Case Note & Summary
The petitioner, an individual, filed a declaration under the Income Declaration Scheme, 2016 (IDS) declaring undisclosed income. The scheme required payment of tax, surcharge, and penalty in three instalments. The petitioner paid the first instalment but defaulted on the remaining two. Consequently, under Clause 3 of Section 187 of the Finance Act, 2016, the declaration was deemed never to have been made, and under Section 197(b) of the Finance Act, 2016, the undisclosed income became chargeable to tax under the Income-tax Act, 1961 in the previous year in which the declaration was made. The petitioner then filed a revised return of income for Assessment Year 2016-17. Subsequently, the Finance (No.2) Act, 2019 inserted a proviso to Section 187(1) of the Finance Act, 2016, which provided that if the declarant had paid the first instalment but defaulted on the remaining, the declaration would not be deemed never made, and the amount paid would be treated as tax paid. However, this proviso was not applicable to the petitioner as it was inserted later. The Assessing Officer issued a notice under Section 148 of the Income-tax Act, 1961 on 31.03.2021 to reopen the assessment for AY 2016-17, alleging that income had escaped assessment. The petitioner challenged the notice on the ground that it was barred by limitation under Section 149 of the Act. The court examined the time limits: for AY 2016-17, the period of six years from the end of the relevant assessment year ended on 31.03.2023, but the notice was issued on 31.03.2021, which was within six years. However, the court noted that the proviso to Section 149(1)(b) required that the notice be issued within three years from the end of the relevant assessment year if the escaped income was less than Rs. 1 lakh. The court found that the Assessing Officer had not recorded any satisfaction that the escaped income was likely to be Rs. 1 lakh or more. Therefore, the notice was barred by limitation. The court quashed the notice and the reassessment proceedings.
Headnote
A) Income Tax - Reopening of Assessment - Limitation - Section 148, 149, 147 of Income-tax Act, 1961 - Section 187, 197(b) of Finance Act, 2016 - Income Declaration Scheme, 2016 - The petitioner filed a declaration under IDS, 2016 but defaulted in payment of instalments, resulting in the declaration being deemed never made. The petitioner filed a revised return. Subsequently, the Assessing Officer issued a notice under Section 148 of the Act to reopen the assessment for AY 2016-17, which was beyond the time limit prescribed under Section 149. The court held that the notice was barred by limitation and quashed the same. (Paras 1-9) B) Income Tax - Income Declaration Scheme - Deemed Never Made - Section 187 of Finance Act, 2016 - Where a declarant defaults in payment of instalments under the IDS, 2016, the declaration is deemed never to have been made, and the undisclosed income becomes chargeable to tax under the Income-tax Act, 1961 in the year of declaration. The petitioner's revised return was filed accordingly. (Paras 1-2) C) Income Tax - Reopening of Assessment - Time Limit - Section 149 of Income-tax Act, 1961 - The notice under Section 148 for reopening assessment for AY 2016-17 was issued on 31.03.2021, which is beyond the period of six years from the end of the relevant assessment year (31.03.2017) as per Section 149(1)(b). The court held that the notice was barred by limitation and quashed the reassessment proceedings. (Paras 5-9)
Issue of Consideration
Whether the reopening of assessment under Section 148 of the Income-tax Act, 1961, based on a declaration under the Income Declaration Scheme, 2016 that was deemed never to have been made due to default in payment of instalments, is valid when the notice under Section 148 was issued beyond the time limit prescribed under Section 149 of the Act.
Final Decision
The court allowed the writ petition and quashed the notice under Section 148 of the Income-tax Act, 1961 dated 31.03.2021 and the reassessment proceedings initiated pursuant thereto.
Law Points
- Income Declaration Scheme
- 2016
- Section 187
- Section 197(b) of Finance Act
- Section 148 of Income-tax Act
- 1961
- Section 149 of Income-tax Act
- Section 147 of Income-tax Act
- proviso to Section 187(1) of Finance Act
- Finance (No.2) Act
- 2019
- limitation period for reopening assessment
- deemed never made declaration
- revised return of income
