Loading judgment…
Facts
The assessee, a private limited company engaged in trading shares and securities, filed its income tax return for AY 2014-15 declaring NIL income. The case was reopened under Section 147 of the Income Tax Act based on information regarding accommodation entries related to NSEL transactions and Long Term Capital Gains. Notices under Section 148 were issued, which the assessee contended were time-barred.
Held
The Tribunal held that the notices issued under Section 148 were time-barred. Relying on various High Court and Supreme Court judgments, it was determined that the extended timelines under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) did not validate the notices issued beyond the prescribed period. Consequently, the reassessment proceedings were quashed.
Key Issues
The primary issue was whether the notices issued under Section 148 of the Income Tax Act for reopening the assessment for AY 2014-15 were within the prescribed limitation period, considering the amendments and extensions brought about by the Finance Act, 2021 and TOLA.
Sections Cited
143(3), 147, 148, 148A, 149, 151, 68, 115BBE, 271(1)(c), 73, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. By this common order, we proceed to decide the appeal filed by the revenue and the Cross Objection filed by the assessee against the impugned order dated 07.06.2024 passed by National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”] u/s 250 of the Income Tax Act („the Act‟) for the A.Y. 2014-15.
The brief facts of the case as culled out from the orders of the authorities below are that the assessee is a corporate entity (a Private Limited Company) and engaged in the business of trading of shares and securities and in commodities. The assessee filed its return of income for the AY 2014-15 declaring total income of Rs. NIL on 29.09.2014. Subsequently, the return was revised on 08.12.2014 declaring Total Income CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. of Rs. NIL. The assessee has been already assessed for income under the head Business and Profession u/s 143(3) and also reassessed u/s 143(3) r.w.s. 147 of the Act for the year under consideration. Vide order dated 16/12/2016, the assessee company has been assessed u/s 143(3) of the Act, wherein losses on account of transactions of non-delivery of shares were disallowed against business income.
The assessee challenged the said order in appeal and vide order dated 15.01.2018, the appellate authority decided in favour of the assessee holding that the transactions forms part of explanation to section 73 of the Income Tax Act and was falling under the Business and Profession. The case was reopened in the year 2019 in respect to the NSEL transactions wherein the assessee provided the information and documents in respect of NSEL transaction and the submissions were accepted in the re-assessments completed u/s 143(3) r.w.s. 147 vide speaking order dated 16/12/2019. The assessee was again served with the notice u/s 148 r.w.s. 147 of the Act on 29.06.2021 and in response to the said notice the assessee field return of income on 11.04.2022 and also made a submission on 02.04.2022 before the jurisdictional AO by objecting the assessment proceedings. The assessee was informed vide reason recorded as per notice u/s 148 of the Act dated CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. 11.03.2022 that the credible information was received during the course of Search & Survey action conducted on syndicate of persons led by Shri Naresh Jain on 19.03.2019 by the DDIT(Inv.) Unit-7(1) & 7(3), Mumbai. It was observed that Shri Naresh Jain and his associates were involved in providing accommodation entries in the form of Long Term Capital Gains/Losses in several scrips to various beneficiaries across the country and the assessee has been identified as one of the beneficiaries, who has entered into the business transaction with Shri Naresh Jain and his associates of Rs. 12,56,343/-.
Subsequently, on the basis of Hon‟ble Supreme Court judgement dated 04.05.2022 in the case of Union of India v. Ashish Agarwal (2022 SCC Online SC 543), the new notice of assessment under section 148A(b) was issued on 20.05.2022 along with approval u/s 151 of the Act from PCIT Mumbai-6 wherein the reason for reopening of assessment dated 28.06.2021 was attached. The assessee filed reply to the said notice on 01.07.2022, however vide order u/s. 148A(d) of the Act, the assesse‟s case was re-opened u/s. 148 on presumption that assessee has escaped a total income to the tune of Rs. 78,94,772/-.
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd.
