HC invalidated a tax reassessment notice for AY 2015-16 issued on 26.07.2022 under Section 148. The court found the notice procedurally defective due to ... Reopening of assessment as barred by limitation - procedural requirements u/s 148A - petitioner contends that the proceedings initiated pursuant to the impugned notice are required to be set aside in view of the concession made by the Revenue before Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] HELD THAT:- The notice dated 26.07.2022 issued under Section 148 of the Act stands quashed and set aside. Concededly, the controversy is covered in favour of the petitioner by the decision of this court in Makemytrip India Pvt. Ltd [2025 (4) TMI 46 - DELHI HIGH COURT] wherein the impugned notice was issued on 27.07.2022, which was admittedly beyond the period of limitation as prescribed under Section 149 (1). Since TOLA was not applicable in respect of the said notices u/s 148 of the Act for AY 2015-16 as conceded by the Revenue in the case of Union of India v. Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)], thus the impugned notice is liable to be set aside. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this judgment are:Whether the notice dated 26.07.2022 issued under Section 148 of the Income Tax Act, 1961 (the Act) for reopening assessment for AY 2015-16 is valid, particularly in light of the procedural requirements under Section 148A of the Act post 31.03.2021.Whether the reassessment proceedings initiated pursuant to the impugned notice are sustainable given the concession made by the Revenue before the Supreme Court in Union of India and Ors. v. Rajeev Bansal regarding the applicability of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and limitation periods for reassessment notices.The applicability and effect of the Supreme Court's decisions, including Union of India & Ors. v. Ashish Agarwal and Deepak Steel and Power Ltd. v. Central Board of Direct Taxes, on the validity of reassessment notices issued after 1 April 2021 for AY 2015-16.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the notice dated 26.07.2022 under Section 148 of the Act and compliance with procedural requirements under Section 148A post 31.03.2021Relevant legal framework and precedents: Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reopen an assessment if there is reason to believe that income has escaped assessment. The Finance Act 2021 introduced amendments effective from 01.04.2021, including the insertion of Section 148A, which prescribes mandatory procedural safeguards before issuing a notice under Section 148. The Supreme Court in Union of India & Ors. v. Ashish Agarwal clarified the applicability of these procedural safeguards.Court's interpretation and reasoning: The AO issued a notice dated 21.04.2021 under Section 148 but did not follow the procedure mandated under Section 148A, as the notice was premised on the pre-31.03.2021 regime. Subsequently, by communication dated 18.05.2022, the AO referred to the Supreme Court's decision in Ashish Agarwal and treated the notice as deemed issued under Section 148A(b). However, the Court noted this procedural irregularity and the failure to strictly comply with Section 148A's requirements.Key evidence and findings: The petitioner filed its return for AY 2015-16 on 28.09.2014 declaring income of Rs. 1,41,25,950/-. The AO's reopening notice was issued after 31.03.2021 but without adherence to the new procedural safeguards. The AO's order dated 26.07.2022 under Section 148A(d) held the case fit for reopening, and a fresh notice under Section 148 was issued the same day.Application of law to facts: The Court found that the procedural requirements under Section 148A were not properly followed, rendering the reopening notice procedurally defective. This procedural non-compliance was a significant factor in assessing the validity of the reassessment proceedings.Treatment of competing arguments: The petitioner argued that the reopening notice and subsequent proceedings were invalid due to non-compliance with Section 148A and reliance on the pre-amendment regime. The Revenue did not appear to contest the matter orally but had made concessions in related Supreme Court proceedings.Conclusions: The Court concluded that the procedural non-compliance with Section 148A rendered the impugned notice and proceedings unsustainable.Issue 2: Effect of the Revenue's concession in Union of India and Ors. v. Rajeev Bansal on the validity of reassessment notices issued for AY 2015-16 post 1 April 2021Relevant legal framework and precedents: The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) was enacted to extend limitation periods for issuance of reassessment notices due to the COVID-19 pandemic. The Supreme Court in Union of India and Ors. v. Rajeev Bansal (2024) accepted a concession by the Revenue that for AY 2015-16, all reassessment notices issued on or after 1 April 2021 must be dropped, as they would not fall within the extended limitation period prescribed under TOLA.Court's interpretation and reasoning: The Court examined paragraph 19 (e) and (f) of the Rajeev Bansal decision, which expressly states the Revenue's concession that notices issued for AY 2015-16 on or after 1 April 2021 are invalid. The Court also referred to the tabulation in the Supreme Court's decision explaining the limitation expiry dates and the inapplicability of TOLA for AY 2015-16 notices issued post 31.03.2021.Key evidence and findings: The impugned notice dated 26.07.2022 falls squarely within the period post 1 April 2021. The Revenue's concession in Rajeev Bansal thus directly applies to invalidate the notice.Application of law to facts: Applying the Supreme Court's concession, the Court held that the impugned notice and proceedings are barred by limitation and must be quashed.Treatment of competing arguments: The petitioner relied heavily on the concession, while the Revenue did not oppose the petition or contest the applicability of the concession. The Court also considered the Supreme Court's decision in Deepak Steel and Power Ltd. v. Central Board of Direct Taxes, where the concession was upheld and notices were quashed accordingly.Conclusions: The Court found the impugned notice to be invalid on limitation grounds based on the binding Supreme Court concession and precedent.Issue 3: Impact of Supreme Court precedents including Deepak Steel and Power Ltd. v. CBDT and Makemytrip India Pvt. Ltd. v. Deputy Commissioner of Income Tax on the present caseRelevant legal framework and precedents: The Supreme Court in Deepak Steel and Power Ltd. reiterated the concession in Rajeev Bansal and allowed appeals challenging reassessment notices issued post 1 April 2021 for AY 2015-16. The Delhi High Court in Makemytrip India Pvt. Ltd. v. Deputy Commissioner of Income Tax (2025) also held that reassessment notices issued after the limitation period prescribed under TOLA for AY 2015-16 are not maintainable.Court's interpretation and reasoning: The Court relied on these authoritative decisions to reinforce the conclusion that the impugned notice is liable to be quashed.Key evidence and findings: The impugned notice dated 26.07.2022 was issued after the limitation period as clarified by TOLA and the Supreme Court's decisions.Application of law to facts: The Court applied these precedents to the facts of the case, finding that the reassessment proceedings could not be sustained.Treatment of competing arguments: The petitioner's arguments were supported by these precedents, and the Revenue did not provide contrary submissions.Conclusions: The Court held that the impugned notice and all proceedings pursuant thereto are set aside in line with the binding precedents.3. SIGNIFICANT HOLDINGSThe Court's significant holdings are:'The Revenue concedes that for the assessment year 2015-2016, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.' (Paragraph 19(f), Union of India and Ors. v. Rajeev Bansal)'The notice dated 26.07.2022 issued under Section 148 of the Act stands quashed and set aside.'The Court established the core principle that reassessment notices issued post 1 April 2021 for AY 2015-16 are barred by limitation under the amended regime incorporating TOLA, and procedural non-compliance with Section 148A further invalidates such notices.Accordingly, the Court's final determination was to allow the petition, quash the impugned notice dated 26.07.2022, and set aside all proceedings initiated pursuant thereto.