KAMALAPAT RATANCHAND CHOPRA,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-19(1), MUMBAI

Kamalapat Ratanchand Chopra AY 2013-14 3. In the present appeal, essentially the issue to be decided is on legal ground, challenging the validity of notice issued u/s.148 on account of being barred by limitation and consequent reassessment order passed u/s. 147 being bad in law. Since, the issue involved is legal and the facts relating thereto are already on record, we find it appropriate to first adjudicate on the same.

i) The assessee has availed accommodation entries from the Rajendra Jain / Sanjay Choudhary /Dharmichand Jain and their Group Concerns during the year under consideration. Details of the hawala entities from whom the assessee has obtained accommodation entries for the year under consideration are given as under:- Sr.No. Name of the PAN Amount involved hawala entities (in Rs.)

1. MAYANK AAQHS5732R 1,48,82,347/- ii) The assessee has received sale consideration of Rs.6,35,41,019/- through sale of shares of M/s Confidence Finance and Trading Limited. The script/share of this company was used for accommodation entry of bogus long term capital gain, bogus short term capital gains and bogus short term capital loss/bogus business loss through trading of shares.

4.1. Order u/s.148A(d) was passed on 21.07.2022 and Notice u/s.148 was issued on 21.07.2022.

Kamalapat Ratanchand Chopra AY 2013-14 4.2. Chronology of events which took place in the present case for which the relevant material is on record is tabulated below for ready reference, as furnished by the ld. Counsel for the assessee:

Sr.No. Event Date/days 1 Original notice under section 148 which 30.06.2021 is deemed to be notice under section 148A(b) 2 Extension of due date under Tola 30.06.2021 3 Therefore, surviving period left as per 1 day the decision in case of Rajeev Bansal (supra) 4 Material provided u/s. 148A(b) 23.05.2022 5 Reply of the appellant 07.06.2022 6 Extended due date for issuance of notice 15.06.2022 u/s.148 [after considering 1 day + 7 days as per 4th Proviso to section 149(1)] 7 Date of notice u/s. 148 (new Regime) 21.07.2022 8 Delay in issuing notice u/s. 148 36 days

5.1. It is noted that the notice u/s.148 is issued on 21.07.2022, which according to the assessee is barred by limitation, since it has been issued after expiry of 6 years from the end of the relevant assessment year i.e., AY 2013-14. According to the assessee, it is contrary to the mandate of the first proviso below section 149(1)(b) and therefore is invalid, bad in law and leading the impugned assessment proceedings as well as the impugned assessment order bad in law liable to be quashed ab initio.

Kamalapat Ratanchand Chopra AY 2013-14 6. Similar issue had come up before the Coordinate Bench of Mumbai, ITAT in the case of Larsen and Toubro Limited in ITA No. No.5745/Mum/2024, dated 07.04.2025, with regard to Assessment Year 2014-15. The same would apply mutatis mutandis to the present appeal also. Relevant paragraphs from the said order is extracted below for ready reference.

“3.1. Subsequently, case of the assessee was taken up for re-assessment by issuing notice u/s. 148, dated 30.06.2021 alleging escapement of income from the assessment. Reasons to believe recorded for the purpose of invoking re-assessment proceedings were supplied to the assessee vide letter dated 03.11.2021 wherein objections filed by the assessee were also disposed of. In its objection on notice issued u/s.148, the moot point contested by the assessee was that notice had been issued without following the law applicable u/s.148A, which is effective from 01.04.2021 and hence the proceedings so initiated are bad in law. According to the assessee, said notice issued on 30.06.2021 is barred by limitation, taking into consideration the amended provisions of Section 149 of the Act. 3.2. Ld. Assessing Officer, while dismissing the objections raised by the assessee observed that impugned notice was issued within the powers of the Department owing to time extended for the operation of old provisions of section 148 of the Act, till 30.06.2021. According to him, this was done by the Ministry of Finance by way of conditional legislation in the peculiar circumstances which arose during the pandemic and lock down for Covid-19. He thus, held the impugned notice as valid and legal. 3.3. To delve on the issue in hand before us, let us take note of the litigation journey so far and then adjudicate upon the same taking into consideration the amendments brought into the statute by the Finance Act, 2021 relating to re-assessment procedures, judgements of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2022] 138 taxmann.com 64 (SC) dated 04.05.2022 followed by decision in the case of Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC), dated 03.10.2024 as well as provisions contained in Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as ‘TOLA’) and Suo moto Writ Petition by Hon'ble Supreme Court in Suo Moto Writ Petition (C)No. 3 of 2020, dated 10.01.2022. 3.4. While TOLA was already in vogue, 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 –

