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Facts
The assessee purchased an immovable property and declared income accordingly. The revenue issued a notice under Section 148, alleging escapement of income due to the difference between the stamp duty value and the agreement value, and also additions under Section 69.
Held
The Tribunal held that the notice issued under Section 148 was invalid as it was beyond the prescribed period of limitation under the new regime. Consequently, the assessment order passed pursuant to this notice was quashed.
Key Issues
Whether the notice issued under Section 148 was valid considering the time-bar limitations under the new regime and relevant Supreme Court judgments.
Sections Cited
148, 56(2)(vii)(b), 69, 148A, 149, 147, 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the assessee arises out of order dated 30/07/2024 passed by NFAC Delhi, for assessment year 2017-18 on following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the Notice issued u/s 148 is valid even though the same is issued beyond the prescribed time frame of 3 years under the amended provisions. The appellant therefore prays that the A.Y. 2017-18 Rumina Shamsuddhin Wallani assessment order passed in pursuance of such time barred notice may be quashed/annulled.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the additions of Rs. 22,54,000 made by the Assessing Officer u/s 56(2)(vii) (b) of the Act on the grounds that there is a difference between the stamp duty value and the agreement value.
On the facts and circumstances of the case and in law, the Ld. CIT (A) as well as the Assessing Officer failed to appreciate that the appellant had booked the flat in 2014 by executing an MOU and the final sale deed was executed and registered in 2016 and therefore the reckoner value of 2014 needs to be adopted for the purpose of section 56(2)(vii)(b).
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the additions of Rs. 1,70,635 made by the Assessing Officer u/s 69 of the Act on the grounds that the appellant has not provided the source of such investments despite the fact that the contract notes for purchase had been duly filed by her before the Assessing Officer.
The appellant reserves its right to add, amend alter or delete any of the grounds of appeal.” Brief facts of the case are as under:
The assessee is an individual and filed her return of income on 26.07.2018 declaring total income at Rs.22,960/- for the year under consideration. As per the information available with the revenue, the assessee purchased immovable property for consideration of Rs.94,83,000/- during the F.Y. 2016-17 relevant to the A.Y. 2017-18 for which the value of stamp duty is Rs.1,17,37,000/-. As per section 56(2)(vii)(b) of the Act, the difference between cost of acquisition and the value of stamp duty is taxable under the head income from Other Source of that year.
A.Y. 2017-18 Rumina Shamsuddhin Wallani 2.1 Accordingly, notice u/s.148 of the Act, was issued to the assessee on 30/06/2021 along with reasons recorded after obtaining necessary approval from the competent authority. The said notice was treated to be the deemed notice issued under section 148A(b) of the act, as per the directions of Hon’ble Supreme Court in case of UOI vs Ashish Agarwal reported in (2022) 138 taxmann.com 64. Subsequently, notice under section 148(b) was issued on 30/05/2022.
In response to the said notice issued, the assessee vide letter dated 13/06/2022 filed her response as under:
"Your notice u/s 148A(b) to reassess the income or to treat the difference of Rs. 22,54,000/- is invalid, illegal, unlawful, unjust because new provisions under the income tax act do not allow you to issue notice after 3 years when the amount of income escaped is less than Rs.50 lakhs. In my case you are accepting the fact and stating that you feel the amount which escaped is Rs 22,54,000/- 2.2. The Ld.AO subsequently, passed order under section 148A(d) on 30/07/2022 by rejecting the objections raised by the assessee. Accordingly notice under section 148 was issued under the new regime on 30/07/2022. The assessee was subsequently called upon to furnish details on merits of the addition. Ld.AO after considering assessee’s submission passed assessment order making addition in the hands of asseessee amounting to Rs.22,54,000/- Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A).
A.Y. 2017-18 Rumina Shamsuddhin Wallani 3. The Ld.CIT(A), upheld the addition made and also rejected the legal plea raised by assessee challenging the notice under section being issued beyond period of limitation under the new regime. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.
