NISHA THOMAS,MUMBAI vs. COMMISSIONER OF INCOME TAX (A)-DRP-2 , MUMBAI

The assessee filed its objections before the DRP against the draft assessment order passed by the AO. Before the DRP, the assessee admitted that she has sent certain amounts to her father who in turn has withdrawn the sums in cash and has given to the builder. The assessee further submitted that the source for the cash payment is her earning abroad which are not taxable in India. The assessee filed the bank statements in support of the claim. The assessee accordingly, submitted that even otherwise the addition made by the AO is not sustainable for the reason that the source for the payment of cash has been substantiated and therefore the same cannot be treated as unexplained. The DRP however, rejected the submissions of the assessee stating that the assessee has changed her stand about the payment of cash which she claimed before the AO as not paid at all. The DRP therefore confirmed the addition made by the AO. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO pursuant to the directions of the DRP.

There is a delay of 3 days in filing the appeal before the Tribunal and the assessee filed an affidavit explaining the reasons for the delay and praying for condonation of delay. The ld. AR in this regard submitted that since the assessee had to physically sign Form No. 36 to file the appeal before the Tribunal there was a slight delay in the physical paper to reach India. The ld. AR accordingly prayed for condonation of delay. The DR on the other hand vehemently opposed that the delay should not be condoned.

Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the appeal before the Tribunal. Therefore following the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 3 days in filing the appeal and admit the appeal for adjudication.

The first contention of the ld. AR is with regard to the legal issue that the notice issued under section 148 of the Act dated 22.07.2022 is barred by limitation. The ld. AR submitted that the AO issued a notice under the old section 148 of the Act on 30.06.2021 i.e. after the amendment brought in by Finance Act, 2021 whereby the scheme of reassessment have undergone change and a new section 148A was inserted. Several writ petitions were filed before the Hon'ble Bombay High Court by various assessees who have received similar notices challenging the validity of notice under section 148 wherein the Hon'ble High Court has held those notices issued under section 148 as invalid. Subsequently Hon'ble Supreme Court in the case of Ashish Agarwal (supra) directed that the notices issued under section 148 be deemed to have been issued under section 148A(b) of the Act. The ld. AR in this regard drew our attention to the relevant observations of the Apex court as extracted below: 8. However, at the same time, the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act. The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated. It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 1-4- 2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021. There appears to be genuine non-application of the amendments as the officers of the Revenue may have been under a bonafide belief that the amendments may not yet have been enforced. Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so. Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law. Therefore, we propose to modify the judgments and orders passed by the respective High Courts as under : - (i) The respective impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be show-cause notices in terms of section 148A(b). The respective assessing officers shall within thirty days from today provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter; (ii) The requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a one-time measure vis-à-vis those notices which have been issued under section 148 of the unamended Act from 1-4-2021 till date, including those which have been quashed by the High Courts; (iii) The assessing officers shall thereafter pass an order in terms of section 148A(d) after following the due procedure as required under section 148A(b) in respect of each of the concerned assessees; (iv) All the defences which may be available to the assessee under section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021 are kept open and/or shall continue to be available and; (v) The present order shall substitute/modify respective judgments and orders passed by the respective High Courts quashing the similar notices issued under unamended section 148 of the IT Act irrespective of whether they have been assailed before this Court or not.

The ld. AR submitted that accordingly, the AO in the present appeal issued a notice under section 148A(b) dated 25.05.2022 and issued a notice under section 148 dated 22.07.2022 after passing order under section 148A. The ld AR further submitted that as per the provisions of section 149 of the Act for AYs prior to 01.04.2021, the time limit for issue of notice under section 148 of the Act is Six years from the end of the relevant AY and therefore in assessee's case for AY 2015-16 the notice dated 22.07.2022 is barred by limitation. The ld AR argued that accordingly the assessment done based on the said notice is liable to be quashed. The ld. AR relied on the decision of the Hon'ble Bombay High Court in the case of Hexaware Technologies Ltd. Vs. ACIT [2024] 162 taxmann.com 225 (Bom.).

