2025 (7) TMI 506 - AT - Income Tax

Reassessment notice u/s 148 for AY 2015-16 quashed as time-barred exceeding six-year limitation period

ITAT Delhi quashed reassessment notice u/s 148 issued on 18/07/2022 for AY 2015-16 as time-barred. The tribunal held that notices issued after 01/04/2021 ... Reopening of assessment - period of limitation - Scope of TOLA Addition u/s 68 and u/s 69-C relating to penny stock - HELD THAT:- As considering the assessment year involved is 2015-16, notice issued in the case of originally on 13/04/2021 and later on 18/07/2022 which both the dates have fallen on or after 1st April, 2021, therefore, both the notice deserves to be dropped in view of the admission made by the Revenue before the Hon’ble Supreme Court. For Assessment Year 2015-16, no notice u/s 148 of the Act could be issued after the expiring of six years from the end of the relevant assessment year which limitation expired on 31st March, 2022. Further, the Hon’ble Supreme Court in the case of Rajiv Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] has observed that TOLA is not applicable for Asst. Year 2015-16, therefore, even otherwise under the old provisions of section 149 of the Act, the notice issued u/s 148 of the Act for Asst. Year 2015-16 on 18/07/2022 is barred by limitation. This view is supported by the order of Ibibo Group Pvt. Ltd. [2024 (12) TMI 1269 - DELHI HIGH COURT] wherein after relying upon the decision of Hon’ble Supreme Court in the case of Rajiv Bansal (supra) has quashed the notice issued u/s 148 of the Act Thus, Hon’ble Supreme Court in the case of Rajiv Bansal (supra) and in the case of Deepak Steel & Power Limited [2025 (4) TMI 1367 - SC ORDER] and Nehal Ashit Shah [2025 (4) TMI 1095 - SC ORDER] we hold that the notice issued u/s 148 on 18.07.2022 is barred by limitation and, therefore, the same is quashed. Decided in favour of assessee. The core legal questions considered by the Appellate Tribunal (AT) in this case are as follows:1. Whether the reassessment proceedings initiated under section 147 of the Income Tax Act, 1961 for Assessment Year (AY) 2015-16 are barred by limitation, particularly in light of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and recent Supreme Court judgments.2. Whether the additions made by the Assessing Officer (AO) under sections 68 and 69C of the Income Tax Act relating to alleged bogus long-term capital gains (LTCG) from transactions in penny stock shares of M/s Risa International Ltd. were justified and sustainable.3. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the additions made by the AO, ignoring the findings from search and investigation reports, and relevant judicial precedents regarding manipulation of penny stock prices and unaccounted money laundering.4. Whether the CIT(A) erred in not allowing the assessee an opportunity for cross-examination during appellate proceedings.Issue-wise Detailed Analysis:Issue 1: Limitation on Initiation of Reassessment Proceedings under Section 147Legal Framework and Precedents: The limitation period for issuance of notice under section 148 of the Income Tax Act is governed by section 149. The erstwhile provisions provided a six-year limitation period from the end of the relevant AY for income escaping assessment. The TOLA was enacted to provide relief and relaxation in timelines due to COVID-19 disruptions but does not extend the limitation period beyond what is statutorily prescribed for AY 2015-16. The Supreme Court's decisions in Union of India vs. Ashish Agarwal, Union of India vs. Rajiv Bansal, Deepak Steel & Power Ltd. vs. CBDT, and ACIT vs. Nehal Ashit Shah have clarified the applicability of limitation and TOLA provisions.Court's Interpretation and Reasoning: The Tribunal noted that the original notice under section 148 was issued on 13.04.2021 and a subsequent notice on 18.07.2022. The limitation period under the old regime expired on 31.03.2022 for AY 2015-16. The Tribunal relied heavily on the statement made by the Additional Solicitor General of India before the Supreme Court in Rajiv Bansal's case, wherein the Revenue conceded that all notices issued on or after 1 April 2021 for AY 2015-16 must be dropped as they cannot be completed within the period prescribed under TOLA.The Tribunal also referred to the Supreme Court's observation that TOLA does not extend the old regime's limitation period and that for AY 2015-16, TOLA is not applicable. It further relied on decisions of the jurisdictional High Court which quashed similar notices issued beyond limitation for the same AY.Key Evidence and Findings: The Tribunal examined the timeline of notices issued and the Supreme Court's pronouncements, including the Revenue's concession and the statutory timelines under section 149. It found that the notice dated 18.07.2022 was clearly beyond the six-year limitation period and not saved by TOLA.Application of Law to Facts: Applying the limitation provisions and Supreme Court rulings, the Tribunal held that the reassessment notices issued after 31.03.2022 for AY 2015-16 are barred by limitation and must be quashed.Treatment of Competing Arguments: The Revenue argued for sustaining the reassessment based on the new regime and TOLA. However, the Tribunal rejected this, emphasizing the Revenue's own concession and the Supreme Court's clear ruling that TOLA does not extend limitation for AY 2015-16.Conclusion: The Tribunal