5. During the course of assessment, the assessee submitted responses on various dates and in view of the submissions made by the assessee, the AO has accepted the assessee‟s submission and revised the amount of proposed variation in the Show Cause Notice dated 10.05.2023 for Rs. 63,47,460/- on account of client code modification at NSEL platform as against Rs. 78,94,772/-. The assessee challenged the show cause notice by making submission on 16.05.2023 explaining that the proposed variation of Rs.63,47,460/- should not be made. The assessee has also raised objection before the AO as per letter dated 12.04.2022 & 02.06.2022 and 16.08.2022 with respect to not following the intent of law with the amendments proposed by the Finance Act 2021.
6. It was submitted before the Ld. CIT(A) in appeal that the AO failed in understanding the intent of law, the time limit as per section 149(1)(a) as amended by Finance Act 2021 should have been made applicable to the assessee i.e. up-to 3 years and not up-to 4 years. It is further submitted that the notice issued u/s 148 of the Act to the assessee was time barred by the period of limitation as per section 149 of the Act. But the AO did not consider the said submissions and passed the assessment order.
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd.
7. The assessee filed the appeal before the Ld. CIT(A) challenging the legality of notice issued u/s 148 of the Act alongwith the addition made u/s 68 of the Act of Rs. 63,47,460/-. Ld. CIT(A) observed that the AO has drawn conclusion to the effect that assessee has shifted purchases of Rs. 81,10,610/- and sales of Rs. 17,63,150/- to other client codes through client code modification and the assessee has not mentioned any reasons for this client code modification and if these client code modifications were not done, the purchase had been increased by Rs. 81,10,610/- and sales by Rs. 17,63,150/-. Thus, according to the AO, this resulted in net loss of Rs. 63,47,460/- (purchase of 81,10,610 - Sale of 17,63,150/-). Thus, the assessee has taken profit of Rs. 63,47,460/- through client code modifications. Hence, this income should be treated as unexplained credit u/s 68 and invoked section 115BBE of the Act and is liable to be treated as income and the total income was assessed at Rs. 63,47,460/-. The Ld. CIT(A) has dismissed the legal ground challenging the validity of notice issued u/s 148 r.w.s. 147 of the Act, but the Ld. CIT(A) partly set aside the order of AO by deleting the addition made at Rs. 63,47,460/-.
8. Aggrieved by the order of Ld. CIT(A), the revenue is in appeal before us and has raised the following grounds:-
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. 1. "On the facts and in the circumstances of the case and in law, the Ld CIT(A)'s erred in deleting the addition made the by Assessing Officer u/s. 68 of the Act to the extent of Rs. 63,47,460/- being profit transferred through client code modifications without appreciating the facts that the issue was based on the detailed report prepared on NSEL Scam by Serious Fraud Investigation Officer (SFIO) and the assessee has failed to prove the genuineness of transactions, by submitting any cogent evidence in this regard."
2. On the facts and in the circumstances of the case and in law, the Ld CIT(A)'s erred in deleting the penalty proceedings initiated u/s. 271(1)(c) of the Act without appreciating the fact that the penalty proceeding are separate proceedings from the assessment proceedings and therefore penalty proceedings are to be appealled against separately by the assessee.
3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.
9. Further, the assessee has filed the cross objection against the appeal filed by the revenue on the following grounds:-
I. Reopening is bad in law:
The Ld Assessing Officer erred in reopening the assessment for A.Y. 2014- 2015 vide notice u/s 148 dated 28/07/2022 without appreciating that reopening was time barred as the last day for issuance of Notice u/s 148 for AY 2014-15 was 31.03.2021 and by virtue of first proviso to Section 149 of the Act, the reopening is time barred.
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd.
2. The Id JAO had no jurisdiction to issue show cause notice u/s 148A(b) dated 27/06/2022 pass order u/s 148A(d) dated 28/07/2022 and issue notice u/s 148 dated 28/07/2022 as after 29/03/2022 same can be done in a faceless manner as provided u/s 144B i.e. by Faceless Assessing Officer in view of NOTIFICATION S.O. 1466(E) [NO. 18/2022/F. NO. 370142/16/2022- TPL(PART1], DATED 29-03-2022 titled "E-ASSESSMENT OF INCOME ESCAPING ASSESSMENT SCHEME, 2022" passed u/s 151A of the Act. Thus, Notice u/s 148 dated 28/07/2022 is bad in law.
