2025 (10) TMI 1112 - HC - Income Tax

Reassessment notices from 1 Apr-30 Jun 2021 deemed show-cause; Section 204 notice and Section 151 approval required

HC held that reassessment notices issued from 1 Apr to 30 Jun 2021 under the old regime were to be treated as deemed show-cause notices under the new ... Reopening of assessment u/s 147 - period of limitation to issue notice - validity of a notice issued u/s 148/148A - scope of Taxation and other laws (Relaxation and Amendment of certain provisions) Act, 2020 (TOLA) application - provisions of the new reassessment law introduced by the Finance Act, 2021 - calculating the surviving period - HELD THAT:- We find that the issue, which has been raised is covered by the judgment of Hon’ble Supreme Court of India in Union of India v. Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] held that Income Tax Act read with TOLA extended the time limit for issuing reassessment notices u/s 148, which fell for completion from 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction. The logical effect of the creation of the legal fiction by Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021. If this Court had not created the legal fiction and the original reassessment notices were validly issued according to the provisions of the new regime, the notices under Section 148 of the new regime would have to be issued within the time limits extended by TOLA. As a corollary, the reassessment notices to be issued in pursuance of the deemed notices must also be within the time limit surviving under the Income Tax Act read with TOLA. This construction gives full effect to the legal fiction created in Ashish Agarwal (supra) and enables both the assesses and the Revenue to obtain the benefit of all consequences flowing from the fiction. To assume jurisdiction to issue notices under Section 148 with respect to the relevant assessment years, an assessing officer has to: (i) issue the 204 notices within the period prescribed under Section 149(1) of the new regime read with TOLA; and (ii) obtain the previous approval of the authority specified under Section 151. A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer. Therefore, the reassessment notices issued under Section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income Tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time barred. Thus, it is necessary to state at this stage, that the counsel for the respondents has informed us that the final assessment order has been passed on 22.05.2023. If that be so, the order passed under Section 148A(d) dated 25.07.2022, notice under Section 148 dated 25.07.2022 of the Act and the assessment order passed thereof are set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under Section 148 issued in the name of a different entity with a different PAN and assessment year (due to an admitted clerical/error) is material and fatal to the reassessment proceeding when a contemporaneous order under Section 148A(d) names the correct assessee and PAN. 2. Whether reassessment proceedings initiated under the new Section 148/148A regime (post-amendment) are time-barred when an earlier notice under the old regime was treated as a deemed show-cause notice by higher judicial authority, and the surviving period computed under the Income Tax Act read with the temporary extension statute (TOLA) plus the exclusionary principles and post-deeming procedural timeline result in expiry of the surviving period before issuance of the Section 148 notice under the new regime. 3. Whether the statutory procedure required after receipt of the assessee's reply to a deemed show-cause notice (consideration under Section 149A(c), decision under Section 149A(d), and issuance of notice under Section 148) must be completed within the surviving time limit made available by the legal fiction and TOLA, and whether failure to do so vitiates jurisdiction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice where Section 148 notice incorrectly names a different entity Legal framework: Notices under Section 148 must be addressed to the taxable person whose income is sought to be reopened; correspondence must correctly identify the assessee and PAN to confer clarity and jurisdictional notice. Precedent Treatment: The Court recognized prior authority addressing materially identical discrepancies where such errors led to setting aside the impugned action. The present judgment notes that the respondents admitted the mistake and issued a corrected notice on the same date. Interpretation and reasoning: The Court treated the admitted error as a clerical mistake corrected contemporaneously. The petitioner's reliance on an earlier decision addressing similar discrepancies was accepted as a relevant precedent, but because the respondents rectified the error by issuing a corrected notice along with the 148A(d) order on the same date, the mistake was characterized as inadvertent and curable. Ratio vs. Obiter: The Court's remarks on the curability of contemporaneously corrected clerical errors in a 148 notice are obiter to the extent they do not form the primary basis for decision in this petition; the dispositive ground was limitation. However, the Court acknowledged that identical discrepancies have earlier led to setting aside in other proceedings. Conclusion: The incorrect naming