2025 (6) TMI 1061 - HC - Income Tax

Income Tax notice under Section 148 issued beyond limitation period quashed for assessment year 2015-16

Karnataka HC quashed assessment proceedings for AY 2015-16 where notice under Section 148 of IT Act was issued on 01.04.2022, beyond the limitation ... Reopening of assessment - period of limitation - scope of new regime - TOLA - HELD THAT:- As rightly contended by the learned counsel for the petitioner, the material on record discloses that the impugned proceedings is relating to the Assessment Year 2015-16 in respect of the petitioner; however, it is an undisputed fact that the respondents issued impugned notice at Annexure-A2 under Section 148 of the I.T.Act on 01.04.2022, beyond the period of limitation and the same has already been held not to be permissible by the Apex Court in Rajeev Bansal’s case[2024 (10) TMI 264 - SUPREME COURT (LB)] Subsequently, in Nehal Ashit’s case [2025 (4) TMI 1095 - SC ORDER] the Apex Court reiterated the very same position and dismissed the appeal filed by the Revenue on the ground that the notice issued after 01.04.2022 was barred by limitation and the impugned proceedings are not permissible beyond period of limitation. In the instant case, it is an undisputed fact that the impugned proceedings is relating to the Assessment Year 2015-16, while the impugned notice under Section 148 of the Act dated 01.04.2022 was issued beyond/after 01.04.2021 which is impermissible in law and barred by limitation and consequently, the impugned orders/notices etc., deserve to be quashed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the issuance of notice under Section 148 of the Income-tax Act, 1961 (hereinafter 'the Act') for the Assessment Year (AY) 2015-16 on 01.04.2022 was within the prescribed limitation period.Whether the subsequent orders and notices issued under various provisions of the Income-tax Act, including Sections 147, 144, 156, 271(1)(c), and 271F, relating to the assessment and penalty for AY 2015-16, are valid and sustainable in law.Whether the limitation period prescribed under the amended provisions of the Income-tax Act and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter 'TOLA Act, 2020') applies to the impugned notices and orders.Whether the principles laid down by the Apex Court in the cases of Union of India & others vs. Rajeev Bansal and Assistant Commissioner of Income Tax vs. Nehal Ashit Shah, regarding limitation and validity of reassessment notices, are applicable to the facts of this case.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the notice under Section 148 issued on 01.04.2022 for AY 2015-16Relevant legal framework and precedents: The Court examined the provisions of Section 148 of the Income-tax Act, 1961, which empowers the Assessing Officer to issue a notice for reassessment if income has escaped assessment. The limitation for issuance of such notice is governed by Section 149 of the Act. The Finance Act, 2021 introduced a new regime for reassessment with an extended limitation period of ten years in certain cases, but with a proviso preserving the old limitation where applicable. The TOLA Act, 2020 provided certain relaxations in limitation periods due to the COVID-19 pandemic.The Apex Court's decisions in Union of India & others vs. Rajeev Bansal and Assistant Commissioner of Income Tax vs. Nehal Ashit Shah were pivotal. In Rajeev Bansal, the Court held that for AY 2015-16, the limitation period for issuance of notice under Section 148 expired on 31.03.2022 and notices issued after that date were barred by limitation. The TOLA Act, 2020 did not extend limitation beyond 31.03.2022 for AY 2015-16. The Nehal Ashit Shah decision reaffirmed this position and dismissed Revenue's appeal against this limitation principle.Court's interpretation and reasoning: The Court noted that the impugned notice under Section 148 was issued on 01.04.2022, which is after the limitation period of 31.03.2022 for AY 2015-16. The Court referred extensively to the tabulation and reasoning in Rajeev Bansal's case, emphasizing that the TOLA Act's extension of limitation applied only up to 30.06.2021 for AY 2015-16 and not beyond 31.03.2022.Key evidence and findings: The material on record confirmed that the impugned notice dated 01.04.2022 was issued beyond the permissible period. The respondents themselves conceded that notices issued after 01.04.2021 for AY 2015-16 would be barred.Application of law to facts: Applying the Apex Court's binding precedent, the Court found that the impugned notice under Section 148 was invalid and barred by limitation.Treatment of competing arguments: The Revenue argued against quashing the notices and orders, but the Court found no merit in their submissions in light of the clear limitation bar established by the Apex Court.Conclusion: The notice under Section 148 dated 01.04.2022 is barred by limitation and invalid.Issue 2: Validity of