Reassessment proceedings u/s 148A under amended provisions and impact of the Taxation and Other Laws (Relaxation And Amendment of Certain Provisions) Act 2020 on limitation period – Allahabad High Court struck down CBDT Instruction
ABCAUS Case Law Citation:
ABCAUS 3675 (2023) (02) HC
Important Case Laws relied upon by parties:
Ashok Kumar Agarwal Vs. Union of India 2021 ILR ALL 816
Union of India vs. Ashish Agarwal AIR 2022 SC 2781
Tata Communications Transformation Services Limited Vs. Assistant Commissioner of Income Tax 2022 Online Bom 664
Touchstone Holdings Pvt. Ltd Vs. Income Tax Officer, Delhi & others
Mon Mohan Vs. Assistant Commissioner 2021 133 taxmann.com 166
The instant judgment of the Hon’ble High Court was delivered in relation to bunch of writ petitions filed challenging the orders passed by the Assessing Authority under Section 148-A(d) of the Income Tax Act, 1961 (the Act) and the consequential notices issued under Section 148 of the Act.
The moot question was whether the relaxation/extension of limitation period given under Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act’ (TOLA), 2020 (TOLA 2020) would apply to notice issued u/s 148/148A:
(i) For notices issued between 01.04.2021 and 30.06.2021
(ii) Where the first proviso to Section 149(1)(b) is attracted
The case of the Petitioners was that the assessment could not be reopened, in as much as, maximum period of six years prescribed in pre-amendment provision of Section 149(1)(b) had expired. It was also the case of the Petitioners that the monetary threshold and other requirements of the Act
in the post-amendment regime, i.e. after the commencement of the Finance Act, 2021 have to be followed.
The said writ petitions were offshoot of the decision of the Coordinate Bench of the Hon’ble High Court which was modified by the Hon’ble Supreme Court.
In the said decision, the Coordinate Bench had quashed the reassessment notices issued on or after 01.04.2021 under the pre-existing provisions by applying extension of time with the help of the Enabling Act Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act’ (TOLA), 2020 (TOLA 2020) leaving it open to the respective Assessing Authorities to initiate assessment proceedings in accordance with the provisions of the Act 1961 as amended by the Finance Act 2021 after making all compliances, as required by law.
However, the Hon’ble Supreme Court modified the judgment of the Coordinate Bench of the Hon’ble High Court as under:
(i) Notices issued under unamended section 148 to be deemed to have been issued under section 148A of the Act as substituted by the Finance Act, 2021 and construed or treated to be show cause notices u/s 148A(b).
(ii) The requirement of conducting any enquiry under section 148A(a) was dispensed with as a onetime measure
Later CBDT also issued Instruction No. 1/2022 dated 11.05.2022. The said instruction inter alia provided that the reassessment notices issued by the Assessing Officers during the period beginning on 01.04.2021 and ending with 30.06.2021, within the time extended by TOLA 2020 and various notification issued thereunder, shall be referred as “extended reassessment notices”. The Instruction provided for detailed procedure required to be followed by the Assessing Officer in compliance of the order of the Apex Court.
The Hon’ble High Court observed that the Apex Court had held that High Courts have rightly held that the benefit of new provisions shall be made applicable even in respect of the proceedings related to past assessment years, provided Section 148 notice has been issued after 01.04.2021.
The Hon’ble High Court observed that the result of the modification made by the Apex Court was that all notices issued under the unamended Act were deemed to have been issued under Section 148A of the Act as substituted by the Finance Act, 2021 and construed to be show cause notices in terms of Section 148 A(b) of the Income Tax Act. The inquiry as required under Section 148(B) was to be completed by the officers and after passing orders in terms of Section 148A(d) in respect of the assessee, notice under Section 148 could be issued after following the procedure as required under Section 148A. As one time measure, the requirement of conducting an inquiry with the approval of specified authority at the stage of Section 148 A(a) has been dispensed with.
The Hon’ble High Court observed that there was no dispute that notices issued under Section 148 after the amendment brought by the Finance Act’ 2021 i.e. on or after 01.04.2021 be treated as notices under Section 148-A as per the amended provisions.
The question raised was what would be the effect and scope of the Enabling Act (TOLA 2020) on the notices issued under Section 148 after completion of the inquiry and passing of orders in terms of Section 148 A(d). The question is as to whether the timeline provided in the unamended Section 149 would extend uptil 31.03.2021 under the Enabling Act, 2021, with further extensions by the notifications dated 31.03.2021 and 27.04.2021 issued under TOLA, in the timeline provided under the amended Section 149 of the Finance Act, 2021.
