Liberty Given To Revenue In SC's Abhisar Buildwell Judgment To Initiate Reassessment Proceedings Doesn't Overcome Limitation U/S 149 Income Tax Act: Delhi HC
The Delhi High Court has made it clear that the Supreme Court judgment in Abhisar Buildwell, which granted liberty to the Revenue Department to initiate reassessment proceedings under Sections 147/148 of the Income Tax Act- in case of completed/ unabated assessment, if no incriminating material is found during the search- cannot be construed to be an authority to override the...
The Delhi High Court has made it clear that the Supreme Court judgment in Abhisar Buildwell, which granted liberty to the Revenue Department to initiate reassessment proceedings under Sections 147/148 of the Income Tax Act- in case of completed/ unabated assessment, if no incriminating material is found during the search- cannot be construed to be an authority to override the limitation prescribed under Section 149 of the Act.
The bench of Justices Yashwant Varma and Ravinder Dudeja clarified that the liberty which the Supreme Court accorded and the limited right inhering in the Revenue to initiate reassessment was subject to that power being otherwise compliant with the Chapter pertaining to reassessment, as contained in the Act.
“The observations of the Supreme Court cannot possibly be read or construed as a carte blanche enabling the respondents to overcome and override the restrictions that otherwise appear in Section 149 of the Act…the Supreme Court being mindful of the statutory prescriptions, which otherwise imbue the commencement of reassessment, qualified that observation by providing that such an action would have to be in accordance with law. This note of caution appears at more than one place in that judgment and is apparent from the Supreme Court observing that the power to reassess would be subject to the fulfilment of the conditions mentioned in Sections 147 and 148 of the Act,” it observed.
In Abhisar Buildwell, Supreme Court had ruled that no additions can be made by the Assessing Officer under Section 153A of the Income Tax Act in the absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132 A, in respect of completed /unabated assessments.
SC had relied on Delhi High Court's decision in Kabul Chawla (2015) where it was held that completed assessments can be interfered with by the AO while making the assessment under Section 153 A, only on the basis of some incriminating material unearthed during the course of search or requisition, which were not produced or not already disclosed or made known in the course of original assessment.
Kabul Chawla was also followed by the Gujarat High Court in Principal Commissioner of Income Tax vs. Saumya Construction (2016) where it was held that in absence of any incriminating material found during search/ requisition, AO has no jurisdiction to re-open the completed assessment.
However, to ensure that Revenue is not rendered remediless, SC in Abhisar Buildwell had observed that where a search does not result in any incriminating material being unearthed, the power of the Revenue to initiate reassessment action would stand preserved, in conformity with the scheme of reassessment as embodied in Sections 147 and 148 of the Act.
Petitioners argued that the Supreme Court's observation cannot be construed as a “direction” warranting initiation of action under Section 148. They opposed reassessment action initiated against them, principally on the ground of being barred by time under Section 149.
The action was proposed on the strength of Instructions issued by CBDT in August 2023, calling upon AOs to re-examine all search assessment cases which had come to be set at naught by virtue of declarations of nullity rendered either by the Tribunal or the High Courts and to examine the feasibility of commencing reassessment action.
Relevant to note Section 149 at this juncture. The provision 149 lays down the time limit for issuing a notice to a taxpayer under various provisions of the Income Tax Act. Normally, no notice of reopening of assessment can be issued after 3 years from the end of the Assessment Year. In Specific cases (where the department has information that income escaped assessment is Rs 50 lakh or more) no notice of reopening assessment can be issued after 10 years. Reassessment proceedings initiated after Apr 1, 2021 would have to meet the foundational tests as specified in the first proviso to Section 149(1), i.e. the reassessment action would not only have to meet the time frames constructed in terms of Section 149, but also the time frames under Section 153A & 153C (as they stood prior to the commencement of Finance Act, 2021).
High Court said the proviso is representative of a clear legislative policy of reassessments being required to be compliant with time frames which existed in the provisions aforenoted and as they stood before the commencement of Finance Act, 2021.
In the case at hand, reassessment notices were issued to Petitioners wrt to Assessment Years falling between 2007 to 2013. Court found all the notices were issued between 2023 and 2024 and fell beyond the date computed in terms of the first proviso to Section 149(1)(b). It thus held the notices liable to be quashed.
The High Court pointed that SC had caveated its observation on reassessment by observing that the initiation of reassessment would be “…subject to fulfilment of the conditions mentioned in Sections 147/148.”
This note of caution, it added, appears at more than one place in the Abhisar Buildwell judgment and is apparent from the Supreme Court observing that the power to reassess would be subject to the fulfilment of the conditions mentioned in Sections 147 and 148 of the Act.
Reliance was also placed on SC's subsequent decision in Dy. Commissioner of Income Tax Central Circle 20 vs U.K. Paints (Overseas) Ltd (2023) where in response to Revenue's prayer for an observation being entered enabling it to initiate reassessment proceedings under Section 147, Supreme Court observed that it would be open for the Revenue to initiate reassessment in accordance with law and “if it is permissible under the law”.
The High Court said an identical issue, as in the case at hand, was mounted before it in Dinesh Jindal v. Assistant Commissioner of Income Tax and Others (2024) and it was held that the reassessment procedure initiated after Apr 1, 2021 would have to meet the foundational tests as specified in the first proviso to Section 149(1) of the Act.
In concluding, the Court held, “The Supreme Court had, in order to balance equities, additionally observed that it would be open for the Revenue to commence reassessment, if otherwise permissible in law. That observation cannot be viewed as amounting to a direction which would enable the respondents to overcome the prescription of limitation which otherwise applied…neither Abhisar Buildwell nor U.K. Paints are liable to be read as enabling the respondents to overcome the statutory bar of limitation which may have come into play.”
Accordingly, the High Court quashed the impugned notices and consequent proceedings against Petitioners.
Case title: Arn Infrastructures India Limited v. Assistant Commissioner Of Income Tax Central Circle-28 Delhi & Ors. (and connected matters)
Citation: 2024 LiveLaw (Del) 1073
Case no.: W.P.(C) 1892/2024