Kamalapat Ratanchand Chopra AY 2013-14 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 assessment. 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 condition precedent to issuing of notice u/s.148. 3.5. 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” 3.6. 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. In the present case for A.Y. 2014-15, under the old regime as per section 149(1)(b), no notice u/s 148 could have been issued beyond 31.03.2021, considering limitation of six years. TOLA read with the Act, extended the time for issuing re-assessment notices u/s.148 which fell for completion from 20.03.2020 to 31.03.2021 till 30.06.2021. 3.7. TOLA on one hand extending the time limits as specified therein and on the other hand, first proviso to section 149 under the new regime limiting the retrospective operation for protecting the interest of assessees, led to legal jurisdictional controversies. Owing to non-compliance of mandatory and conditional procedural requirements u/s.148A and retrospective limitation by first proviso to section 149, several of such notices issued u/s.148 were contested under writ jurisdiction of various Hon'ble High Courts across the country, who held in favour of the assessee by holding such notices as bad in law and quashing the re-assessment proceedings so initiated. Revenue took up such quashing by various Hon'ble High Courts before the Hon'ble Supreme Court with the lead case in Union of India vs. Ashish Agarwal (supra). 3.8. Hon'ble Apex Court in the case of Ashish Agarwal (supra) delivered its judgment in the context of deciding the validity of notices issued during TOLA period which refers to the period beginning with 20.03.2020 to 31.3.2021 or any date notified by the Central Government in order to mitigate the hardships caused to humanity by Covid-