3. The Ld Assessing Officer erred in reopening of Assessment second time "due to change of opinion without appreciating that assessment u/s 143(3) of the Act for A.Y. 2014-15 was already completed on 29.03.2016 and thereafter the case was reopened u/s. 147 and assessment was completed on 16/12/2019, during the assessment as well as first reassessment proceeding complete scrutiny on the subject matter was verified and also all points raised were well explained and including the ones pertaining to the said addition, therefore reopening is not justified.
II. Violating Principles of natural justice
4. The ld. CIT(A) failed to appreciate that the AO had not provided the copy of statement and the alleged report denied opportunity of cross examination of the parties thereby violating principle of natural justice.
5. Without prejudice, the addition made by Ld. AO amounts to double addition as the assessee has already declared profits in their Return of Income.
6. The respondent craves leave to add, amend, alter or vary the grounds of appeal at the time of or before the date of the hearing.
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd.
10. We have heard Ld. AR and Ld. DR and examined the record. At the outset, Ld. DR on behalf of the revenue has argued that the deletion of the addition made by the AO in the impugned order is not legally sustainable as the finding rendered by the Ld. CIT(A) is perverse and needs to be set aside. With respect to Cross Objection filed by the assessee, Ld. DR relied upon the order of lower authorities and prayed for dismissal of the cross objection.
11. On the other hand, Ld. AR submitted that the assessee has taken legal ground in the cross objection stating that reopening is bad in law because the reopening of assessee for AY 2014-15 vide notice u/s 148 dated 28.07.2022 was time barred as the last date of issuance of notice u/s 148 of the Act for AY 2014-15 was on 31.03.2021 and by virtue of first proviso of section 149 of the Act, the reopening is time barred. The assessee has filed the original return on 29.09.2014 at Rs. Nil. Subsequently, the return was revised on 08.12.2014 declaring total income at Rs. Nil. The assessment order was passed u/s 143(3) of the Act dated 28.12.2016 assessing the total income at Rs. NIL. It was contended before the Ld. CIT(A) that the question of belated notice issued u/s 148 of the Act was raised by the assessee because the said notice issued on 28.07.2022 was beyond the CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. stipulated period and barred by limitation. The AO did not accept the contentions of the assessee and has issued and served the notice initially on 29.06.2021 and subsequently in compliance of the Hon‟ble Supreme Court decision in the case of Union of India vs. Ashish Agarwal in Civil Appeal no. 3005/2022 dated 04.05.2022, the notice u/s 148 was issued on 28.07.2022. The Ld. CIT(A) has decided the issue of notice u/s 148 of the Act holding that the same was rightly issued. The observation of Ld. CIT(A)‟s order in para no. 7.1.1 to 7.2 extracted as under:-
7.1.1. The appellant has stated that the AO has wrongly rejected the objections against issue of notice. In this regard, it is seen that the AO was having concrete information received from the investigation wing after thorough enquiry. Also, it is evident that all the objections of the appellant are considered and the AO has passed a speaking order u/s. 148A(d) stating as to why the appellant’s contentions were not accepted in total. Further, the appellant’s attempt to hide behind mere technicalities without having any merits of the issue cannot be entertained. Therefore, it is held that the notice issued u/s.148 is well within the prescribed time limits and calls for no interference.
7.2. The appellant has also contended that the notice u/s. 148 was issued to the appellant on 29/06/2021 which was after 6 years from the end of assessment year. Also, the appellant has contended that the notice cannot be issued beyond the 6 years. In this regard, the appellant has contended that since the notice was issued after statutory limitation as per the provisions of the act, the assessment order passed by the AO is illegal and against the law and facts of the case. As such, requested the appellate authority to quash the assessment order passed by the AO.
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. The appellant has relied upon the decision of Hon’ble Bombay High Court in the case of Hexaware Technologies Limited Vs. ACIT dated 03/05/2024.
