MOHAMEDALI SHABANALI BADAMI,MUMBAI vs. ITO 25(2)(1), MUMBAI

Mohamedali Shabanali Badami, AY 2015-16 4. Brief facts of the case are that assessee did not file his return of income u/s. 139(1). Case of the assessee was reopened by recording reasons which are reproduced in para-1 of the impugned assessment order, relating to income on transaction of sale of immovable property which according to the ld. Assessing Officer had escaped from assessment. Notice u/s. 148 was issued on 19.04.2022.

4.1. Ld. Assessing Officer issued a show cause notice u/s.148A(b), dated 24.03.2022, show causing the assessee as to why in view of the details contained in Annexure-A, a notice u/s.148 should not be issued. Ld. Assessing Officer provided the information in Annexure-A to the said notice, which according to him suggested that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Subsequently, ld. Assessing Officer passed an order u/s. 148A(d), dated 19.04.2022, wherein it was noted that information was flagged in accordance with Risk Management Strategy (RMS) which constituted information with the ld. Assessing Officer suggesting that income chargeable to tax had escaped assessment for the purpose of section 148 and section 148A. No reply was furnished by the assessee. In para 5 of the said order, ld. Assessing Officer noted that section 148A(d) requires the Assessing Officer to decide on the basis of the material available on record including reply of the assessee, as to whether or not, it is a fit case for issue of notice u/s.148 of the Act. Since assessee did not furnish any explanation or reply in response to the information supplied to him nor did assessee file any return, ld. Assessing Officer concluded that it is a fit case for issue of notice u/s. 148, since income of more than Rs. 50 lakhs is chargeable to tax being represented by the transaction in immovable property has escaped assessment. He also noted that conditions of section 149(1)(b) are also satisfied. Based on this order, notice u/s. Mohamedali Shabanali Badami, AY 2015-16 148 was issued dated 09.04.2022 requiring the assessee to furnish a return in prescribed form within 30 days of service of the said notice.

4.2. On these set of facts, the moot point in the argument made by the assessee is that notice u/s.148, dated 19.04.2022 is barred by limitation since it has been issued after expiry of six years, from the end of the relevant Assessment Year, i.e., Assessment Year 2015-16, which is contrary to the mandate of the first proviso below section 149(1)(b) and therefore the impugned notice is invalid, bad in law, leading to the impugned assessment proceedings as well as the impugned assessment order, bad in law and liable to be quashed ab initio.

Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021

[Provided also that for cases referred to in clauses (i), (iii) and (iv) of Explanation 2 to section 148, where, -

(a) a search is initiated under section 132; or b) a search under section 132 for which the last of authorisations is executed; or (c) requisition is made under section 132A, after the 15th day of March of any financial year and the period for issue of notice under section 148 expires on the 31st day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under section 148 in such case shall be deemed to have been issued on the 31st day of March of such financial year:

Provided also that where the information as referred to in Explanation 1 to section 148 emanates from a statement recorded or documents impounded under section 131 or section 133A, as the case may be, on or before the 31st day of March of a financial year, in consequence of,-

(a) a search under section 132 which is initiated; or (b) a search under section 132 for which the last of authorisations is executed; or (c) a requisition made under section 132A, after the 15th day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under clause (b) of section 148A in such case shall be deemed to have been issued on the 31st day of March of such financial year:]

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 14SA or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded:

Mohamedali Shabanali Badami, AY 2015-16 Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A 30[does not exceed seven days), such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly

Explanation. For the purposes of clause (b) of this sub-section, "asset" shall include immovable property, being land or building or both, shares and securities, loans and advances. deposits in bank account. ((1A) Notwithstanding anything contained in sub-section (1). where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1), has escaped the assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the assessment years within the period referred to in clause (b) of sub-section (1), a notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be.] (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.)