The ld. DR on the other hand, submitted that the original notice under section 148 of the Act was issued on 30.06.2021 which is well before the time limit and therefore, the legal contentions of the assessee are not valid. The ld. DR further submitted that it was not the intention of the Hon'ble Supreme Court to invalidate the original notice issued under section 148 of the Act and accordingly the Court issued the direction that the same could be treated as a notice issued under section 148A(b) of the Act. The ld. DR therefore, submitted that the subsequent notice under section 148 dated 22.07.2022 cannot be the considered as the basis on which the assessment is done but it is the notice dated 30.06.2021 that needs to be considered. The ld. DR accordingly submitted that the assessment cannot be quashed for the reason that the notice under section 148 was issued beyond time limit.

We heard the parties and perused the material on record. Before proceeding further, we will have a look at the brief journey of the changes that happened in the scheme of reassessment. The Finance Act, 2021 amended the scheme of reassessment under the Act with effect from 01.04.2021 whereby new sections 147, 148, 149 and 151 were substituted and section 148A was introduced in the Act. Accordingly, the old provisions or the old scheme of reassessment was applicable only till 31.03.2021. However due to the onslaught of the COVID-19 pandemic from March 2020 the functioning of the Income-tax department was also affected. To counter the difficulties faced in initiating the reassessments within the prescribed time limits under the old scheme for the period ending 31.03.2020 and 31.03.2021, the legislature enacted the Taxation and Other Laws (Relaxation of certain provisions) Act, 2020 [referred to as TOLA] on 29.09.2020. In excise of the powers given by TOLA the Central Government issued various notices from time to time as per which the time limit for issue of notice under section 148 for reopening the assessment got extended till 30.06.2021. As a result, several notices were issued by the Department between 01.04.2021 and 30.06.2021 under the old scheme of reassessment, seeking shelter under the extended time limits of TOLA. Therefore, a controversy arose whether such notices issued under the old scheme post 01.04.2021 are valid or not, given that the new scheme of reassessment was made applicable with effect from 01.04.2021 vide Finance Act, 2021. Several Writ Petitions were filed by taxpayers from across the country in various High Courts, challenging the validity of Notices issued under section 148 of the Act under the old law post 01.04.2021. Almost all the High Courts including the Bombay High Court, took an uniform view and quashed the respective reassessment notices issued under section 148 between 01.04.2021 and 30.06.2021. The Hon'ble Supreme Court while considering the issue in the appeal filed by the Revenue in the case of Ashish Agarwal (supra) held that the Revenue should not be remediless, and accordingly issued certain directions as extracted in the earlier part of this order.

In the present appeal, the AO issued a notice dated 25.05.2022 as per the directions of the Apex Court and subsequently issued the notice under section 148 dated 22.07.2022 to complete the assessment under section 147 vide order dated 14.03.2024. The contention of the assessee is that the notice dated 22.07.2022 is barred by limitation, since as per the provisions of the section 149 r.w. the first proviso, the time limit of six years from the end of the relevant assessment year for issue of notice under section 148 for AY 2015-16 has expired on 31.03.2022. The Department is arguing that the original notice issued under section 148 on 30.06.2021 initiating the reassessment proceedings was within the time limit and therefore the reassessment order cannot be quashed. The counter argument of the assessee is that the original notice under section 148 of the Act is non est since as per the directions of the Hon'ble Supreme, the said notice is to be treated as a notice under section 148A(b) and therefore the notice dated 22.07.2022 is to considered for the purpose of testing the time limit as provided under section 149. We notice that the Hon'ble Jurisdictional High Court in the case of Hexaware Technologies Ltd (supra) has considered a similar issue where it has been held that - 24. As regards issue no. 2, Section 149 of the Act reads as under : 149. Time limit for notice.—(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— (i) an asset; ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:] 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 28[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

Section 149(1)(b) of the erstwhile provisions 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 31st March 2022. The notice under section 148 of the Act, in the present case, is issued on 27th August 2022, i.e., clearly beyond the period of limitation prescribed in Section 149 read with the first proviso to the said section. This is squarely covered by paragraphs 36 and 37 of New India Assurance (supra) which has been reproduced above in paragraph 23.