allowed the assessee's cross objections and quashed the reassessment notices issued beyond limitation.Issue 2: Validity of Additions Under Sections 68 and 69C Relating to Penny Stock TransactionsLegal Framework and Precedents: Section 68 deals with unexplained cash credits, and section 69C relates to unexplained expenditure. The Supreme Court in Sumati Dayal vs. CIT and CIT vs. Durga Prasad More has held that tax authorities can look into surrounding circumstances and apply the test of human probabilities to determine genuineness of transactions. Further, various High Court decisions have recognized manipulation of penny stock prices as a method for laundering unaccounted money.Court's Interpretation and Reasoning: The AO made additions on the ground that the assessee's claimed LTCG from penny stock transactions was bogus, supported by investigation reports revealing price manipulation and cash transactions without proper evidence of consideration. The CIT(A) deleted these additions, accepting the assessee's contentions and documents.Key Evidence and Findings: The AO relied on findings from search operations under section 132, investigation reports from the Directorate of Investigation, discrepancies in contract notes, and BSE data showing inconsistency in share prices and dates. The assessee admitted purchase through cash but failed to provide satisfactory proof of payment or mode of transaction during reassessment. The CIT(A) however did not accept these incriminating facts fully and deleted the additions.Application of Law to Facts: The Tribunal did not adjudicate on the merits of these additions as the cross objections on limitation succeeded, rendering the appeal on merits infructuous. However, the Revenue argued that CIT(A) erred in ignoring judicial precedents and investigation findings, and that physical transfer of shares was not a valid defense given the racket involved.Treatment of Competing Arguments: The Revenue emphasized reliance on judicial precedents and investigation findings to uphold additions, while the assessee contended that the CIT(A)'s order was correct. The Tribunal refrained from deciding this issue due to the limitation bar.Conclusion: The Tribunal did not decide on the merits of additions due to limitation bar on reassessment proceedings.Issue 3: CIT(A)'s Deletion of Additions Ignoring Investigation Reports and Judicial PrecedentsLegal Framework and Precedents: The CIT(A) is expected to consider all relevant evidence, including investigation reports and judicial precedents such as those dealing with penny stock manipulation and money laundering. The Supreme Court and High Courts have emphasized the need to consider surrounding circumstances and human probabilities in tax matters.Court's Interpretation and Reasoning: The Revenue contended that CIT(A) erred in deleting additions without properly considering the Directorate of Investigation's report, search findings, and relevant case law. The Tribunal observed these contentions but did not adjudicate on them due to the limitation bar.Key Evidence and Findings: The Revenue pointed to the search under section 132, Directorate's report indicating price manipulation, and discrepancies in contract notes and share price data. The CIT(A) accepted the assessee's explanation and deleted the additions.Application of Law to Facts: Since the reassessment was quashed on limitation grounds, the Tribunal did not examine the CIT(A)'s findings or the Revenue's objections thereto.Treatment of Competing Arguments: The Revenue's arguments on the merits were not addressed due to the overriding limitation issue.Conclusion: No adjudication on this issue was made.Issue 4: Opportunity for Cross-Examination During Appellate ProceedingsLegal Framework and Precedents: Principles of natural justice require that an assessee be given an opportunity to cross-examine witnesses or evidence where material facts are in dispute.Court's Interpretation and Reasoning: The assessee contended that CIT(A) erred in not granting an opportunity for cross-examination. The Tribunal noted this ground but did not elaborate further or decide on it, as the limitation issue was dispositive.Conclusion: No separate order on this ground was rendered.Significant Holdings:'The notice issued under section 148 on 18.07.2022 is barred by limitation and, therefore, the same is quashed.''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.''TOLA does not extend the life of the old regime. It merely provides a relaxation for the completion or compliance of actions following the procedure laid down under the new regime.''For Assessment Year 2015-16, no notice under section 148 of the Act could be issued after the expiry of six years from the end of the relevant assessment year which limitation expired on 31st March, 2022.''In view of the above facts and by respectfully following the judgments of the Hon'ble Supreme Court in the case of Rajiv Bansal and Deepak Steel & Power Limited, we hold that the notice issued under section 148 on 18.07.2022 is barred by limitation.'The Tribunal's final determination was to dismiss the Revenue's appeal on the merits as infructuous in view of the limitation bar and to allow the assessee's cross objections quashing the reassessment notices issued beyond limitation. The additions made under sections 68 and 69C were not adjudicated upon due to the limitation issue prevailing.