5.1. Finance Act, 2021 amended re-assessment related provisions w.e.f. 01.04.2021. These amended provisions made a significant change in the way re-assessment proceedings are initiated and the limitation period in relation thereto. One of the key amendments is introduction of section 148A. Pursuant to section 148A, it is mandatory for the Assessing Officer to provide an opportunity of being heard to the assessee by serving a notice of show cause as to why the notice u/s. 148 should not be issued. Further, Assessing Officer is required to consider reply, if any, filed by the assessee in response to the said show cause notice. The procedural requirement contained in section 148A, for the Assessing Officer to comply with, mentions that – Mohamedali Shabanali Badami, AY 2015-16 i. Assessing Officer shall conduct any enquiry, if required, with the approval of the specified authority, with respect to information which suggests that income chargeable to tax has escaped as- sessment. ii. He shall provide an opportunity of being heard to the assessee with the prior approval of the specified authority. iii. He shall consider the reply of the assessee furnished, if any in response to the show cause notice. iv. He shall decide on the basis of material available on record and after considering the reply of the assessee as to fitness of the case to issue a notice u/s.148 for which a specific order shall be passed within the stipulated time. v. Thus, section 148A under the new regime of re-assessment is a provision brought on the statute which is in the nature of condi- tion precedent to issuing of notice u/s.148.

5.2. Also, first proviso to section 149 under the new regime introduced by the Finance Act, 2021 prescribed limitation on issuance of notice by taking into consideration the time limit available under the old regime for the relevant assessment year. First proviso to section 149 states, “Provided that no notice u/s.148 shall be issued at any time in a case for the relevant Assessment Year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021”

Mohamedali Shabanali Badami, AY 2015-16 5.3. This proviso to section 149 provided a defence and limitation on issuance of notices under the new regime of re-assessment relating to the Assessment Years covered by the old regime. Thus, first proviso to section 149 under the new regime limits the retrospective operation to protect the interest of assessees. Section 149(1)(b) of the old regime provided a time limit of six years from the end of the relevant assessment year for issuing notice under Section 148 of the Act. For the relevant assessment year, being Assessment Year 2015-2016, 6th year expired on 31 March 2022. The notice under Section 148 of the Act, in the present case, is issued on 19.04.2022, i.e., clearly beyond the period of limitation prescribed in Section 149 read with the first proviso to the said section as per the old regime.

5.4. In the present context, we need to deliberate on the purpose of first proviso to section 149 under the new regime so as to decide on the issue raised by the assessee in the present appeal. The first proviso to Section 149 of the Act provides that no notice under Section 148 shall be issued at any point of time in a case for a relevant assessment year beginning on or before the 1" day of April 2021, 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 provision of clause (b) of sub-section (1) of this Section, as it stood immediately before the commencement of the Finance Act, 2021. The purpose of the first proviso to Section 149 of the Act is consistent with the stated object of the government to make prospective amendments in the Act. Accordingly, the proviso provides that up to Assessment Year 2021- 2022 (period before the amendment), the period of limitation as prescribed in the erstwhile provisions of Section 149(1)(b) of the Act would be applicable and only from Assessment Year 2022-2023, the

46. The ingredients of the proviso could be broken down for analysis as follows: (1) no notice under Section 148 of the new regime can be issued at any time for an assessment year beginning on or before 1 April 2021; (ii) if it is barred at the time when the notice is sought to be issued because of the time limits specified under the provisions of 149(1)(b) of the old regime. Thus, a notice could be issued under Section 148 of the new regime for assessment year 2021-2022 and before only if the time limit for issuance of such notice continued to exist under Section 149(1)(b) of the old regime. …………….