subsequent assessment orders, penalty orders, computation sheets, and notices of demand issued under Sections 147, 144, 156, 271(1)(c), and 271FRelevant legal framework and precedents: Sections 147 and 144 relate to reassessment and best judgment assessment respectively; Section 156 deals with recovery of demand; Sections 271(1)(c) and 271F impose penalties for concealment and failure to comply with notices. All these depend on the validity of the initial reassessment notice under Section 148.Court's interpretation and reasoning: The Court held that since the foundational notice under Section 148 was invalid, all consequential orders and notices flowing from it are also invalid. The Court quashed all impugned orders and notices issued subsequent to the invalid Section 148 notice.Key evidence and findings: The impugned orders and notices were annexed and dated after the invalid Section 148 notice. There was no independent basis for these orders except the reassessment proceedings initiated by the invalid notice.Application of law to facts: The Court applied the principle of invalidity of consequential proceedings arising from an invalid foundational notice.Treatment of competing arguments: The Revenue's contention that the subsequent orders were valid was rejected as they were premised on the invalid notice.Conclusion: All impugned orders, computation sheets, penalty orders, and notices of demand issued pursuant to the invalid Section 148 notice are quashed.Issue 3: Applicability of the TOLA Act, 2020 and the new regime under Finance Act, 2021 to the limitation period for reassessment noticesRelevant legal framework and precedents: The TOLA Act, 2020 was enacted to provide relief by extending limitation periods due to the COVID-19 pandemic. The Finance Act, 2021 introduced a new reassessment regime with extended limitation periods but with a proviso preserving the old limitation for assessments prior to AY 2021-22.Court's interpretation and reasoning: The Court relied on the Apex Court's detailed analysis in Rajeev Bansal's case, which clarified that the TOLA Act's extension applied only up to 30.06.2021 and did not extend the limitation beyond 31.03.2022 for AY 2015-16. The new regime's extended ten-year limitation applies prospectively from AY 2021-22 and does not revive or extend limitation periods for earlier years.Key evidence and findings: The tabular illustration from Rajeev Bansal's judgment was reproduced to demonstrate the limitation expiry dates.Application of law to facts: The Court applied these principles to find that the impugned notice dated 01.04.2022 was beyond limitation.Treatment of competing arguments: The Revenue's arguments for validity based on the new regime or TOLA Act were rejected on the basis of the Apex Court's binding precedent.Conclusion: The TOLA Act and the new regime do not validate the impugned notice issued beyond limitation.3. SIGNIFICANT HOLDINGSThe Court's crucial legal reasoning is encapsulated in the following verbatim excerpt from the Apex Court's judgment in Rajeev Bansal:'19(e). The Finance Act, ([2021]) 431 ITR (St.) 52) substituted the old regime for reassessment with a new regime. The first proviso to Section 149 does not expressly bar the application of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Section 3 of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 applies to the entire Income-Tax Act, including Sections 149 and 151 of the new regime. Once the first proviso to Section 149(1)(b) is read with Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, then all the notices issued between April 1, 2021 and June 30, 2021 pertaining to assessment years 2013-14, 2014-15, 2015-16, 2016-17, and 2017-18 will be within the period of limitation as explained in the tabulation below: ... 19(f). The Revenue concedes that for the assessment year 2015-16, all notices issued on or after April 1, 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; ... 49. The first proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed under Section 149(1)(b) of the old regime continues to exist for the assessment year 2021-22 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten-years prescribed under Section 149(1)(b) of the new regime applies prospectively.' The Court established the core principle that reassessment notices issued beyond the prescribed limitation period under the old regime, as clarified by the Apex Court, are invalid and all consequential proceedings based on such notices are also invalid.Final determinations on each issue are:The notice under Section 148 dated 01.04.2022 for AY 2015-16 is barred by limitation and invalid.All subsequent orders, notices, penalty orders, computation sheets, and notices of demand based on the invalid Section 148 notice are quashed.The TOLA Act, 2020 and the Finance Act, 2021's new reassessment regime do not validate notices issued beyond the old limitation period for AY 2015-16.