of the entity in the initial Section 148 notice, being an admitted mistake corrected on the same date, was not treated as the decisive ground to set aside the reassessment. The Court did not rely on this point to uphold relief; it proceeded to determine limitation issues which were dispositive. Issue 2 - Time-bar and computation of surviving period under the legal fiction and TOLA Legal framework: Amendments to reassessment provisions and a temporary extension statute (TOLA) altered limitation timelines. A higher judicial decision created a legal fiction treating certain notices issued under the old regime as deemed show-cause notices under the new regime. The surviving or balance time available to the Revenue to complete reassessment steps is calculated as the days between the date of issuance of the deemed notice and the last date extended by TOLA. Statutory exclusions apply: (a) period between deemed notice and supply of relevant information/material as directed by the Court creating the fiction; (b) the two-week period allowed to the assessee to reply (third proviso to Section 149); and (c) any additional time while the clock is stopped as per judicial directions. Precedent Treatment: The Court relied on higher-court authority which held that the legal fiction must be given full operative consequences: the surviving time should be computed from the date of the deemed notice to the TOLA-extended cut-off; exclusions mandated by the higher authority must be deducted; and the assessing officer must complete post-reply steps within that surviving period. That authority also held reassessment notices issued beyond the surviving time limit are invalid for lack of jurisdiction. Interpretation and reasoning: Applying the framework to the factual timeline submitted by the petitioner, the Court computed: deemed notice date = 08.06.2021; TOLA-extended cut-off = 30.06.2021; surviving days = 22. The assessee was supplied information post the higher-court judgment on 18.05.2022; replies were filed on 02.06.2022 and 16.06.2022. Excluding the period of deemed stay (08.06.2021 to 16.06.2022) and starting the clock from 16.06.2022, the assessing officer had 22 days (surviving period) - i.e., until 08.07.2022 - to issue notice under Section 148. The impugned Section 148 notice was actually issued on 25.07.2022, beyond the calculated last permissible date. Ratio vs. Obiter: The holding that the surviving period must be strictly observed and that a notice issued beyond it is time-barred is ratio and dispositive. The calculation applying the exclusions and the legal fiction, as per the controlling precedent, constitutes binding reasoning in the present matter. Conclusion: The reassessment notice under Section 148 dated 25.07.2022 was issued after the surviving period had expired and therefore is time-barred and invalid. The consequent order under Section 148A(d) and any assessment flowing therefrom lack jurisdiction and are liable to be set aside. Issue 3 - Mandatory post-reply procedural steps and jurisdictional consequences of non-compliance with surviving time limit Legal framework: After receipt of assessee's reply to a deemed show-cause notice, the assessing officer must (i) consider the reply under Section 149A(c), (ii) decide under Section 149A(d) whether the case warrants reassessment, and (iii) issue notice under Section 148 if fit. These steps must be performed within the surviving time limit made available by the legal fiction and TOLA, and prior approval requirements (Section 151) must also be satisfied before issuing reassessment notices. Precedent Treatment: The Court followed higher-court authority that treated these post-reply obligations as part of the temporal jurisdictional fabric: the clock starts only after the Revenue receives the reply, and once it starts, the remaining procedures must be completed within the surviving period; failure to do so renders any later notice invalid for want of jurisdiction. Interpretation and reasoning: Applying the above, the Court found that the assessing officer's window to perform the post-reply steps closed on 08.07.2022. Since the Section 148 notice was issued on 25.07.2022 and (as represented) the final assessment was passed subsequently, the statutory timeline for completing the mandated steps had expired; accordingly, the assessing officer lacked jurisdiction to validly issue the notice or pass consequent orders. Ratio vs. Obiter: The conclusion that post-reply statutory steps are jurisdictional and time-bound under the surviving period is ratio and central to invalidating the later acts. Conclusion: Non-completion of the mandated post-reply procedures within the surviving time rendered the Section 148 notice and subsequent assessment order void for lack of jurisdiction; accordingly both the order under Section 148A(d), the Section 148 notice dated 25.07.2022, and the assessment order passed pursuant thereto were set aside. Relief and Disposition Applying the legal framework, controlling precedents, the factual timeline, and the computed surviving period with required exclusions, the Court set aside the order under Section 148A(d), the notice under Section 148 dated 25.07.2022, and the assessment order passed pursuant thereto on the ground of being time-barred and without jurisdiction. The petition was disposed of accordingly.