7.1. Hon'ble Court took into consideration the stand of the Revenue to interpret the first proviso to section 149 of the Act to be applicable only for Assessment Years 2013-14 and 2014-15, i.e., for the Assessment Years where the period of limitation has already expired on 01.04.2021 which was held to be not correct because that would render the first proviso to section 149 under a new regime redundant and otiose. According to the Hon'ble Court, if such a stand of the Revenue is accepted then, it would amount to re-writing the proviso to Mohamedali Shabanali Badami, AY 2015-16 section 149(1)(b). Hence such an interpretation as canvassed by the Revenue is clearly not permissible in law. Hon'ble Court thus, concluded that the first proviso to section 149(1)(b) is an exception to the period of limitation and provides for a restriction on the notices issued u/s.148 which are issued for Assessment Years up to 2021-22 beyond a certain date. It also took into account the extension of time as contained in fifth and sixth proviso to section 149(1)(b) while concluding on the period of limitation available for issuing the notice u/s.148. Hon'ble Court, thus concluded that if a notice is not issued within the time prescribed under the first proviso to section 149(1)(b) then, such period cannot be extended by fifth proviso and sixth proviso.

7.2. Relevant paragraph is extracted below: “30. With respect to applicability of the fifth proviso and the sixth proviso to Section 149(1)(b) of the Act for extension of limitation for issuing the notice under Section 148 of the Act, fifth and sixth provisos are only applicable with respect to the period of limitation prescribed in Section 149(1) of the Act, i.e., three years or ten years, as the case may be. Fifth proviso or sixth proviso extend limitation for issuing notice under Section 149 of the Act, however, the first proviso is an exception to the period of limitation and provides for a restriction on the notices under Section 148 being issued for Assessment Years upto 2021-22 beyond a certain date. Therefore, the way the Section would operate, is first to decide whether a notice issued under Section 148 of the Act is within the period of limitation in terms of Section 149(1)(a) or (b) of the Act. To decide whether the notice is within the period of limitation under Section 149(1)(a) or (b) of the Act, the extension of time as per the fifth and/or sixth proviso would be considered. Once, the notice is otherwise within the period of limitation, thereafter one has to see whether the said time limit is within the restriction provided in the first proviso or not. If the notice is beyond the restriction period, the notice is invalid. The fifth and/or the sixth proviso cannot apply at this stage to extend the period of restriction as per the first proviso. Hence, if a notice is not within the time prescribed under the first proviso to Section 149(1) of the Act, then such period cannot be extended by fifth proviso and sixth proviso.

Mohamedali Shabanali Badami, AY 2015-16 8. In the present case, notice issued u/s.148 is dated 19.04.2022 which was issued pursuant to order passed u/s.148A(d) which is also of the even date, wherein it was held by the Assessing Officer that it is a fit case to issue notice u/s.148 of the Act. The moot case of the controversy arisen in this case is on account of show cause notice issued u/s.148A(b) which is dated 24.03.2022 and is prior to the date of 31.03.2022 when the limitation under the old regime expires. However, the notice u/s.148 is issued subsequent to this date, i.e., on 19.04.2022. Thus, the process of initiation of considering whether reopening is to be done or not was initiated within the limitation period available as per the old regime but it got concluded beyond the period of limitation. In this background from the perusal of provisions contained in section 149(1), we note that it states that no notice u/s.148 shall be issued for the relevant Assessment Year prescribing the conditions and time limit. It does not refer to show cause notice/s.148A(b). The first proviso to section 149(1)(b) also carves out an exception to the limitation in respect of notice u/s.148 and not under section 148A(b). Further, Hon'ble High Court of Bombay in the case of Hexaware Technologies Ltd. (supra) in para-30 has categorically held that if a notice u/s.148 is not with the time prescribed under the first proviso to section 149(1)(b) then, such period cannot be extended by fifth proviso and sixth proviso to the said section.

8.1. Admittedly, the undisputed fact in the present case is that impugned notice issued u/s.148 is dated 19.04.2022 which is after the limitation expired on 31.03.2022 within the meaning of first proviso to section 149(1)(b). In view of the above stated deliberations, on the factual matrix of the present case and the applicable law including the jurisprudence discussed above, we hold that notice for Mohamedali Shabanali Badami, AY 2015-16 Assessment Year 2015-16 issued on 19.04.2022 u/s.148 of the new regime is barred by limitation and hence bad in law, liable to be quashed, resulting in impugned re-assessment proceedings as well as the impugned assessment order bad in law. Accordingly, ground nos. 1 and 2 raised by the assessee are allowed.