MAKADIA SHAILESH VALLABHBHDAS (HUF),RAJKOT vs. ITO, WARD-1(1)(1), RAJKOT, RAJKOT

Brief facts of the case are that the assessee, Makadia Shailesh Vallabhdas (HUF), filed its return of income for the Assessment Year 2013–14. Subsequently, the case was reopened under section 147 of the Income-tax Act, 1961, on the basis of information received from the Investigation Wing alleging that the assessee was one of the beneficiaries of bogus Long-Term Capital Gain (LTCG) entries routed through a network of shell companies controlled by accommodation entry operators, including M/s. Ayaan Commercial Pvt. Ltd. The information revealed that M/s. Ayaan Commercial Pvt. Ltd. had received and transferred substantial funds through its bank account during the period from July 2012 to February 2013. The Investigation Wing found that the company was a shell entity managed by an accommodation entry operator and that the funds routed through various layers of shell concerns were ultimately transferred to beneficiaries claiming exempt LTCG from penny stock transactions. As per the departmental information, the assessee was identified as one such beneficiary, who had allegedly received bogus LTCG of Rs.1,33,14,815/- through transactions in the scrip “Access Global.” Based on the said information and after obtaining the requisite approval from the competent authority, the Assessing Officer issued a notice under section 148 of the Act on 01.04.2021. In response, the assessee filed a return of income on 14.05.2021, declaring Nil income. Thereafter, notices under section 142(1) of the Act were issued; however, the assessee failed to furnish the requisite details or explanations. Even the show-cause notice and draft assessment order dated 17.03.2022 remained substantially uncomplied with. In the absence of any satisfactory explanation or supporting evidence, the Assessing Officer concluded that the assessee had failed to discharge the onus of establishing the genuineness of the impugned LTCG transactions. Accordingly, the Assessing Officer treated the alleged LTCG of Rs.1,33,14,815/- as unexplained cash credit under section 68 read with section 115BBE of the Act and completed the assessment accordingly.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. Commissioner of Income-tax (Appeals). The Ld. CIT(A), however, dismissed the appeal and confirmed the addition made by the Assessing Officer.

Still aggrieved, the assessee is in further appeal before this Tribunal. At the time of hearing, the Ld. AR raised various grounds challenging the validity of the reassessment proceedings. The primary contention of the Ld. AR was that the notice under section 148 of the Income-tax Act, 1961, though bearing the date 31.03.2021, was in fact issued only on 01.04.2021, as evident from the Income-tax portal. It was submitted that with effect from 01.04.2021, the substituted provisions governing reassessment under sections 147 to 151 of the Act came into force by virtue of the Finance Act, 2021. Consequently, any notice issued on or after 01.04.2021 was required to comply with the amended statutory scheme, including the procedure prescribed under section 148A of the Act. The Ld. AR submitted that the Assessing Officer had issued the notice under the erstwhile provisions of section 148 of the Act without following the mandatory procedure prescribed under the substituted provisions. Reliance was placed upon the judgment of the Hon’ble Supreme Court in Union of India & Ors. v. Rajeev Bansal [(2024) 166 taxmann.com 70 (SC)], particularly paragraph 114 thereof, wherein the Hon’ble Apex Court held that with effect from 01.04.2021, the substituted provisions of the reassessment scheme alone would govern reassessment proceedings and that the relaxations granted under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) merely extended the period of limitation and did not postpone the applicability of the amended statutory provisions. It was further held that the reassessment notices issued during the period from 01.04.2021 to 30.06.2021 were required to be dealt with in accordance with the directions issued in Union of India v. Ashish Agarwal, and thereafter fresh notices under the amended provisions could be issued only if they were otherwise within the period of limitation prescribed under the substituted provisions of the Act. It was, therefore, argued that since the impugned notice, though dated 31.03.2021, was admittedly issued only on 01.04.2021, the Assessing Officer was mandatorily required to follow the amended reassessment procedure. As the notice was issued under the old regime and no proceedings under section 148A of the Act were undertaken, the very assumption of jurisdiction under section 147 of the Act was without authority of law.

The Ld. DR, on the other hand, supported the orders of the lower authorities.

We have heard the rival submissions and perused the material available on record. It is an admitted position that although the impugned notice under section 148 of the Act bears the date 31.03.2021, the same was actually issued on 01.04.2021, as reflected from the records available on the Income-tax portal. Once the notice came to be issued on or after 01.04.2021, the substituted provisions introduced by the Finance Act, 2021 became fully applicable. Admittedly, the Assessing Officer did not follow the mandatory procedure contemplated under the amended provisions, including section 148A of the Act, and instead proceeded under the erstwhile reassessment regime. The issue is no longer res integra in view of the decision of the Hon’ble Supreme Court in Union of India & Ors. v. Rajeev Bansal (supra), wherein it has been categorically held that from 01.04.2021 the substituted reassessment provisions alone would govern the field and that TOLA merely extended the period of limitation without postponing the applicability of the amended provisions. Since the impugned notice was issued after the substituted provisions had come into force and the mandatory procedure prescribed therein was not followed, the reassessment proceedings are without jurisdiction and liable to be quashed.

Accordingly, we set aside the orders of the authorities below and quash the reassessment proceedings initiated under section 148 of the Act. Consequently, the assessment framed pursuant thereto is declared void ab initio and the addition made therein stands deleted.

In the result, the appeal of the assessee is allowed.