At the outset, the Ld.AR submitted that, Ground No.1 is challenging the validity of notice issued beyond the period of limitation to be bad in law. 4.1. The Ld.AR submitted that, assessee challenged validity of the draft assessment orders passed by the Ld.AO under section 148A(d) of the Act is without jurisdiction and void ab initio as a consequence, notice issued under the amended section 148A dated 29/07/2022 is time barred for following prepositions:
a) That, the case of the Assessee does not fall within the scope of directions of the order of UOI vs Ashish Agarwal (supra). b) That, the notice issued under section 148, is barred by time limitation as the Ld.AO while issuing the notice failed to comply with the conditions provided under section 149(1)(b) of the Act. 4.2. He submitted that, relaxation under the TOLA is not applicable in assessee's case for assessment year 2017-18 and that TOLA provisions are applicable only to cases where the time limit for issuing notices expired on or before 20/03/2020 to 31/03/2021 and till 31/06/2021 under the old law, as held by the Hon'ble Supreme Court in the case of UOI vs. Rajeev Bansal reported in (2024) 167 taxmann.com 70. The Ld.AR thus contended that the notice issued on 29/07/2022 is bad in law as tests and time line enuinciated under the new provisions must be A.Y. 2017-18 Rumina Shamsuddhin Wallani complied with for completing the reassessment procedure as held by Hon’ble Supreme Court in case of UOI vs. Rajeev Bansal(supra). 4.3. On the other hand the Ld.DR relied on orders passed by authorities below. We have perused the submissions advanced by both sides in the light of the records placed before this Tribunal.
5. For the purpose of adjudication we will first consider legal contention preposition raised by the Ld.AR with regard to the notice under section 148 dated 29/07/2022 being time barred as per the provisions of section 149(1)(a) as confirmed by the Hon'ble Supreme Court in the case of UOI vs. Rajeev Bansal(supra). For sake of convenience section 149 is reproduced as under - Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,-- (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year: Provided that no notice under section 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 such notice 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, as they stood immediately before the commencement of the Finance Act, 2021: 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 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:
A.Y. 2017-18 Rumina Shamsuddhin Wallani 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 is less than 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.
5.1. As per the first proviso to section 149 clearly stipulates that, notices under section 148 of the Act cannot be issued, if the time limit prescribed under the un-amended provisions of section 149 as applicable prior to 01/04/2021 already expired. In the present facts of the case, the time limit for issuance of notice under the unamended law did not expiry on 30/06/2021. It is noted that, as on the issuance of notice under the old law, three years expired. Admittedly TOLA does not apply to assessment year 2017-18 as per following observation of Hon’ble Supreme Court in case of UOI vs. Rajeev Bansal(supra): “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 re assessment 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; 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:
Assessment Assessment Expiry of Within six Expiry of Year Year Limitation Years Limitation read with read with TOLA for (2) TOLA for (4) (1) (2) (3) (4) (5) 2013-2014 31-3-2017 TOLA not 31-3-2020 30-6-2021 applicable 2014-2015 31-3-2018 TOLA not 31-3-2021 30-6-2021 applicable 2015-2016 31-3-2019 TOLA not 31-3-2022 TOLA not applicable applicable 2016-2017 31-3-2020 30-6-2021 31-3-2023 TOLA not applicable 2017-2018 31-3-2021 30-6-2021 31-3-2024 TOLA not applicable 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 T a x 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 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).”
5.2. As per the table reproduced in the above observation by Hon’ble Supreme Court, time limit for issuing notice under the new provision under section 148A, read with TOLA expires on 30/06/2021. This is further clear from the following observation by Hon’ble Supreme Court: 105. A direction issued by this Court in the exercise of its jurisdiction under Article 142 is an order of a court. The third proviso to Section 149 of the new regime provides that the period during which the proceedings under section 148A are stayed by an order or injunction of any court shall be excluded for computation of limitation. During the period from the date of issuance of the deemed notice under section 148A(b) and the date of the decision of this Court in Ashish Agarwal (supra), the assessing officers were deemed to have been prohibited from passing a reassessment order. Resultantly, the show cause notices were deemed to have been stayed by order of this Court from the date of their issuance (somewhere from 1 April 2021 till 30 June 2021) till the date of decision in Ashish Agarwal (supra), that is, 4 May 2022.
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.
The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under section 149A(b) to compute the period of limitation. The third proviso excludes "the time or extended time allowed to the assessee." Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation. In Ashish Agarwal (supra), this Court provided two weeks to the assesses to reply to the show cause notices. This period of two weeks is also liable to be excluded from the computation of limitation given the third proviso to Section 149. Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices. b. Interplay of Ashish Agarwal with TOLA 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 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. (Emphasis supplied) 109. 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.
