Bombay High Court Quashes Reassessment Notices Issued Against Godrej For Beyond Limitation Period

The Bombay High Court has quashed the reassessment notices issued against Godrej because the notice was issued beyond the limitation period.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that the validity of a notice must be judged on the basis of the law existing as on the date on which the notice is issued under Section 148 of the Income Tax Act, which in the present case is July 31, 2022, by which time the Finance Act, 2021, is already on the statute, and in terms, no notice under Section 148 for AY 2014–15 could be issued on or after April 1, 2021, based on the first proviso to Section 149. Therefore, the fifth proviso cannot apply in a case where the first proviso applies because, if a notice under Section 148 could not be issued beyond the time period provided in the first proviso, then the fifth proviso could not save the notices. The fifth proviso can only apply where one has to determine whether the time limit of three years and ten years in Section 149(1) is breached.

The bench, while distinguishing the judgment passed by the Supreme Court in the case of Ashish Agarwal, noted that it only deemed the first notice issued under Section 148 to be a show cause notice under Section 148A(b) and left all defenses available to the assessee under Section 149. The bench noted that the Supreme Court in Ashish Agarwal did not grant any stay, and the period from May 21, 2021, until the notice under Section 148A(b) is issued cannot be excluded under the second limb of the fifth proviso or even under the first limb.

The first limb of the fifth proviso to Section 149 will apply where a show cause notice under Section 148A(b) is issued to an assessee, and the time granted to him or the extended time subsequently granted to him to reply to the show cause notice will be excluded in computing the period of limitation. Therefore, the first limb of the proviso only excludes the time frame between the date when the notice under Section 148A(b) is issued and the date granted to the assessee to file its response.

The second limb of the fifth proviso to Section 149 will apply when the proceedings under Section 148A are stayed by an order or injunction of any court. Since the petitioner has not filed a writ petition, it has not received any stay or injunction from any court till the date of the impugned notice, i.e., July 31, 2022, and hence, there can be no period that can be excluded as per the second limb of the proviso. Petitioner filed a writ petition against the impugned notice on September 16, 2022, and received ad-interim relief on October 10, 2022, where this Court stayed the operation and effect of the impugned notice under Section 148 of the Act. However, the second limb of the proviso does not contemplate a situation where such a period can be excluded.

The petitioner/assessee submitted that the show cause notice under Section 148A(b) was issued on May 24, 2022, asking the petitioner to furnish a reply by June 8, 2022. Petitioner filed a detailed reply in response to the show cause notice on June 8, 2022, and, therefore, only the period from May 24, 2022, to June 8, 2022, could be excluded by virtue of the first limb of the fifth provision of Section 149. Subsequently, the petitioner received another letter dated June 28, 2022, which provided further time for making detailed submissions up to July 8, 2022. The petitioner replied to the letter and made detailed submissions on July 2, 2022.

Therefore, even assuming this period is to be excluded, the period that could be excluded is only from May 24th, 2022, to June 8th, 2022. Even after considering the letter dated June 28, 2022, and the reply dated July 2, 2022, at the highest level, a further period from June 28, 2022, to July 8, 2022, could be excluded, but the period of time from June 8, 2022, to June 28, 2022, cannot be excluded as per the fifth proviso.

The petitioner, on June 8, 2022, did not request any further time and furnished its response to the show cause notice under Section 148A(b).

The Assessing Officer Suo Moto issued another letter on June 28, 2022, asking the petitioner to furnish further details by July 8, 2022.

The petitioner contended that even assuming a period of 27 days (i.e., 16 days from May 24th to June 8th and 11 days from June 28th to July 8th) are excluded from the date of the notice under Section 148 issued on July 31st, 2022, the notice would yet be barred by limitation and could not have been issued by virtue of the first proviso to Section 149.

The court held that the reassessment notice is barred by limitation. As per the fifth proviso to Section 149, only the period from May 24th, 2022, to June 8th, 2022, can be excluded since the notice under Section 148A(b) was issued for the first time on May 24th, 2022, providing time to the petitioner until June 8th, 2022, to furnish a reply. The department is seeking to exclude a period from May 21st, 2021, to May 4th, 2022, relying on Ashish Agarwal. Hence, the notice dated July 31, 2022, is bad law.

Counsel For Petitioner: P.J. Pardiwalla

Counsel For Respondent: Suresh Kumar

Case Title: Godrej Industries Ltd. Versus The Assistant Commissioner of Income Tax

Case No.: Writ Petition No.450 Of 2023

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