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 period of ten years as provided in Section 149(1)(b) of the Act, would be applicable. The submission of the Revenue to interpret the first proviso to Section 149 of the Act to be applicable only for Assessment Years 2013-2014 and 2014-2015, i.e., for assessment years where the period of limitation had already expired on 1st April 2021 is not sustainable. The interpretation canvassed by the Revenue is clearly contrary to the plain language of the proviso. When the language in the statute is clear, it has to be so interpreted and there is no scope for interpreting the provision on any other basis. The taxing statue should be strictly construed. [Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2017] 81 taxmann.com 111/247 Taxman 361/394 ITR 449 (SC).

The interpretation as canvassed by the Revenue would render the first proviso to Section 149 of the Act redundant and otiose. The time limit to issue notice under section 148 of the Act had already expired on 1st April 2021 for Assessment Year 2013-2014 and 2014-2015, when Section 149 of the Act was amended. Therefore, reopening for Assessment Years 2013-2014 and 2014- 2015 had already been barred by limitation on 1st April 2021. Accordingly, the extended period of ten years as provided in Section 149(1)(b) of the Act would not have been applicable to Assessment Years 2013-2014 and 2014- 2015, de hors the proviso. It is a settled principle of law that when limitation has already expired, it cannot be revived by way of a subsequent amendment and, hence, for Assessment Years 2013-2014 and 2014-2015 proviso to Section 149 of the Act was not required. Hence, to give meaning to the proviso it has to be interpreted to be applicable for Assessment Years upto 2021-2022. In CIT v. Onkarmal Meghraj (H.U.F.) [1974] 93 ITR 233 (SC), the Hon'ble Apex Court was dealing with the question whether a proviso could be applied without reference to any period of limitation. It held that "it is a well-settled principle that no action can be commenced where the period within which it can be commenced has expired. It is unnecessary to cite authorities in support of this position. Does the fact that the second proviso says that there is no period of limitation make a difference?"

Section has to be interpreted so as to give meaning to all the words/phrases used in the Section and it should not be interpreted in such a way so as to render any part or phrase in the Section otiose. As stated aforesaid, if the interpretation canvassed by the Revenue is to be accepted then, not only various parts of the Section would be rendered otiose, one would have to also substitute one phrase with another phrase in the said Section, which is clearly not permissible in law. Reliance in this regard is placed on the decision of the Hon'ble Apex Court in the case of CIT v. Sham L. Chellaram [2015] 54 taxmann.com 348/373 ITR 292 (Bom.).

It was submitted on behalf of Revenue that the period of limitation for the purposes of Section 149 of the Act has to be seen with respect to the original notice under section 148 of the Act, which was issued to petitioner on 8th April 2021 and as the said notice was issued within the period of six years from the end of the relevant assessment year, which was expiring on 31st March 2022, the reassessment proceedings are within the period of limitation prescribed in Section 149 of the Act. It is not acceptable. Section 149 of the Act sets out, inter alia, the time limit for issuing notice under section 148 of the Act. Apart from the period of limitation set out in the said Section, the first proviso lays down a further restriction on the issue of a notice under section 148 of the Act. The period of limitation as well as the said further restriction is framed/provided in respect of a notice under 148 of the Act, and not for a notice under section 148A of the Act. The notice dated 8th April 2021, which though originally issued as a notice under section 148 of the Act, (under the provisions of the Act prior to the amendments made by the Finance Act, 2021), has now been treated as a notice issued under section 148A(b) of the Act in accordance with the decision of the Hon'ble Apex Court in Ashish Agarwal (supra). Once the notice dated 8th April 2021 has been treated as having been issued under section 148A(b) of the Act, the said notice is no longer relevant for the purpose of determining the period of limitation prescribed under section 149 or the restriction as per the first proviso below Section 149 of the Act. Therefore, for considering the restriction on issue of a notice under section 148 of the Act prescribed in the first proviso to Section 149 of the Act, the fresh/presently impugned notice dated 27th August 2022 issued under section 148 of the Act is required to be considered. The said notice is admittedly beyond the erstwhile period of limitation of six years prescribed by the Act prior to its amendment by the Finance Act, 2021. For the Assessment Year 2015-2016, the erstwhile time limit of six years expired on 31st March 2022 and, the impugned notice under section 148 of the Act has been issued on 27th August 2022 and, therefore, the impugned notice dated 27th August 2022 is barred by the restriction of the first proviso to Section 149 of the Act.

