Reassessment Notices Issued After Elapse Of Six Years: Gujarat High Court Quashes Assessment

The Gujarat High Court has held that the reassessment notices were issued after the lapse of six years and are therefore time-barred.

The single bench of Justice Sonia Gokani has observed that the board's circulars and instructions are binding only on the departmental authorities and not on the court or the assessee.

The petitioners/assessees challenged the reassessment notice dated July 26, 2022, seeking to reopen the income tax assessment for the assessment year 2014–15.

The assessee contended that the notice and order were bad, illegal, contrary to law, and without jurisdiction.

The petitioner/assessee is a company incorporated under the Companies Act, of 1956, of which the majority shareholders are Indian citizens. The department had issued the notice of reopening under Section 148 during the period between 01.04.2021 and 30.06.2021 after following the erstwhile procedure prescribed for reopening (the law applicable until 31.03.2021), despite the fact that, w.e.f. 01.04.2021, a new regime of reopening provisions had come into force.

The Supreme Court directed that reassessment notices under Section 148 of the unamended Income Tax Act that were issued beyond April 1, 2021 (the effective date of amendment of the said provision by the Finance Act, 2021) be deemed to have been issued under Section 148A of the Income Tax Act as substituted by the Finance Act, 2021, and be construed as show cause notices in terms of Section 148A(b).

The extension of limitation from time to time in relation to all the proceedings by the Apex Court led to the enactment of the Taxation and Other Laws (Relaxations and Amendments of Certain Provisions) Act 2020 (TOLA). A circular from CBDT extending the time limit for the issuance of notice under Section 148 up to June 30, 2021, met with a serious challenge. In the wake of coming into effect, the new Act of 2021, w.e.f. April 1, 2021, to give an overriding effect over legislation by the issuance of notification for issuance of notice under the old provisions, was not sustained by various high courts.

It was challenged, and the matter eventually made its way from various high courts to the Apex Court in the case of Union of India vs. Ashish Agarwal. The Supreme Court adjudicated the issue as to the validity of such reopening notices issued across the nation and gave certain directions to the department.

The petitioners contended that the notice under Section 148 can be issued on or after April 1, 2021, only if the limitation for issuing such notice under the old regime of reopening had not expired prior to the Finance Act of 2021 coming into force. It is clarified that the new provisions relating to reopening introduced by the Finance Act, 2021 came into force with effect on April 1, 2021.

The court held that CBDT could not have the power to extend the time period under the first proviso to Section 149(1) of the Income Tax Act.

The court held that the time limit as per unamended Section 149(1)(b) was six years from the end of the assessment year. The Taxation and Other Laws (Relaxations and Amendments of Certain Provisions) Act 2020 (TOLA) has not altered the time limit provided in clause (b) of unamended Section 149 of the Income Tax Act.

Case Title: Keenara Industries Private Limited Versus Income Tax Officer

Case Citation: 2023 Livelaw (Guj) 53

Date: 07/02/2023

Counsel For Appellant: Tushar Hemani, Soparkar, R.K.Patel Assisted By Dharan Gandhi, Nishit Gandhi, Nidhi Vyas, Manish J. shah, Sudhir Mehta, Dhinal shah

Counsel For Respondent: Nikunt Raval

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