Delhi High Court Invalidates Reassessment Notice for AY 2015-16: Failure to Comply with Section 148A and ₹50 Lakh Pecuniary Threshold Under Finance Act, 2021 Renders Proceedings Invalid

Court’s Decision:

The Delhi High Court invalidated the reassessment notice and subsequent proceedings initiated under Section 148 of the Income Tax Act for AY 2015-16. The Court reasoned that:

1. The reassessment notice issued on April 9, 2021, was procedurally defective as it did not comply with Section 148A, introduced by the Finance Act, 2021.
2. The income allegedly escaping assessment was ₹46.17 lakhs, below the revised pecuniary threshold of ₹50 lakhs set under Section 149(1)(b) for reassessment after April 1, 2021.

This rendered the reassessment action invalid.

Facts:

1. The case involved the reassessment of income for AY 2015-16.
2. The notice under Section 148 was digitally signed and issued on April 9, 2021.
   • The petitioner argued that the date of issuance—after March 31, 2021—meant the Finance Act, 2021’s amended provisions applied, including compliance with Section 148A.
3. The reasons provided by the Revenue pegged the escaped income at ₹46.17 lakhs, below the ₹50 lakh threshold introduced by the amended Section 149(1)(b).

Issues:

1. Was the notice issued on April 9, 2021, valid without adhering to the procedural safeguards under Section 148A introduced by the Finance Act, 2021?
2. Did the reassessment notice fail to meet the pecuniary threshold of ₹50 lakhs, rendering it invalid under Section 149(1)(b)?

Petitioner’s Arguments:

1. Procedural Non-Compliance:
   • Since the notice was issued after April 1, 2021, it was mandatory for the Revenue to comply with Section 148A, which requires:
     • A preliminary inquiry.
     • A show-cause notice to the assessee before issuing a reassessment notice.
   • The Revenue’s failure to comply with this new procedure rendered the reassessment invalid.
2. Income Below Threshold:
   • The escaped income of ₹46.17 lakhs was below the ₹50 lakh threshold, making reassessment impermissible under Section 149(1)(b).
3. Supreme Court Precedents:
   • Cited Ashish Agarwal (2022), where the Court held that all notices issued post-April 1, 2021, under the old regime should be deemed as notices under Section 148A and follow the prescribed procedure.

Respondent’s Arguments:

1. The Revenue contended that the notice was valid under the provisions of the old reassessment regime, as the digital signature was affixed post-April 1, 2021.
2. The reassessment action was within the permissible timeline for reopening assessments under Section 149.

Analysis of the Law:

Section 148A: The New Procedural Regime:

• Introduced by the Finance Act, 2021, Section 148A requires:
  • The Assessing Officer (AO) to conduct a preliminary inquiry.
  • Issuance of a show-cause notice to the assessee.
  • Consideration of objections before issuing a reassessment notice.
• The Court found the Revenue’s reassessment notice deficient, as it bypassed these procedural safeguards.

Section 149: Time and Threshold Limits:

• The amended Section 149(1)(b) applies to reassessments initiated after April 1, 2021:
  • Permits reopening of assessments up to 10 years if the income escaping assessment exceeds ₹50 lakhs.
  • In this case, the escaped income was ₹46.17 lakhs, falling below the threshold.
• The Court held that procedural and substantive non-compliance under Sections 148A and 149 rendered the notice invalid.

Precedent Analysis:

1. Ashish Agarwal (2022):
   • The Supreme Court ruled that reassessment notices issued post-April 1, 2021, under the old regime must be deemed as notices under Section 148A(b).
   • The Revenue’s failure to adhere to this legal fiction in the current case invalidated the notice.
2. Rajeev Bansal (2024):
   • Confirmed that reassessment notices for AY 2015-16, issued post-April 1, 2021, must comply with the amended Section 149.
   • Reassessment is not permitted if escaped income is below ₹50 lakhs.

Court’s Reasoning:

1. Invalidity of Notice:
   • The notice, dated April 9, 2021, was issued after the amendments under the Finance Act, 2021, came into effect. The Revenue failed to follow the mandatory procedure under Section 148A.
2. Pecuniary Threshold:
   • The escaped income (₹46.17 lakhs) did not meet the revised ₹50 lakh threshold under Section 149(1)(b), invalidating the reassessment action.
3. Additions During Reassessment Irrelevant:
   • The Revenue made additions of ₹49.98 lakhs under Section 69 (unexplained cash credits) and ₹3.68 lakhs from other sources, exceeding ₹50 lakhs.
   • The Court clarified that these additions during reassessment cannot retrospectively validate an invalid notice based on an income of ₹46.17 lakhs.
4. Judicial Fairness:
   • The Supreme Court, in Ashish Agarwal, sought to strike a balance between the interests of the Revenue and the taxpayer by mandating procedural compliance under the new regime. This principle was not honored in the present case.

Conclusion:

The Delhi High Court quashed the reassessment proceedings, holding that:

1. Procedural Safeguards Violated: The notice was invalid as the Revenue failed to comply with Section 148A.
2. Income Below Threshold: The reassessment notice failed to meet the ₹50 lakh threshold under Section 149(1)(b).
3. Additions Irrelevant: Post-notice additions exceeding ₹50 lakhs did not cure the notice’s initial defect.

Implications:

1. This decision underscores the importance of adhering to procedural safeguards under Section 148A.
2. The judgment serves as a warning to the Revenue to ensure compliance with amended provisions under the Finance Act, 2021.
3. It highlights that reassessment actions must be based on valid jurisdictional grounds, including compliance with pecuniary thresholds.

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