Reassessment initiated for the initial three months was invalid as income was disclosed for AY 2021-22 under Companies Act.
Reassessment initiated for the initial three months was invalid as income was disclosed for AY 2021-22 under Companies Act.
Issue
Whether reassessment under section 147, along with notices under sections 148 and 226(3), is permissible for the initial 3-month period when the entire income for the 15-month period was already disclosed in AY 2021-22 pursuant to section 2(41) of the Companies Act, 2013.
Facts
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Incorporation Date: The assessee-company was incorporated on January 1, 2020.
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Financial Year Adoption: Under section 2(41) of the Companies Act, 2013, its first financial year spanned a 15-month period from January 1, 2020, to March 31, 2021.
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Return of Income: The company filed its return of income for AY 2021-22 covering the entire 15-month period, declaring a total income of approximately ₹3.46 crores.
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Completion of Assessment: Assessment proceedings covering the full 15-month period were concluded for AY 2021-22.
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Departmental Action: The tax department initiated proceedings on the premise that no return was filed for the initial three months (January 1, 2020, to March 31, 2020) falling within AY 2020-21.
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Action Taken: The proceedings resulted in the issuance of a notice under section 148, a reassessment order under section 147, a consequential demand notice, and a notice under section 226(3).
Decision
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No Escaped Income: The court held that there was no income that escaped assessment, as the entire income for the 15-month period was disclosed and assessed in AY 2021-22.
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Compliance with Companies Act: Reporting the 15-month financial period in AY 2021-22 was permissible in terms of section 2(41) of the Companies Act, 2013.
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Impugned Actions Quashed: The reassessment order passed under section 147, the notice issued under section 148, the demand notice, and the garnishee notice under section 226(3) were all quashed in favor of the assessee.
Key Takeaways
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First Financial Year Alignment: Companies incorporated on or after January 1st of a year can have their first financial year extend up to March 31st of the following year under section 2(41) of the Companies Act, 2013.
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Absence of Escaped Income Precludes Reassessment: Reassessment under section 147 cannot be sustained where the full income has already been offered, assessed, and taxed in a subsequent assessment year in accordance with statutory accounting rules.
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Prevention of Double Jeopardy: Taxing or re-assessing the same income for a split period when it has already been fully disclosed and assessed leads to invalid reassessment proceedings and recovery notices.
Suhrith Parthasarathy for the Petitioner. Ms. M. Sheela, Sr. Standing Counsel, H. Siddharth, Jr. Standing Counsel and V. Adhivarahan for the Respondent.
ORDER
1. A re-assessment order under Section 147, the consequent demand notice and the preceding notice under Section 148 of the Income Tax Act, 1961 are challenged in this writ petition.
2. Learned counsel for the petitioner submits that the petitioner was incorporated on 01.01.2020 and that its first financial year, as per the Companies Act, 2013, rums for a period of 15 months, i.e., from 01.01.2020 to 31.03.2021. Consequently, it is stated that a return of income was filed for the above-mentioned 15 month period for assessment year 2021-22. It is also submitted that a total income of Rs.3,45,55,070/- was declared during the said 15 month period. He also points out that assessment proceedings were concluded in relation for the said 15 month period. On the basis that return of income was not filed to the three months of assessment year 2020-21, he points out that proceedings were initiated and such proceedings culminated in the notice and orders impugned herein. Therefore, learned counsel submits that these proceedings are liable to be set aside.
3. Ms.M.Sheela, learned senior standing counsel, appears on behalf of the first and second respondents. In response to a question as to whether the income in respect of which re-assessment proceedings were initiated was declared in the return of income for assessment year 2021-22, she replied in the affirmative.
4. Thus, it is evident that there was no escaped income and that the petitioner had disclosed the entire income for the 15 month period from 01.01.2020 to 31.03.2021 in the return of income for assessment year 2021-22. This course of action is permissible in terms of Section 2(41) of the Companies Act, 2013. Consequently, the re-assessment order, the consequent demand notice and the notice under Section 148 & 226(3) are all liable to be quashed. By quashing the impugned order and notices, this writ petition is allowed without any order as to costs. Consequently, connected writ miscellaneous petitions are closed. There shall be no order as to costs.