Delhi High Court: In a petition impugning the initiation of reassessment action under Section 148 of the Income Tax Act, 1961 (‘Act’) pertaining to assessment year 2013-14 triggered by a search conducted on Proform Interiors Private Limited, a Single Judge Bench of Yashwant Varma, J. held that the assessment year 2013-14 fell beyond the ten-year block period as set out under Section 153C read with Section 153-A of the Act and hence, the impugned notice dated 30-03-2022, issued beyond limitation, was liable to be quashed and set aside.
The present petition was based on a search conducted in the case of Proform Interiors Private Limited on 09-02-2022. The reassessment took place after the issuance of a notice dated 30-03-2023 under Section 148 of the Act.
The respondents contended that they were not bound to follow Section 148-A of the Act due to the presence of the first proviso placed in that provision that exempted the respondents from following the procedure prescribed by clauses (b), (c), and (d) of Section 148A in a search case and where the search was initiated on or after 01-04-2021.
Upon initial consideration of the writ petition, the Court prima facie found that the reassessment would fall foul of Section 149(1) of the Act bearing in mind the timeframes within which an assessment could have been reopened. The Court stated that they had issued notice on the present petition and stayed the reassessment proceedings only after taking note of the above contention.
The Court noted the respondent’s contention that since the search took place after 01-04-2021, the provisions of Section 148 would apply and the timeframe within which a notice could have been issued would be governed by the first proviso to Section 149(1).
The Court also took note of the respondent’s contention wherein it was stated that by the time the search was conducted in the present case, Section 153C had ceased to apply and as a consequence, the respondents stood absolved of making a reference or transmitting the material gathered in the course of the search to the jurisdictional Assessing Officer (‘AO’).
The Court stated that in terms of Section 153-C(3) of the Act, it was undisputed that any search if conducted after 01-04-2021, would cease to be regulated by that provision. Further, it was stated that sub-section (3) embodies a sunset clause as far as the applicability of Section 153C is concerned.
The Court stated that the first proviso essentially required the Court to consider the timeframes that stood specified in Sections 149, 153A, and 153C as they were before the commencement of the Finance Act, 2021.
Thus, the Court stated that an action of reassessment that is initiated in relation to a search undertaken on or after 01-04-2021 would have to meet the foundational tests as specified in the first proviso to Section 149(1). It was also stated that a reassessment action would not only have to satisfy the time frames as per Section 149 but also those which would be applicable through Sections 153A and 153C in a relevant case that is concerned with a search.
The Court stated that it was an undisputed fact that the proceedings under Section 148 had commenced based on the impugned notice dated 30-03-2023 and that this date holds seminal importance since the period of six assessment years or the ‘relevant assessment year’ would have to be made out from the date when the action was initiated to reopen the assessment pertaining to assessment year 2013-14. The Court referred to CIT v. Ojjus Medicare (P) Ltd. 2024 SCC OnLine Del 2439 while stating that it was manifest that the assessment year 2013-14 would fall beyond the block period of ten years.
Further, the Court stated that while it was true that Section 153C and the procedure prescribed therein had ceased to be applicable post 31-03-2021, the first proviso to Section 149(1) did not appear to suggest that the first proviso to Section 153C (1) would either become inapplicable or be liable to be ignored.
The Court, while referring to CIT v. Jagjit Singh 2023 SCC OnLine SC 1265, noted that the computation of the six preceding assessment years or the ‘relevant assessment year’ in the case of a non-searched entity has to be construed from the time when the material scooped out in the search is handed over to the jurisdictional AO.
The Court stated that in cases where a search is conducted after 31-03-2021, the first proviso to Section 153C (1) would have to be construed and tested in terms of the date when the AO decides to initiate action against the non-searched entity.
The Court held that notwithstanding the procedure under Section 153C having not been adhered to, due to the search having been conducted after 31-03-2021, there existed no justification to reconstruct the point from which the computational exercise would have to be undertaken.
Further, the Court held that the above-mentioned action would not only amount to a virtual reconstruction of the statutory prescription of limitation, but it would also be contrary to the first proviso to Section 149(1) which compelled the Court to adjudge the validity of reopening based on the test specified therein.
The Court said that since no transmission of material would have occurred in case of a search that takes place on or after 01-04-2021 and on which a reassessment action has to commence in relation to an assessment year before 01-04-2021, the Court would have to bear in mind the date when a decision may be taken by the jurisdictional AO to proceed against the non-searched entity in terms of the amended scheme of search assessments, which are now merged with the larger power of reassessment which is comprised in Sections 147 and 148 of the Act.
The Court, further, computed the ten-year block period from the date of the impugned notice dated 30-03-2023 and stated that it was ex facie evident that the assessment year 2013-14 falls beyond the ten-year block period as set out under Section 153C read with Section 153A of the Act.
Thus, while allowing the petition, the Court held that the impugned notice had been issued beyond limitation and was liable to be quashed and set aside.
[Dinesh Jindal v. Assistant Commissioner of Income Tax, 2024 SCC OnLine Del 4230, Decided on 27-05-2024]
Advocates who appeared in this case :
For Petitioner — Advocate Ved Jain, Advocate Nischay Kantoor, Advocate Soneya Dodeja
For Respondents — Sr. SC Prashant Meharchandani, Jr. SC Akshat Singh, Advocate Ritika Vohra, Advocate Utkarsh Kandpal
