2022 (1) TMI 1315 - HC - Income Tax

Reopening of assessment u/s 147 - Scope of section u/s 148A - applicability of the newly inserted provisions of Section 148A and the amendments brought inter alia w.e.f. 1.4.2021 - identity of Section 148 as prevailing prior to amendment and insertion of section 148A - Covid 19 Effect - Validity of re-assessment notice issued under the erstwhile section147/148 after 1.4.2001 without following the mandate of new section 148A - Scope of Explanations A(a)(ii)/A(b) to the Notifications dated 31st March 2021 and 27th April 2021 - HELD THAT - In view of the ratio propounded in cases MON MOHAN KOHLI VERSUS ASSISTANT COMMISSIONER OF INCOME TAX ANR. 2021 (12) TMI 664 - DELHI HIGH COURT argument of the respondents that the substitution made by the Finance Act 2021 is not applicable to past Assessment Years as it is substantial in nature is contradicted by Respondents own Circular 549 of 1989 and its own submission that from 1st July 2021 the substitution made by the Finance Act 2021 will be applicable. Revenue cannot rely on Covid-19 for contending that the new provisions Sections 147 to 151 of the Income Tax Act 1961 should not operate during the period 1st April 2021 to 30th June 2021 as Parliament was fully aware of Covid-19 Pandemic when it passed the Finance Act 2021. Also the arguments of the respondents qua nonobstante clause in Section 3(1) of the Relaxation Act legal fiction and stop the clock provision are contrary to facts and untenable in law. This Court is of the view that the Executive/Respondents/Revenue cannot use the administrative power to issue Notifications under Section 3(1) of the Relaxation Act 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament namely the Finance Act 2021. This Court is also of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions like Sections 147 to 151 of Income Tax Act 1961 in the present instance by emptying it of content or impeding or postponing their effectual operation. Keeping in view the aforesaid Explanations A(a)(ii)/A(b) to the Notifications dated 31st March 2021 and 27th April 2021 are declared to be ultra vires the Relaxation Act 2020 and are therefore bad in law and null and void. The impugned reassessment notices issued under Section 148 of the Income Tax Act 1961 are quashed and the present writ petitions are allowed.

Summary

Issues:

1. Validity of reassessment notices issued post 31st March, 2021 under Sections 147 to 151 of the Income Tax Act, 1961.
2. Interpretation of the Finance Act, 2021 and its impact on reassessment procedures.
3. Legality of Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021.
4. Authority of the Executive/Respondents/Revenue to issue Notifications under Section 3(1) of the Relaxation Act, 2020.

Issue 1: Validity of reassessment notices issued post 31st March, 2021 under Sections 147 to 151 of the Income Tax Act, 1961

The judgment acknowledges that the impugned notices issued post 31st March, 2021 did not follow the procedure prescribed in the substituted Sections 147 to 151 of the Income Tax Act, 1961 introduced by the Finance Act, 2021. Referring to the Mon Mohan Kohli case, the Court emphasized that reassessment notices after 31st March, 2021 must comply with the substituted sections. It clarified that while the power of reassessment existed until 30th June, 2021, the Finance Act, 2021 altered the procedure effective from 1st April, 2021. The Court rejected the argument that Section 6 of the General Clauses Act saved notices issued post 31st March, 2021, stating that the new legislation manifested an intention to replace the old procedure entirely.

Issue 2: Interpretation of the Finance Act, 2021 and its impact on reassessment procedures

The judgment scrutinized the Relaxation Act, 2020 and the Finance Act, 2021 concerning the initiation of reassessment proceedings. It concluded that the Relaxation Act only empowered the Government to extend time limits and not to legislate on the provisions for reassessment proceedings. The Court held that the impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 were ultra vires the Relaxation Act, 2020. It disagreed with the Chhattisgarh High Court's view but aligned with the Allahabad High Court and Rajasthan High Court's perspectives on the matter. The judgment also dismissed the argument that the substitution made by the Finance Act, 2021 did not apply to past Assessment Years, citing Circular 549 of 1989 and the respondents' submission.

Issue 3: Legality of Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021

The Court declared Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 as ultra vires the Relaxation Act, 2020, rendering them legally invalid. Consequently, the impugned reassessment notices issued under Section 148 of the Income Tax Act, 1961 were quashed, and the writ petitions were allowed. The judgment granted the respondents/revenue the liberty to take further steps in the matter, with a reminder that the petitioners could seek remedies in accordance with the law if necessary.

Issue 4: Authority of the Executive/Respondents/Revenue to issue Notifications under Section 3(1) of the Relaxation Act, 2020

The judgment emphasized that the Executive/Respondents/Revenue could not use administrative power under Section 3(1) of the Relaxation Act, 2020 to undermine the legislative supremacy expressed in the Finance Act, 2021. It highlighted that the Executive could not frustrate the purpose of substituted statutory provisions like Sections 147 to 151 of the Income Tax Act, 1961. The Court stressed that the Executive's actions should not dilute or delay the effective implementation of statutory provisions as mandated by the Finance Act, 2021.