The argument of the Revenue was that the amendment by the Finance Act, 2021 though have substituted the substantive and procedural amendment in the Income Tax Act 1961 and old provisions have been recasted and made applicable w.e.f 01.04.2021, but extensions already granted by the Enabling Act in the limitation prescribed under the unamended provisions of the Income Tax Act have not been curtailed. Further extensions in the limitation for issuance of reassessment notices have been made by the notifications dated 31.03.2021 and 27.04.2021 issued by the Central Government, in exercise of power conferred by Section 3(1) of the Enabling Act. The result is that the time limit for initiation of reassessment proceedings by issuance of notice under Section 148 of the Income Tax Act stood extended uptil 31.06.2021. The limitation of three years in clause (a) and (b) of sub Section (1) of Section 149, therefore, has to be extended by the extensions granted by the Enabling Act i.e
30.06.2021.
The crux of the arguments of the Revenue was that the applicability of the amended provisions of Finance Act, 2021 will have to be postponed uptill 31.6.2021 because of the extensions granted by the Enabling Act, 2020 upto 31.3.2021 and further extensions in the time limit by the Notifications dated 31.3.2021 and 27.4.2021 thereunder.
The Hon’ble High Court observed that if the argument of the revenue is accepted, it would render the first proviso to sub-section (1) of Section 149 ineffective until 31.6.2021. In essence, it would render the first proviso to sub-section (1) of Section 149 otiose. This view, if accepted, it would result in granting extension of time limit under the unamended clause (b) of Section 149, in cases where reassessment proceedings have not been initiated during the lifetime of the unamended provisions, i.e. on or before 31.3.2021. It would infuse life in the obliterated unamended provisions of clause (b) of sub-section (1) of Section 149, which is dead and removed from the Statute book w.e.f. 1.4.2021, by extending timeline for actions therein.
The Hon’ble High Court said that In absence of any express saving clause, in a case where reassessment proceedings had not been initiated prior to the legislative substitution by the Finance Act 2021, the extended time limit of unamended provisions by virtue of Enabling Act cannot apply. In other words, the obligations upon the revenue under clause (b) of sub-section (1) of amended Section 149 cannot be relaxed. The defences available to the assessee in view of the first proviso to subsection (1) of Section 149 cannot be taken away. The notifications issued by the delegates/Central Government in exercise of powers under sub-section (1) of Section 3 of the Enabling Act cannot infuse life in the unamended provisions of Section 149 by this way.
The Hon’ble High Court further pointed out that the view taken by the Coordinate Bench had been upheld by the Apex Court with the only modification that the notices issued on or after 1.4.2021 under Section 148 shall be treated as notices under Section 148-A of the Income Tax Act as substituted by the Finance Act, 2021, treating them to be show cause notices in terms of Section 148(A)(b) of the Income Tax Act.
CBDT Instruction No. 1/2022 is a surreptitious attempt to circumvent decision of Apex Court
The Hon’ble High Court came down heavily on the CBDT Instruction No. 1/2022 dated 11.5.2022 in stating that the Apex Court has allowed time extension provided by TOLA and the “extended reassessment notices” will travel back in time to their original date when such notices were to be issued and then Section 149 of the Act is to be applied at that point as a surreptitious attempt to circumvent the decision of the Apex Court.
The Hon’ble High Court further opined that the instructions is merely a guiding instruction issued for effective implementation of the judgment of the Hon’ble Supreme Court and the offending clauses (third bullet to clause 6.1) and clause 6.2 (i) and (ii), being in teeth of the decision of the Apex Court have no binding Force.
The Hon’ble High Court stated that to strike a balance, the Apex Court kept all the defences available to the assessee under the amended provision open, while rights available to the assessing officer/revenue under the Finance Act, 2021 have been kept alive. The defect in the reassessment notices issued on or after 1.4.2021 had, thus, been removed. The directions issued by the Apex Court under Article 142 of the Constitution of India having a binding force PAN INDIA, will be violated if the extension in time for issuance of reassessment notices under Section 149 of the pre and post amended Income Tax Act, is not granted with the aid of the Enabling Act (TOLA 2020).
The Hon’ble High Court answered the questions raised as under:
(i) The reassessment proceedings initiated with the notice under Section 148 (deemed to be notice under Section 148-A), issued between 01.04.2021 and 30.06.2021, cannot be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act’ (TOLA) 2020 upto 30.03.2021, and the time limit prescribed in Section 149(1)(b) (as substituted w.e.f. 01.04.2021) cannot be counted by giving such relaxation from 30.03.2020 onwards to the revenue.
(ii) In respect of the proceedings where the first proviso to Section 149(1)(b) is attracted, benefit of TOLA 2020 will not be available to the revenue, or in other words, the relaxation law under TOLA 2020 would not govern the time frame prescribed under the first proviso to Section 149 as inserted by the Finance Act’ 2021, in such cases.
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