KETAN CHATRABHUJ THAKKER,MUMBAI vs. INCOME TAX OFFICER, BKC MUMBAI

In this appeal, the assessee has raised the grounds, inter alia, challenging the initiation of reassessment proceedings under section 147 of the Act. Since this is a jurisdictional issue, which goes to the root of the matter,

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that for the year under consideration, the assessee filed his return of income on 08/08/2015, declaring a total income of Rs. 2,19,770. Subsequently, on the basis that the assessee has acquired the shares of a company at a rate which is less than the market value, a notice under section 148 of the Act was issued on 22/06/2021.

In view of the decision of the Hon’ble Supreme Court in Union of India vs. Ashish Agarwal, reported in [2022] 444 ITR 1 (SC), the original notice issued under section 148 on 22/06/2021 was deemed to be issued under section 148A(b) of the Act. Vide show cause notice dated 26/05/2022, the information and material relied upon by the Revenue were provided to the assessee, and time was granted to the assessee till 13/06/2022 to respond to the notice in terms of the provisions of section 148A(b) of the Act.

However, the assessee did not file its response to the aforesaid show cause notice. Accordingly, considering the material available on the record,

The assessee, in its appeal before the learned CIT(A), inter alia, challenged the proceedings initiated under section 147 of the Act on the basis that the notice issued under section 148 of the Act is barred by limitation. The learned CIT(A), vide impugned order, dismissed the assessee's appeal on both jurisdictional and merits grounds. Being aggrieved, the assessee is in appeal before us.

We find that the Hon’ble Supreme Court in paragraphs 106 and 107 of its decision in Rajeev Bansal (supra), observed as follows: – “106. In Ashish Agarwal (supra), this Court directed the assessing officers to provide relevant information and materials relied upon by the Revenue to the assesses within thirty days from the date of the judgment. A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). To summarize, the combined effect of the legal fiction and the directions issued by this Court in Ashish Agarwal (supra) is that the show cause notices that were deemed to have been issued during the period between 1 April 2021 and 30 June 2021 were stayed till the date of supply of the relevant information and material by the assessing officer to the assessee. After the supply of the relevant material and information to the assessee, time begins to run for the assesses to respond to the show cause notices.

From the perusal of the aforesaid findings of the Hon’ble Supreme Court in Rajeev Bansal (supra), it is evident that the Hon’ble Supreme Court directed that while computing the time limit for issuance of notice under section 148, the time during which the show cause notice was stayed till the supply of relevant information or material by the AO and further period of two weeks allowed to the assessee to respond to the show cause notice should be excluded. We find that while examining the validity of notices issued from 01/04/2021 to 30/06/2021 under the old regime, the Hon’ble Supreme Court in Rajeev Bansal (supra), analysing the interplay of Ashish Agarwal (supra) with the TOLA, in paragraph 108 of its judgment observed as follows: - “108. The Income Tax Act read with TOLA extended the time limit for issuing reassessment notices under Section 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. Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) 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

Thus, the Hon’ble Supreme Court held that the surviving time under the Act read with the TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notice, including issuance of a reassessment notice under section 148 of the Act under the new regime. While explaining the methodology for computation of the surviving or balance time limit, the Hon’ble Supreme Court in paragraph 112 of Rajeev Bansal (supra) observed as follows: - “112. Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty- one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022.”

Therefore, the surviving/balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30/06/2021. In the present case, in order to compute the surviving/balance time as per the decision of the Hon’ble Supreme Court in paragraph 108, it is relevant to note the following dates: -

Therefore, computing the surviving/balance time limit, as per the decision of the Hon’ble Supreme Court in Rajeev Bansal (supra), we find that the Revenue had 9 days to issue notice under section 148 of the Act of the new regime in the present case, i.e. till 22/06/2022, after expiry of time granted to the assessee to respond to the show cause notice issued under section 148A(b) of the Act. However, undisputedly, in the present case, the notice under section 148 of the Act was issued on 27/07/2022, i.e., after the surviving/balance time period as per the decision of the Hon’ble Supreme Court in Rajeev Bansal (supra).

Therefore, in the light of the decision of the Hon’ble Supreme Court in Ashish Agarwal (supra) and Rajeev Bansal (supra), we are of the considered view that the notice issued under section 148 of the Act on 27/07/2022 is barred by the limitation period specified under section 149 of the Act. Accordingly, we are of the considered view that the notice issued under section 148 of the Act on 27/07/2022 for the assessment year 2014-15 is void ab initio and bad in law. Thus, the same is quashed. Consequently, the entire reassessment proceedings and assessment order passed under section 147 r.w. section 144B of the Act are also quashed.

Since the relief has been granted to the assessee on the afore-noted jurisdictional aspect, the other grounds raised by the assessee in the appeal are rendered academic and, therefore, are left open.

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