Reassessment Notice Under Section 148 Invalidated: Time-Barred Proceedings Quashed for Tax Year 2015-16

The HC examined the validity of a reassessment notice issued under Section 148 for AY 2015-16 after 1 April 2021. Relying on SC precedents in Rajeev Bansal and Deepak Steel, the court held that such notices are barred by limitation. The court quashed the reassessment notice, accepting the Revenue's concession that notices issued after 1 April 2021 for AY 2015-16 cannot be sustained under the amended tax regime and TOLA Act, 2020.

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The core legal questions considered by the Court include:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961 (the Act) for reassessment of income for the assessment year (AY) 2015-16, dated after 1 April 2021, is valid in light of the amended reassessment regime introduced by the Finance Act, 2021.
• The applicability and effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on the limitation period for issuance of reassessment notices for AY 2015-16.
• Whether the procedure prescribed under Section 148A of the Act was correctly followed by the Assessing Officer (AO) in issuing the reassessment notice post 31 March 2021.
• The impact of the Supreme Court's decisions in Union of India & Ors. v. Ashish Agarwal and Union of India & Ors. v. Rajeev Bansal on the validity of reassessment notices issued after 1 April 2021 for AY 2015-16.
• The effect of the Revenue's concession before the Supreme Court in the Rajeev Bansal case on the reassessment proceedings initiated against the petitioner.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Notice Issued Post 1 April 2021 for AY 2015-16

The legal framework relevant to this issue includes Sections 148, 148A, 149, and 151 of the Income Tax Act, 1961, as amended by the Finance Act, 2021, and the TOLA Act, 2020. The Finance Act, 2021 introduced a new reassessment regime effective from 1 April 2021, replacing the earlier provisions. The TOLA Act, 2020, provided for relaxation and amendment of certain provisions, including limitation periods for reassessment notices.

The AO issued a notice dated 28 June 2021 under Section 148, seeking to reopen the assessment for AY 2015-16. However, the procedure under Section 148A, introduced by the Finance Act, 2021, was not followed, as the notice was premised on the pre-1 April 2021 reassessment provisions. Subsequently, the AO issued an order dated 28 July 2022 under Section 148A(d), holding that it was a fit case for reassessment and issued a fresh notice under Section 148 on the same date.

The petitioner challenged the validity of these notices and proceedings, contending that the reassessment notices issued after 1 April 2021 for AY 2015-16 were barred by limitation under the new regime and the TOLA Act.

The Court referred extensively to the Supreme Court's decision in Union of India & Ors. v. Rajeev Bansal, where the Revenue conceded that for AY 2015-16, all notices issued on or after 1 April 2021 must be dropped as they would not fall within the limitation period prescribed under TOLA. The relevant paragraphs 19(e) and 19(f) of the Rajeev Bansal judgment were cited, which clarified the interplay between the first proviso to Section 149(1)(b) and TOLA, and the resulting limitation periods applicable to reassessment notices for various assessment years.

The Court also noted the Supreme Court's decision in Deepak Steel and Power Ltd. v. Central Board of Direct Taxes, which upheld the concession made in Rajeev Bansal and allowed appeals by assessees challenging reassessment notices issued after 1 April 2021 for AY 2015-16.

Applying these precedents, the Court concluded that the reassessment notice dated 28 July 2022 issued under Section 148 for AY 2015-16 was invalid and liable to be quashed.

2. Applicability of Section 148A Procedure Post 31 March 2021

The Finance Act, 2021 introduced Section 148A to regulate the procedure for reassessment notices issued after 31 March 2021. The AO's initial notice dated 28 June 2021 under Section 148 did not comply with the procedural safeguards mandated by Section 148A. The AO later relied on the Supreme Court's decision in Union of India & Ors. v. Ashish Agarwal to treat the earlier notice as a notice under Section 148A(b).

The Court observed that the AO's failure to follow the correct procedure under Section 148A was a procedural irregularity. However, this procedural defect was rendered moot by the substantive limitation bar established by the Supreme Court's rulings and the Revenue's concession in Rajeev Bansal.

Thus, the Court did not delve into a detailed procedural analysis, as the reassessment proceedings were set aside on substantive grounds.

3. Effect of Revenue's Concession Before the Supreme Court

The petitioner relied heavily on the concession made by the Revenue in the Supreme Court in Rajeev Bansal, which was pivotal in determining the fate of reassessment notices issued for AY 2015-16 after 1 April 2021. The concession acknowledged that such notices would be barred by limitation under the TOLA Act and the amended reassessment regime.

The Court accepted this concession as binding and decisive, noting that it was consistent with the Supreme Court's subsequent decision in Deepak Steel and Power Ltd., which allowed appeals on similar grounds.

Consequently, the Court held that the impugned notice dated 28 July 2022 and all proceedings pursuant thereto were invalid and required to be quashed and set aside.

4. Treatment of Competing Arguments

The Revenue's initial position was that the notice dated 28 June 2021 could be treated as a notice under Section 148A(b) based on the Supreme Court's Ashish Agarwal decision. However, this argument was overtaken by the concession made in Rajeev Bansal and affirmed in Deepak Steel.

The petitioner argued that the reassessment notice was barred by limitation and that the procedure under Section 148A was not followed. The Court found the limitation argument decisive and did not find it necessary to examine procedural compliance in detail.

The Court also relied on a recent decision of this Court in Makemytrip India Pvt. Ltd. v. Deputy Commissioner of Income Tax Circle 16 (1), which supported the petitioner's position.

Conclusions

The Court concluded that the reassessment notice dated 28 July 2022 issued under Section 148 of the Act for AY 2015-16 is barred by limitation under the amended reassessment regime and the TOLA Act. The notice and all proceedings initiated pursuant thereto are quashed and set aside. The Court's decision is anchored on the binding concession made by the Revenue before the Supreme Court in Rajeev Bansal and the subsequent Supreme Court ruling in Deepak Steel and Power Ltd.

Significant Holdings

"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." (Rajeev Bansal, para 19(f))

"In view of the aforesaid, in such circumstances referred to above the original writ petition nos. 2446 of 2023, 2543 of 2023 and 2544 of 2023 respectively filed before the High Court of Orissa at Cuttack stands allowed." (Deepak Steel and Power Ltd.)

"The impugned notice dated 28.07.2022 issued under Section 148 of the Act stands quashed and set aside." (This Court)

Core principles established include:

• The limitation period for issuance of reassessment notices for AY 2015-16 is governed by the amended provisions introduced by the Finance Act, 2021 and the TOLA Act, 2020.
• Notices issued under Section 148 on or after 1 April 2021 for AY 2015-16 are barred by limitation and liable to be quashed.
• The procedural safeguards under Section 148A must be followed for reassessment notices issued post 31 March 2021, but substantive limitation bars may independently invalidate such notices.
• Concessions made by the Revenue before the Supreme Court are binding and decisive in adjudicating validity of reassessment notices.

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