7.3. In the said submission, it is contended that notice u/s.148 of the IT Act, 1961 dated 29-06-2021 was beyond the stipulated period of six years and therefore barred by limitation. In this regard, it is seen that Central Board of Direct Taxes in exercise of the powers conferred by sub-section (1) of section 3 of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (2 of 2020) vide Notification dated 24-06-2020 has extended the time limit for issuing notice u/s.148 for the A.Y. 2016-17 to 31-03-2021. Further, the CBDT vide Notification No. 20/2021, dated 31-3- 2021 and Notification No. 38/2021, dated 27-4-2021 has extended time limit from 31/03/2021 to 30/04/2021 and further to 30/06/2021 respectively. This has also been upheld in a catena of decisions. Therefore, it is held that the notice issued u/s.148 on 29-06-2021 is well within the prescribed time limits and calls for no interference. The case law relied upon by the appellant on the decision of the Hon’ble Bombay High Court in the case of Hexaware Technologies Limited Vs. ACIT in writ petition No. 1778 of 2023 cannot be applied to the present case. It is seen from the above case law that the time limits extended by TOLA is not applicable for the A.Y. 2015-16. But, the present appeal which is for the A.Y. 2014-15 squarely covered by the TOLA time limit extension by the CBDT. As such, it is held that the AO has issued the notice within the time limits allowed as per the provisions of the since the initial notice was issued on 29/06/20221. With regard to Hon’ble Apex Court’s decision dated 04.05.2022 in 2022 SCC Online 543, the CBDT has issued an instruction No. 01/2022 dated 11/05/2022 stating the prescribed procedure to be followed for the reassessment notices issued between 01/04/2021 to 30/06/2021. The Office Memorandum dated 20th February 2023 in F No. 370153/7/2023-TPL also lays to rest the issue raised by way of placing reliance on the case of Hexaware Technologies Limited Vs. ACIT in writ petition No. 1778 of 2023.
12. Further, Ld. AR has relied on the decision of Hon‟ble Bombay High Court in the case of Godrej Industries Ltd. Vs. ACIT (2024) 160 taxmann.com 13(Bom) dated 28.02.2024, which also pertains to AY 2014- Page | 11 CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. 15, as the case in hand, wherein the validity of the notice issued u/s 148 of the Act was challenged in terms of the provision under the Finance Act, 2021, and it was held that notice u/s 148 for the assessment year 2014-15 could be issued on or before 01.04.2021 based on the first proviso of section 149 of the Act, thus the impugned reopening notice issued on 31.07.2022 for AY 2014-15 was barred by limitation. The relevant observation of the Hon‟ble Bombay High Court in para no. 20 to 23 are reproduced below:-
The validity of a notice issued under Section 148 of the Act must be judged on the basis of the law existing on the date on which such notice is issued. A Division Bench of this Court in Siemens Financial (Supra) followed what was held in Tata Communications (Supra) to hold that the validity of a notice issued under Section 148 of the Act must be judged on the basis of the law existing on the date on which such notice is issued. Paragraphs 34 and 35 of Tata Communications (Supra) read as under : xxxxxxxxxxxxxxxxxxxxxx 21. The Apex Court in Ashish Agarwal (Supra) did not disturb the findings of this Court in Tata Communications (Supra). The Apex Court only modified the orders passed by the respective High Courts to the effect that the notices issued under Section 148 of the Act, which were subject matter of writ petitions before various High Courts, shall be deemed to have been issued under Section 148A(b) of the Act and the Assessing Officer was directed to provide within 30 days to the respective assessee the information and material relied upon by the Revenue so that the assessee could reply to the show cause notices within two weeks thereafter. The Apex Court held that the Assessing Officer shall thereafter, pass orders in terms of Section 148A(d) in respect of each of the concerned assessees and having followed the procedure as required under Section 148A of the Act may issue notice under Section 148 of the Act. The Apex Court also kept open expressly all contentions which may be available to the assessee CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. including those available under Section 149 of the Act and all rights and contentions, which may be available to the concerned assessee and Revenue under the Finance Act, 2021 and in law, shall be continued to be available. This was done by the Apex Court to strike a balance between the rights of both the parties.
Therefore, the validity of the reopening notice to petitioner must be decided on the basis of law which exists at the time when such a notice was issued, i.e., 28th July 2022.
