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Reassessment proceedings u/s 148- Validity of notices issued u/s 148A(b) & 148A(d) – In the Amalgamation.
Sonansh Creations Pvt Ltd. v. Assistant Commissioner of Income Tax and Anr. Case No.: W.P.(C) 12316/202
Background: A notice u/s 148A(b) of the Income Tax Act, 1961, was issued to M/s Tulsi, a company that had ceased to exist after merging with Sonali Realtech (the Petitioner). The Petitioner responded, informing the Assessing Officer of the merger. Subsequently, notices u/s 148A(d) & Section 148 were issued in the name of the petitioner.
Key Issues: The validity of notices issued u/s 148A(b) & 148A(d), given the amalgamation. Whether reassessment proceedings were initiated correctly u/s 148.
High Court's Observations:
- Nature of Section 148A Proceedings: These enable the Assessing Officer to decide if reassessment proceedings u/s 147 should be initiated, ensuring no arbitrary reopening of assessments.
- Petitioner’s Response: The Petitioner informed the Assessing Officer about the merger, and the Assessing Officer considered this while issuing notices u/s 148A(d) & Section 148 in the Petitioner’s name.
- Distinction from Maruti Suzuki Case: Unlike the Maruti Suzuki judgment, where proceedings were invalidated due to notices being issued to a non-existent entity, in this case, the reassessment notice u/s 148 was correctly addressed to the Petitioner as the successor entity.
Court's Decision: Assessing Officer validly initiated proceedings u/s 148 in the Petitioner’s name based on the material provided, adhering to the procedure prescribed under Section 148A. However, the reassessment proceedings were set aside due to the Assessing Officer lack of material evidence to substantiate the allegations of income escaping assessment
The Delhi High Court upheld the validity of the procedural steps taken u/s 148A & Section 148 but allowed the Petitioner’s objections to the reassessment due to insufficient material supporting the allegations.
PCIT vs. Capital Power Systems Ltd. Court: Delhi High Court Appeal No.: ITA 501/2024
Issue: Whether reassessment proceedings u/s 148 were valid when based on Section 150, despite time limits prescribed u/s 149.
Background of the Case:
- Search and Discovery: During a search u/s 132 of the Income Tax Act, the CEO and Director, Mr. Pawan Kumar Bansal, surrendered â¹7 crores as undisclosed income. In his ITR for Assessment Year 2007-08, Mr. Bansal disclosed only â¹20 lakhs, leaving â¹6.8 crores unaccounted.
- Protective and Substantive Additions: The AO made protective additions of â¹3.45 crores to Capital Power Systems Ltd. and substantive additions to Mr. Bansal's personal income.
- ITAT’s Decision: The Income Tax Appellate Tribunal ruled in favor of Capital Power Systems Ltd., dismissing the protective additions.
- Reassessment Proceedings: The revenue department invoked Section 150 to reopen the assessment u/s 148, claiming the
Income Tax Appellate Tribunal order justified reassessment despite time limitations u/s 149.
Key Provisions and Revenue’s Argument:
- Section 150(1): Permits reassessment beyond normal time limits if it arises from an appellate authority's order.
- Section 150(2): Imposes a restriction that reassessments cannot exceed time limits if the time had already expired before the appellate authority passed its order.
- Revenue’s Stand:Claimed the reassessment was valid u/s 150(1) as the
Income Tax Appellate Tribunal order highlighted the undisclosed income originally identified during the search proceedings.
High Court’s Analysis:
- Misapplication of Section 150(1): The Income Tax Appellate Tribunal order did not create any fresh liability or findings necessitating reassessment. Instead, it resolved the issue in favor of Capital Power Systems Ltd. Section 150(1) could not apply as the
Income Tax Appellate Tribunal order did not suggest income escaping assessment. - Violation of Section 150(2): The time limit for reassessment for AY 2007-08 had already expired before the Income Tax Appellate Tribunal's order. Invoking Section 150 to override these time limits was legally impermissible.
- Protective vs. Substantive Assessments: Protective assessments are contingent and cannot independently justify reassessment, especially when resolved against the revenue in appellate proceedings.
Court’s Decision: The Delhi High Court quashed the reassessment proceedings, holding that: Section 150(1) cannot be invoked if the appellate order does not indicate any income escaping assessment. Time limitations u/s 150(2) must be adhered to, and reassessments cannot be initiated once these limits have expired. This judgment reinforces that Section 150 is not a tool to circumvent statutory time limits for reassessment. The decision safeguards taxpayers against arbitrary and time-barred proceedings, ensuring compliance with procedural safeguards in the Income Tax Act.