The effect of the creation of the legal fiction in Ashish Agarwal (supra) was that it stopped the clock of limitation with effect from the date of issuance of Section 148 notices under the old regime [which is also the date of issuance of the deemed notices]. As discussed in the preceding segments of this judgment, the period from the date of the issuance of the deemed notices 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) has to be A.Y. 2017-18 Rumina Shamsuddhin Wallani excluded from the computation of the period of limitation. Moreover, the period of two weeks granted to the assesses to reply to the show cause notices must also be excluded in terms of the third proviso to Section 149.
The clock started ticking for the Revenue only after it received the response of the assesses to the show causes notices. After the receipt of the reply, the assessing officer had to perform the following responsibilities: (i) consider the reply of the assessee under section 149A(c); (ii) take a decision under section 149A(d) based on the available material and the reply of the assessee; and (iii) issue a notice under section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed under the Income-tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under section 148 of the new regime.
5.3. Thus the revenue should have issued notice under section 148 on or before 30/06/2021, after complying with the procedure as per new provision under section 148A of the Act. However, in the present facts of the case, the notice under section 148(b) was issued to assessee on 30/05/2022, subsequent to which the assessee submitted response on 13/06/2022, and order rejecting the objections was passed on 29/07/2022. The notice under newly inserted section 148 was issued on 29/07/2022, which is beyond the period of limitation as specified by Hon’ble Supreme Court in UOI vs. Rajeev Bansal(supra).
Be that as it may, in case the notice dated 29/07/2022 is still considered to be valid since the time limit as per old law still did not expire, then monitory limit as specified under section 149(1)(b) would have to be satisfied. On this aspect, Hon’ble Supreme Court in UOI vs. Rajeev Bansal(supra) observed as under: 54. The proviso to Section 149(1)(b) of the new regime uses the expression "beyond the time limit specified under the provisions of A.Y. 2017-18 Rumina Shamsuddhin Wallani clause (b) of sub section (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. ………… 60. The above principles can be applied as follows to the factual situation in the present appeals: (i) The Finance Act 2021 substituted Sections 147 to 151 of the Income-tax Act with effect from 1 April 2021; (ii) Sections 147 to 151 of the old law ceased to operate from 1 April 2021; (iii) After 1 April 2021, any reference to the Income-tax Act means the Income-tax Act as amended by the Finance Act 2021; (iv) The time limits prescribed for issuing reassessment notices under section 149 operate retrospectively for three years for all situations and six years in case the escaped assessment amounts to or is likely to amount to more than Rupees fifty lakhs. (Emphasis supplied) 69. For instance, Section 149(1)(a) of the new regime specified the time limit of three years from the end of the relevant assessment year for reopening of the assessment. For assessment year 2017- 2018, the three year period expired on 31 March 2021. The expiry of time fell within the time period contemplated by Section 3 of TOLA read with its notifications. Resultantly, the Revenue had time until 30 June 2021 to issue a reassessment notice for assessment year 2017-2018 under section 149(1)(a). This harmonious reading gives effect to the legislative intention of both the Income-tax Act and TOLA. Moreover, Sections 147 to 151 are machinery provisions. Therefore, they must be given an interpretation that is consistent with the object and purpose of the Income-tax Act. (Emphasis supplied)
6.1. On perusal of para 60 reproduced herein above it is noted that Hon’ble Court categorically observed the time limit prescribed for issuing reassessment notices u/s.149 shall operate retrospectively for three years for all situation and six A.Y. 2017-18 Rumina Shamsuddhin Wallani years for the case where the escaped assessment is likely to exceed rupees fifty lakhs. In the present facts of the case the revenue issued notice to the assessee on 30/07/2022 under amended law. However, in respect of the amended law the three period already expired 3year period on 30/06/2021 then for validating the said notice the second condition must be satisfy in respect of the monitory limit regarding the income that escaped assessment. In the present facts of the case it is noted that the income that to set have escaped assessment is Rs.22,54,000/-. Thus the notice issued beyond period of 3 years under the new law in the present facts of the case cannot be upheld.
We therefore do not find any reason not to uphold the argument advanced by the Ld.AR. Accordingly the notice issued under section 148 for assessment year under consideration is held to be invalid and the consequent assessment order passed under section 147 read with section 144B of the is liable to be quashed.
As the assessment orders under section 147 stands quashed, the addition challenged by the assessee on merits becomes infructuous.
Accordingly the appeal is allowed on Ground No.1 raised by the assessee In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 28/02/2025