As per the unamended Section 149(1)(b) of the Act, the outer time limit to issue a notice under Section 148 was 6 years from the end of the relevant assessment year and thus, for AY 2013-14, the time limit expired on 31st March 2020. Under the amended provision, a notice under Section 148 can be issued within a period of 3 years or 10 years, the latter available only after fulfilling certain stipulated additional conditions, including the limitation provided for by the first proviso to Section 149(1) of the Act. The first proviso to Section 149(1) stipulates that no notice under Section 148 can be issued at any time in a case for any Gauri Gaekwad 14/30 WP-450-2023.doc assessment year, if a notice under Section 148 could not have been issued at that time on account of being beyond the time limit specified under the unamended Section 149(1)(b), i.e., as it stood prior to the Finance Act, 2021. Applicability of Section 149 to be seen qua the notice under Section 148 and not with respect to the notice issued under Section 148A(b) or the order passed under Section 148A(d) of the Act.
In the present case, as for AY 2013-14, the 6 years period expired on 31st March 2021, extended under Section 3(1) of TOLA. Therefore, the impugned notice dated 28 th July 2022, which is under challenge in the petition, is barred by limitation. The Hon'ble Calcutta High Court in Ved Prakash (Supra) held "By this writ petition, petitioner has challenged the impugned order under Section 148 A(d) of the Income Tax Act, 1961 dated 29th July, 2022, relating to the assessment year 2014-2015 on the ground that the same being without jurisdiction and being barred by limitation since the initiation of re-opening of the assessment has been made admittedly after six years from the end of the expiry of the period of relevant assessment year. Mr. CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. Roychowdhury, learned Counsel appearing for the respondent is not in a position to contradict the aforesaid factual and legal position. Accordingly, this writ petition being WPO No.2450 of 2022 is disposed of by quashing the aforesaid impugned order dated 29th July, 2022." Prior thereto, the Rajasthan High Court in Sudesh Taneja (Supra), which was followed by this Court in Tata Communications (Supra), in paragraph 37 held as under :
In Sudesh Taneja (Supra), the Court held that for any action of issuance of notice under Section 148 after 1 st April 2021 the newly introduced provisions under the Finance Act, 2021 would apply. Mere extension of time limits for issuing notice under Section 148 would not change this position that obtains in law. The Court held that a notice, which had become time barred prior to 1 st April 2021 as per the then prevailing provisions, would not be revived by virtue of application of Section 149(1)(b) effective from 1st April 2021. We respectfully agree with this view. As noted earlier in Ashish Agarwal (Supra), the Hon'ble Supreme Court categorically confirmed the view taken by various High Courts including the Hon'ble Rajasthan High Court. Therefore, the impugned notices pertaining to AY 2013-14 pursuant to Ashish Agarwal (Supra) are barred by limitation.
Ld. AR further relied on the decision the Coordinate Bench of ITAT Mumbai in for AY 2014-15 dated 06.01.2025 and in this case, the entire law relating to issuance of notice u/s 148 of the Act after the Finance Act 2021 alongwith judgment of Hon‟ble Supreme Court in the case of Union of India vs. Rajiv Bansal (supra) were discussed in detail. The relevant observations of the Coordinate Bench in para no. 5 to 12 are apposite and reproduced below:-
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd.
The notice issued u/s 148 of the Act is under challenge. We find that first notice u/s 148 of the Act was issued on 29/06/2021 and the proceedings were closed on 16/01/2023. Thereafter, pursuant to the decision of the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2023] 1 SCC 617, proceedings u/s 148AD was initiated by issuance of notice dated 29/07/2022. The challenge of the assessee is that the impugned notices have been issued beyond the time limit of six years which expired on 31/03/2021.
