Delhi HC Sets aside Reassessment Notice issued against CPI(M) after 31.03.2021 without following Procedure u/s 148A of Income Tax Act

The Delhi High Court set aside the reassessment notice issued after 31.03.2021 without following the procedure under section 148A of the Income Tax Act, 1961.

Communist Party of India (Marxist), the petitioner is a national political party and is registered under Section 29A of the Representation of Peoples Act, 1951. The petitioner filed its return of income for the assessment year [AY] 2016-17 on 15.10.2016, declaring a NIL income, after claiming exemption under Section 13A of the Income Tax Act, 1961.

The initial notice under Section 148 of the Act for AY 2016-17 was issued on 28.06.2021. The said notice was unsustainable as it was issued in accordance with the statutory regime as existed prior to 31.03.2021. This court in the case of Mon Mohan Kohli v. Assistant Commissioner of Income Tax & Anr had set aside such notices that were issued after 31.03.2021 without following the procedure as prescribed under Section 148A of the Act. Some of the other High Courts also took a similar view and struck down notices that were issued under Section 148 of the Act after 31.03.2021 but under the unamended provisions relating to the re-assessment of income that had escaped assessment.

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The Revenue appealed the decisions rendered by various High Courts to the Supreme Court of India. The Court directed that all notices that were issued under Section 148 of the Act after 01.04.2021 till the date of the said decision (04.05.2022), including those that had been set aside by the High Courts, would be construed as show cause notices under Section 148A(b) of the Act. The Assessing Officers were directed to provide the information and material relied upon by the Revenue for issuance of such notices, to the respective assessees within a period of thirty days from the date of the decision so as to enable the respective assessees to respond to the same.

The issue raised in the notice pertained to an amount of ₹1,64,50,227/-, which was deposited by the Petitioner in its bank account maintained with the State Bank of Travancore, Kozhikode. It was alleged that the said amount had not been disclosed by the petitioner in its return of income, specifically in column 13(b). The petitioner responded to the said notice on 08.06.2022.

The petitioner furnished a copy of the bank statement pertaining to the said account maintained with the State Bank of Travancore (now State Bank of India), Kozhikode. The petitioner explained that, although the said bank account had inadvertently not been mentioned in column 13(b) of the return of income, the transactions reflected therein were duly accounted for while preparing the books of account of the petitioner. It was further submitted that the income arising from such transactions was appropriately considered at the time of filing the return of income.

The AO was not persuaded with the explanation provided by the petitioner and passed an order dated 29.07.2022 under Section 148A(d) of the Act, holding that it was a fit case for reopening the assessment proceedings under Section 147/148 of the Act. The said order was issued with the approval of the Commissioner of Income Tax (Exemption) [CIT(E)] on an assumption that the CIT(E) was a specified authority under the provisions of Section 151 of the Act. The AO issued a notice dated 29.07.2022 under Section 148 of the Act accompanied with the order dated 29.07.2022 passed under Section 148A(d) of the Act. It is the petitioner’s case that the said notice is barred by limitation.

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The impugned notice is also liable to be set aside on the ground that it was issued without the approval of the authority specified under Section 151 of the Act. Since the impugned notice was issued beyond the period of three years from the end of the relevant assessment year, thus, in terms of Section 151(ii) of the Act, the same was required to be approved by the Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General. The determination of the specified authority for grant of approval under Section 151 of the Act depends on whether the notice under Section 148 of the Act has been issued after the expiry of three years from the end of the relevant assessment year or within the said period.

In Twylight Infrastructure Pvt. Ltd. v. Income Tax Officer Ward 25 3 Delhi & Ors.(supra), the court examined the validity of initiation of reassessment proceedings, in cases where the income alleged to have escaped assessment was ₹50,00,000/- or less.

Clearly, the Revenue advanced the argument of interlinkage between limitation and the ascertainment of the specified authority due to the plain language of the amended section 151 of the Act. Section 151, when read alongside the first proviso to section 148, brings the aspect of inextricable linkage to the fore.

A division bench of Justice Vibhu Bakhru and Justice Tejas Karia observed that the order dated 29.07.2022 passed under Section 148A(d) of the Act is not sustainable. Consequently, the subsequent proceedings, including the assessment order dated 23.05.2023, cannot be sustained. Accordingly, the impugned order passed under Section 148A(d) of the Act, the notice issued under Section 148 of the Act as well as the assessment order dated 23.05.2023 and the demand raised pursuant thereto, are hereby set aside.