Kamalapat Ratanchand Chopra AY 2013-14 19 pandemic. Central Government extended the application of TOLA legislation till 30.6.2021. Significance of TOLA is that all the compliances/completion of pending proceedings as per various statutes which were due in the TOLA period got an extension of time for compliance or completion of proceedings. In short, TOLA extended the time for completion of proceedings or compliance in accordance with various statutes covered in section 3 of TOLA legislation. Accordingly, the Income-tax Act, 1961 was also one of the statutes covered by TOLA legislation and notices issued during the TOLA period were judged in this background. 3.9. Hon'ble Apex Court in the case of Ashish Agarwal (supra) were convinced that Revenue authorities had issued notices u/s. 148 of the Act as per the pre-amended provisions under a bonafide belief. Hon'ble Court was also convinced with the view taken by various High Courts in holding that the benefit of new provisions shall be made available in respect of proceedings relating to past assessment years, provided section 148 notice has been issued on or after 01.04.2021 since new provisions are remedial and benevolent in nature which are substituted with specific object to protect the rights and interest of assessees as well as same being in public interest. In order to strike a balance, Hon'ble Court exercised its discretionary jurisdiction under Article 142 of the Constitution of India so as to balance the interest of, both the Revenue and the assessee since, according to the Hon'ble Court, Revenue cannot be made remediless and so also not to frustrate the object and purpose of reassessment proceedings. Thus, showing some leeway, it was directed that re-assessment notices issued under the old regime shall be deemed to have been issued u/s.148A(b) of the Act (new regime), thereby, upholding the validity of notices issued on or after 01.04.2021, following the unamended provisions for re-opening of assessment. Accordingly, impugned notices issued to the assessees under unamended section 148 of the Act were deemed to be show cause notices in terms of section 148A(b) of the Act. Even though notices issued under the unamended section were deemed to be issued under the new regime, yet, Revenue was permitted to proceed for reassessment proceedings subject to compliance of procedural requirements and defences available to the assessee under the new regime and Finance Act, 2021. For this purpose, it modified certain procedural requirements for compliance as contained in section 148A of the Act. 3.10. A legal fiction was created by directing that the deemed notices u/s. 148A(b) of the Act shall relate back to the date when the original notices were issued as per the old regime. To give logical effect to the legal fiction so created, Hon'ble Court also directed that Assessing Officers shall within 30 days from the date of their judgment in Ashish Agarwal (supra) provide to the respective assessee, information and material relied upon, so that the assessee can reply to the show cause notices within two weeks thereafter. As a one-time measure, Hon'ble Court dispensed with the requirements of conducting any enquiry, if required as contained in section 148A(a). Thereafter, it directed that ld. Assessing Officer shall pass order in terms of section 148(d) and then issue notice u/s.148, if deemed fit. It is important to note that Hon'ble Apex Court while upholding the validity of notices issued as per the old regime on or after 01.04.2021, prescribed timeline of 30 days for the Assessing Officers for supplying the information and material and of two weeks for the assessees to reply to the show cause notices issued u/s. 148A(b) of the Act. 3.11. In compliance with the directions given in the case of Ashish Agarwal (supra), ld. Assessing Officer in the case of present assessee, issued a letter of proceeding for A.Y. 2014-15, dated 26.05.2022. This letter communicated that the notice initially issued u/s.148, dated 30.12.2016 is deemed to be a notice in compliance with Kamalapat Ratanchand Chopra AY 2013-14 provisions u/s. 148A(b) of the new regime. Along with this letter, reasons to believe recorded for reopening were also communicated to the assessee. In the said letter, assessee was requested to submit its reply with documentary evidence and comply within two weeks from the date of receipt of this letter. It further, stated that reply of assessee, if any, will be considered before passing order u/s.148A(d) and before issuance of notice u/s.148 of the Act, if deemed fit. 3.12. On receipt of this letter, assessee filed an application dated 09.06.2022, before the ld. Assessing Officer seeking adjournment. To corroborate this, e-proceedings response acknowledgement along with copy of said application is placed on record in the paper book. Further, in response to this application seeking adjournment, ld. Assessing Officer granted the adjournment to the assessee till 23.06.2022 and asked to furnish the reply by 24.06.2022, failing which proceedings u/s.148A(d) will be completed on merits of the case. Ld. Assessing Officer granted the adjournment by issuing letter dated 09.06.2022, content of which are extracted below: “In response to your adjournment letter filed by you on 09.06.2022 in the case of Larsen & Tubro Limited having PAN AAACL0140P, you are hereby given adjournment, till 23.06.2020 and you are requested to submit your reply by 24.06.2022. In case you fail to submit the reply within given time, the proceedings u/s 148A(d) will be completed on merit of the case. 3.13. Pursuant to aforesaid adjournment granted by ld. Assessing Officer, assessee filed its response on 28.06.2022. Ld. Assessing Officer passed order u/s. 148A(d) on 28.07.2022, considering the submissions of the assessee. Thereafter, notice u/s.148 of the Act was also issued on 28.07.2022. 3.14. Ld. Counsel for the assessee submitted a chart of events by listing the facts relevant to contentions raised on the legality of the re-assessment notice and impugned reassessment order thereon passed by the ld. Assessing Officer. Chart so submitted in the course of hearing is extracted below:

Kamalapat Ratanchand Chopra AY 2013-14 4. On the above submission, ld. CIT DR submitted that assessee has not come up in cross objection to contest on the legal grounds for Assessment Year 2014-15. In this respect, we note from the grounds raised by Revenue in its appeal for Assessment Year 2014-15 that ground no.1 and 2 relate to the legal issues relating to notice issued u/s.148 of the Act for which ld. CIT(A) had held in favour of the assessee. Since the Revenue has contested on the legal issues relating to notice u/s, assessee not coming up in its cross objection does not have a bearing to adjudicate on the legal issue in hand before the Bench.