We find that now this issue has been settled by the decision of the Hon’ble Supreme Court in the case of UOI vs. Rajeev Bansal in Civil Appeal No. 8629 of 2024, along with other civil appeal numbers. The Hon’ble Supreme Court has considered the submissions made on behalf of the revenue which read as under:-
“19. Mr N Venkataraman, learned Additional Solicitor General of India, made the following submissions on behalf of the Revenue: a. Parliament enacted TOLA as a free-standing legislation to provide relief and relaxation to both the assesses and the Revenue during the time of COVID- 19. TOLA seeks to relax actions and proceedings that could not be completed or complied with within the original time limits specified under the Income Tax Act; b. Section 149 of the new regime provides three crucial benefits to the assesses: (i) the four-year time limit for all situations has been reduced to three years; (ii) the first proviso to Section 149 ensures that re-assessment for previous assessment years cannot be undertaken beyond six years; and (iii) the monetary threshold of Rupees fifty lakhs will apply to the reassessment for previous assessment years; c. The relaxations provided under Section 3(1) of TOLA apply "notwithstanding anything contained in the specified Act." Section 3(1), therefore, overrides the time limits for issuing a notice under Section 148 read with Section 149 of the Income Tax Act; d. 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; CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. e. The Finance Act 2021 substituted the old regime for re-assessment with a new regime. The first proviso to Section 149 does not expressly bar the application of TOLA. Section 3 of TOLA 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 TOLA, then all the notices issued between 1 April 2021 and 30 June 2021 pertaining to assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018 will be within the period of limitation as explained in the tabulation below f. The Revenue concedes that for the assessment year 2015-16, 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 TOLA; g. Section 2 of TOLA defines "specified Act" to mean and include the Income Tax Act. The new regime, which came into effect on 1 April 2021, is now part of the Income Tax Act. Therefore, TOLA continues to apply to the Income Tax Act even after 1 April 2021; and h. Ashish Agarwal (supra) treated Section 148 notices issued by the Revenue between 1 April 2021 and 30 June 2021 as show-cause notices in terms of Section 148A(b). Thereafter, the Revenue issued notices under Section 148 of the new regime between July and August 2022. Invalidation of the Section 148 notices issued under the new CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. regime on the ground that they were issued beyond the time limit specified under the Income Tax Act read with TOLA will completely frustrate the judicial exercise undertaken by this Court in Ashish Agarwal (supra).”
6.1. From the afore-extracted charts, it can be seen that the revenue has accepted that the expiry of the limitation TOLA for AY 2014-15 would be 30/06/2021. The Hon’ble Supreme Court has explained the extension of TOLA time limit in the following manners:-
“54. The proviso to Section 149(1)(b) of the new regime uses the expression "beyond the time limit specified under the provisions of clause (b) of subsection (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021." Thus, the proviso specifically refers to the time limits specified under Section 149(1)(b) of the old regime. The Revenue accepts that without application of TOLA, the time limit for issuance of reassessment notices after 1 April 2021 expires for assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018 in the following manner:
(i) for the assessment years 2013-2014 and 2014-2015, the six year period expires on 31 March 2020 and 31 March 2021 respectively; and (ii) for the assessment years 2016-2017 and 2017-2018, the three year period expires on 31 March 2020 and 31 March 2021 respectively. a. Finance Act 2021 substituted the old regime.”
In the aforementioned judgment, the Hon’ble Supreme Court has explained the law brought by the Finance Act, 2021, substituting u/s 147 to 151 and the TOLA providing for relaxation of time limit prescribed under the specified Acts. The Hon’ble Supreme Court has also observed that Section 3(1) of TOLA starts with non-obstante clause which has to be read as controlling the provisions of the specified Acts including the provision of Income Tax Act which also overrides Section 149 only to the extent of relaxing the time limit of issuing of reassessment notice u/s 148 of the Act.
CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. 8. The Hon’ble Supreme Court held that time limit for issuance of re-assessment notice which falls for completion between 20/03/2020 and 31/03/2021, has been extended till 30/06/2021.
From paragraph 73 to 76, the Hon’ble Supreme Court has elaborated the sanction of specified authority u/s 151 vis-à-vis the time limit prescribed u/s 151 of the Act. The said part reads as under:-
“73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under Section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments.128 A table representing the prescription under the old and new regime is set out below:
The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime: (i) If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under Section 148 within four years after obtaining the approval of CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
After 1 April 2021, the new regime has specified different authorities for granting sanctions under Section 151. The new regime is beneficial to the assesse because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime. The effect of Section 151 of the new regime is thus: (i) If income escaping assessment is less than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under Section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. strict time limits prescribed under Section 151 affects their jurisdiction to issue a notice under Section 148.”
