The Delhi High Court recently quashed a notice issued under Section 148 of the Income Tax Act, 1961 in a case pertaining to the assessment year 2013-14. The reassessment action, triggered by a search conducted on Proform Interiors Private Limited, was held to be beyond the ten-year block period as set out under Section 153C read with Section 153-A of the Act.
In a petition challenging the initiation of the reassessment, the Single Judge Bench of Yashwant Varma, J. noted that the notice dated 30-03-2023 was issued beyond the limitation period and accordingly, it was liable to be quashed and set aside.
The respondents argued that they were not bound to follow Section 148-A of the Act due to the presence of the first proviso exempting them from following certain procedures in a search case initiated on or after 01-04-2021.
Upon initial consideration, the Court found that the reassessment would contravene Section 149(1) of the Act with regard to the timeframes within which an assessment could have been reopened.
The Court also considered the respondent’s contention that Section 153C had ceased to apply by the time the search was conducted, absolving them from making a reference or transmitting the material gathered in the course of the search to the jurisdictional Assessing Officer.
It was noted that any search conducted after 01-04-2021 would cease to be regulated by Section 153C, as per Section 153-C(3) of the Act, embodying a sunset clause as far as the applicability of Section 153C is concerned.
The Court emphasized the need to consider the timeframes specified in Sections 149, 153A, and 153C before the commencement of the Finance Act, 2021, for actions of reassessment initiated in relation to a search conducted on or after 01-04-2021.
Referring to a relevant case law, the Court established that the assessment year 2013-14 fell beyond the block period of ten years, manifesting that the assessment year would fall beyond the block period of ten years.
While Section 153C and the prescribed procedure therein had ceased to be applicable post 31-03-2021, the Court noted that the first proviso to Section 149(1) did not suggest that the first proviso to Section 153C (1) would become inapplicable or be liable to be ignored.
The Court held that the action of reassessment would have to meet the foundational tests specified in the first proviso to Section 149(1), including the time frames as per Section 149 and those applicable through Sections 153A and 153C in a relevant case concerned with a search.
Additionally, the Court highlighted the implications of a search conducted after 31-03-2021 on the procedure under Section 153C, and the date from which the AO decides to initiate action against the non-searched entity, emphasizing that there existed no justification to reconstruct the point for the computational exercise.
In conclusion, the Court computed the ten-year block period from the date of the impugned notice and found that the assessment year 2013-14 fell beyond the ten-year block period as set out under Section 153C read with Section 153A of the Act. Therefore, the Court allowed the petition and quashed the impugned notice.
Source: Dinesh Jindal v. Assistant Commissioner of Income Tax, W.P.(C) 12091 of 2023, Decided on 27-05-2024