5. While bringing logical effect to the creation of the aforesaid legal fiction, issues relating to limitation and approvals arose which led to various controversies, ultimately resulting into another judgement by the Hon'ble Supreme Court in the case of Union of India vs. Rajeev Bansal (supra). By exercising defence made available from the judgement of Ashish Agarwal (supra), it is contended by the assessee that impugned notice u/s. 148 issued by the ld. Assessing Officer is barred by limitation as per the provisions contained in section 149, as dealt by the decision in the case of Rajeev Bansal (supra). 5.1. Judgement of Rajeev Bansal brought the legal fiction created by Ashish Agarwal to its logical fit by the concept of “surviving time” under the Act read with TOLA, available to the Revenue to complete the remaining proceedings in furtherance to the deemed notices. This judgement of Rajeev Bansal (supra) also explained the “exclusion period” while calculating the limitation for issuance of notices u/s.148 under the new regime. Relevant paragraphs from 106 to 114 in this respect from the judgment of Rajeev Bansal (supra) are reproduced below for ready reference: “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.

Kamalapat Ratanchand Chopra AY 2013-14 111. 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.

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- tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;” 5.2. According to the Apex Court in Rajeev Bansal, the combined effect of legal fiction created and directions issued thereupon in the case of Ashish Agarwal was analysed whereby show cause notices that were deemed to have been issued during the period between 01.04.2021 and 30.06.2021, were stayed till the date of supply of relevant information and material by the Assessing Officer to the assessee. After the supply of relevant material and information to the assessee, time begins to run for the assessee to respond to the show cause notice. While analysing third proviso to section 149, Hon'ble Court noted that it excludes the time allowed for the assessee to respond to the show cause notice u/s. 148A(b) for computing the period of limitation. It is very categorically noted in para 107 of judgement in Rajeev Bansal (supra) that two weeks were provided to the assessee to reply to the show cause notice which is also liable to be excluded from the computation of limitation given in the third proviso to section 149. According to the decision of Rajeev Bansal (supra), notice u/s 148 to be issued in pursuance to the deemed notices had to be within the time limit surviving under the Act read with TOLA so as to give full effect to the legal fiction created by the judgment of Ashish Agarwal (supra). According to the Hon'ble Court, this would enable, both the assessees and the Revenue to obtain the benefit of all the consequences flowing from the fiction so created. 5.3. Hon'ble Court pin-pointedly noted that creation of legal fiction stopped the clock of limitation with effect from the date of notices issued u/s 148 under the old regime, i.e. the deemed notices u/s 148A(b) under the new regime, up to the date of furnishing of response by the assessee to the show cause notice issued by ld. Assessing Officer pursuant to direction given in Ashish Agarwal (supra). Thus, clock of limitation starts

Kamalapat Ratanchand Chopra AY 2013-14 ticking for the Revenue upon receipt of response from the assessee, after which the Assessing Officer is required to complete the remainder procedure of section 148A within the available ‘surviving time limit’. Directions issued by the Hon'ble Apex Court were reiterated in Rajeev Bansal (supra) in para 114(g) while drawing its conclusion. 5.4. Based on this, ld. Counsel for the assessee applied the concept of “exclusion period” and “surviving time” on the facts of the present case to contest for impugned notice being barred by limitation. The chart calculating surviving time and exclusion period as computed by the ld. Counsel is reproduced below for ready reference:

5.5. Ld. Counsel thus, explained that since the first notice originally issued under the unamended section 148 is on 30.06.2021, considering which the surviving time available between the period from 01.04.2021 to 30.06.2021 is one day. Further, period from 30.6.2021 to 28.06.2022 is to be excluded since assessee filed its response on 28.06.2022 against the letter of proceedings issued by the ld. Assessing Officer u/s. 148A(b) in compliance with the direction given in the case of Ashish Agarwal (supra). Thereafter, based on the judgement of Rajeev Bansal (supra), the last date, i.e., limitation period to issue notice u/s. 148 of the Act by taking into account one day of surviving time comes to 29.062022. In the present case, since the impugned notice u/s.148 is issued on 28.07.2022, it is barred by limitation and therefore bad in law, liable to be quashed resulting into making the impugned re-assessment proceedings and reassessment order also bad in law, liable to be quashed.

Kamalapat Ratanchand Chopra AY 2013-14 7. In the light of these arguments, let us first take note of specific observations made by the Hon'ble Apex Court in its judgment of Rajeev Bansal (supra) explaining the purpose of creating the legal fiction, supplementing the existing legal framework of procedure of reassessment and exercising its discretionary jurisdiction under Article 142 of the Constitution of India. It states that purpose is to strike a balance between the rights of the assessees and the Revenue, to avoid any further appeals by the Revenue on the same issue and to give effect to the legislative scheme of reassessment under the new regime by modifying the procedure of reassessment with a remedy, grounded in equitable standards. Relevant paragraphs from the judgment of Rajeev Bansal (supra) are extracted below: “The purpose of this Court in deeming the reassessment notices issued under the old regime as show cause notices under the new regime was two-fold: (i) to strike a balance between the rights of the assesses and the Revenue which issued approximately ninety thousand reassessment notices after 1 April 2021 under the old regime; and ii) to avoid any further appeals before this Court by the Revenue on the same issue by challenging similar judgments and orders of the High Courts (arising from approximately nine thousand writ petitions). … … … 93. In Ashish Agarwal (supra), this Court was aware of the fact that it could not have used its jurisdiction under Article 142 to affect the vested rights of the assesses by deeming Section 148 notices under the old regime as Section 148 notices under the new regime. Hence, it deemed the reassessment notices issued under the old regime as show cause notices under section 148A(b) of the new regime. Further, the Court directed the Revenue to provide all the relevant material or information to the assesses and thereafter allowed the assesses to respond to the show cause notice by availing all the defences, including those available under section 149. Thus, the Court balanced the equities between the Revenue and the assesses by giving effect to the legislative scheme of reassessment as contained under the new regime. It supplemented the existing legal framework of the procedure of reassessment under the Income-tax Act with a remedy grounded in equitable standards.” 7.1. Hon'ble Apex Court while propounding its judgment in Rajeev Bansal (supra) elaborately analysed and discussed about the legal fiction it created, its consequences, incidental or inevitable corollaries, inhibition faced by the Assessing Officers from performing their responsibility u/s 148A. Hon'ble Court also noted in para-108 that “…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.” Thus, to give logical effect to the legal fiction and modified procedure, it brought out the concept of ‘exclusion period’ and ‘surviving time limit’. 7.2. At this juncture, it is important to note that legal framework of procedure for reassessment under Act created by the Hon'ble Supreme Court through its judgments in Ashish Agarwal and Rajeev Bansal (supra), is a fiction by deeming the notice issued u/s 148 of the old regime as a show cause notice u/s 148A(b) of the new regime on which modified procedure is to be applied to give it a logical effect. Hence, the modified procedure is to be applied strictly for the purpose to be achieved, as already stated and extracted above. It is a well-established principle of interpretation that the courts must give full effect to a legal fiction by having due regard to the purpose for which the legal fiction is created. A legal fiction is created for a definite purpose and it should be limited to the purpose for which it is enacted or applied.

(Dy./Asstt.Registrar) ITAT, Mumbai