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

Even if the same was to be excluded, still it will mean further exclusion of 5 days. Considering the said excluded period as well, the impugned notice dated 27th August 2022 is still beyond limitation. The fact that the original notice dated 8th April, 2021 issued under section 148 of the Act, was stayed by this Court on 3rd August 2021, and its stay came to an end on 29th March 2022 on account of the decision of this Court, will not be relevant for providing extension as per the fifth proviso. The fifth proviso provides for extension for the period during which the proceeding under section 148A of the Act is stayed. The original stay granted by this Court was not with respect to the proceeding under section 148A of the Act, but with respect to the proceeding initiated as per the erstwhile provision of Section 148 of the Act and, hence, such stay would not extend the period of limitation as per the fifth proviso to Section 149 of the Act. The question of applicability of the sixth proviso does not arise on the facts of the present case. We find support for this in Godrej Industries Ltd. (supra). In view of the aforesaid, the impugned notice dated 27th August 2022 is clearly barred by the law of limitation.

The Hon'ble High Court has held that once the original notice (dated 30.06.2021 in assessee's case) has been treated as having been issued under section 148A(b) of the Act, the said notice is no longer relevant for the purpose of determining the period of limitation prescribed under section 149 or the restriction as per the first proviso below Section 149 of the Act and that the impugned notice (dated 22.07.2022 in assessee's case) issued under section 148 of the Act is required to be considered. When we apply the said ratio to the present case we notice that the time limit of six years for issue of notice under section 148 for the Assessment Year 2015-2016, expired on 31.03.2022 and that the impugned notice under section 148 of the Act has been issued beyond the time limit i.e. on 22.07.2022.

Further, it is relevant to note that the Central Board of Direct Taxes vide Instruction No.1/2022 dated 11.05.2022 issued instructions on the implementation of the judgement of the Hon'ble Supreme Court wherein it is mentioned that for A.Y. 2013-14, A.Y. 14-15 and A.Y. 2015-16, fresh notice under section-148 of the act can be issued with previous approval of specified authority only in those cases where the escapement is equal to or more than Rs. 50,00,000/- i.e.only if the case falls under section 149(1)(b) as amended by Finance Act 2021. This would in effect mean that for A.Y.13-14. A.Y.14-15 and A.Y.15-16, if the income escaping assessment is less than Rs.50,00,000/- then those cases will be time barred by the limitation provided as per section 149 of the Act and will not be re-opened/re- assessed under section 148 of the Act. In assessee's case the income escaping assessment is Rs.25,00,000 and therefore as per the above Instructions issued by the CBDT, the notice issued under section 148 is time barred since the income escaping assessment is less than Rs.50,00,000 and does not fall within the provisions of section 149(1)(b). Therefore on that count also in our considered view, the notice under section 148 dated 22.07.2022 is barred by limitation.

In view of these discussions and respectfully following the above decision of the Hon'ble High Court we hold that the impugned notice under section 148 of the Act dated 22.07.2022 is barred by limitation under the restriction of the first proviso to Section 149 of the Act and the assessment done based on the said notice is liable to quashed.

Since we have held the order of the AO as invalid on the above premise, the other legal contention with regard to the jurisdiction of the AO and the contentions on merits have become academic.

In the result, the appeal is allowed.