9.1. In para 94, the Hon’ble Supreme Court has mentioned about the three important periods to see the limitation which are as under:-
“94. Before we proceed, we need to bear in mind three important periods: i. The period up to 30 June 2021 - this period is covered by the provisions of the Income Tax Act read with TOLA; ii. The period from 1 July 2021 to 3 May 2022 - the period before the decision of this Court in Ashish Agarwal (supra); and iii. The period after 4 May 2022 - the period after the decision of this Court in Ashish Agarwal (supra). This period is covered by the directions issued by this Court in Ashish Agarwal (supra) and the provisions of the Income Tax Act read with TOLA. a. Third proviso to Section 149.
The third proviso to Section 149 reads thus: "Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded."
The third proviso excludes the following periods to calculate the period of limitation: (i) the time allowed to the assessee under Section 148A(b); and (ii) the period during which the proceedings under Section 148A are "stayed by an order or injunction of any court."
9.2. Finally, after analyzing the judgment in the case of Shri Ashish Agarwal (supra) in various time limits provided in the Act and the time extended by TOLA, the Hon’ble Supreme Court concluded as under:-
“114. In view of the above discussion, we conclude that: a. After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions; Page | 20 CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. b. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021; c. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under Section 148; d. TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval; e. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval; f. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021; g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and h. The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;
In light of the aforementioned judgment of the Hon’ble Supreme Court, coming back to the facts of the case in hand, notice u/s 148 of the Act was issued on 29/07/2022 whereas the original time limit for six years was 31/03/2021. Therefore, even under the TOLA, the time limit for issuance of notice u/s 148 of the Act had expired on 30/06/2021 and as per the concession made by the revenue, before the Hon’ble Supreme Court, all notices issued on or after 01/04/2021 will have to be dropped as they will not fall for concession during the period prescribed under TOLA. Hence, the impugned notice dated 29/07/2022 is admittedly barred by limitation and is accordingly set aside.
Since we have quashed the notice itself, we do not find it necessary to delve into the merits of the case.
In the result, appeal of the assessee is allowed.
Ld. AR further relied on the decision the Coordinate Bench of ITAT Mumbai in for AY 2014-15 dated 15.04.2025 and the relevant observations of the Coordinate Bench in para no. 8 is reproduced below:-
Therefore, having considered the provisions of the Act, before as well as after the amendment by the Finance Act, 2021, and the TOLA, 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 notices issued under section 148 of the Act on 27.07.2022 for both AYs 2013-14 and 2014-15 are barred by limitation period specified under section 149 of the Act. Accordingly, notice issued under section 148 of the Act on 27.07.2022 are void ab initio and bad in law. Therefore, the same are CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. quashed. Consequently, the re-assessment proceedings and assessment orders passed under section 147 r.w. section 144B of the Act are also quashed.
In the case in hand, the notice is issued u/s 148 of the Act on 28.07.2022 for AY 2014-15, whereas the original time limit for 6 years was 31.03.2021. Even under the TOLA, the time limit for issuance of notice u/s 148 of the Act had expired on 30.06.2021. As per the contentions made by the revenue, the Hon‟ble Supreme Court held that all notices on or after 01.04.2021 will have to be dropped as they will not fall for concession during the period prescribed under TOLA. Hence the impugned notice dated 28.07.2022 is admittedly barred by limitation.
We, therefore, respectfully following the judgment of Coordinate Bench in for AY 2014-15 (supra), conclude that in the present case, the notice issued on 28.07.2022 is barred by limitation and is accordingly set aside.
17. Since we have quashed the notice of reopening and ground no. 1 in Cross Objection, is allowed in favour of assessee, therefore we do not find necessary to decide the other grounds on merit because in view of the decision of the legal ground in the cross objection, the decision on other CO-162/Mum/2024 M/s. Kalpana Madhani Securities Pvt. Ltd. grounds in Cross Objection as well as grounds of revenue in appeal, pales into insignificance and rendered academic.
In the result, the appeal filed by the revenue is dismissed and Cross Objection filed by the assessee is allowed in above terms.
Order pronounced in the open court on 04.07.2025