2021 (10) TMI 697 - HC - Income Tax

Validity of the re-assessment proceedings initiated against the individual petitioners - enforcement of the Enabling Act and the Finance Act, 2021 - scope of provisions of Section 148 read with Section 148A as substituted by Finance Act, 2021 - substituting the provisions of the Act by means of the Finance Act, 2021 with effect from 01.04.2021, the old provisions were omitted from the statute book and replaced by fresh provisions with effect from 01.04.2021 - time limitation existing under the Act had been extended under the Ordinance - relaxation of limitation granted on account of general hardship existing upon the spread of pandemic COVID -19 - extension which was given one final push by the impugned Notification dated 27.04.2021 as it became necessary on account of the spread of the second wave of the pandemic COVID-19 - HELD THAT - Enabling Act only protected certain proceedings that may have become time barred on 20.03.2020, upto the date 30.06.2021. Correspondingly, by delegated legislation incorporated by the Central Government, it may extend that time limit. That time limit alone stood extended upto 30 June, 2021. Additional Solicitor General of India may not be entirely correct in stating that no extension of time was granted beyond 30.06.2021. Vide Notification No. 3814 dated 17.09.2021, issued under section 3(1) of the Enabling Act, further extension of time has been granted till 31.03.2022. In absence of any specific delegation made, to allow the delegate of the Parliament, to indefinitely extend such limitation, would be to allow the validity of an enacted law i.e. the Finance Act, 2021 to be defeated by a purely colourable exercise of power, by the delegate of the Parliament. Section 3(1) of the Enabling Act does not itself speak of reassessment proceeding or of Section 147 or Section 148 of the Act as it existed prior to 01.04.2021. It only provides a general relaxation of limitation granted on account of general hardship existing upon the spread of pandemic COVID -19. After enforcement of the Finance Act, 2021, it applies to the substituted provisions and not the pre-existing provisions. Reference to reassessment proceedings with respect to pre-existing and now substituted provisions of Sections 147 and 148 of the Act has been introduced only by the later Notifications issued under the Act - validity of those provisions is also required to be examined. We have concluded as above, that the provisions of Sections 147, 148, 148A, 149, 150 and 151 substituted the old/pre-existing provisions of the Act w.e.f. 01.04.2021.- in absence of any proceeding of reassessment having been initiated prior to the date 01.04.2021, it is the amended law alone that would apply. We do not see how the delegate i.e. Central Government or the CBDT could have issued the Notifications, plainly to over reach the principal legislation. Unless harmonized as above, those Notifications would remain invalid. Unless specifically enabled under any law and unless that burden had been discharged by the respondents, we are unable to accept the further submission advanced by the learned Additional Solicitor General of India that practicality dictates that the reassessment proceedings be protected. Mischief rule has limited application in the present case. Only in case of any doubt existing as to which of the two interpretations may apply or to clear a doubt as to the true interpretation of a provision, the Court may look at the mischief rule to find the correct law - where plain legislative action exists, as in the present case (whereunder the Parliament has substituted the old provisions regarding reassessment with new provisions w.e.f. 01.04.2021), the mischief rule has no application. There is no conflict in the application and enforcement of the Enabling Act and the Finance Act, 2021. Juxtaposed, if the Finance Act, 2021 had not made the substitution to the reassessment procedure, the revenue authorities would have been within their rights to claim extension of time, under the Enabling Act - upon that sweeping amendment made the Parliament, by necessary implication or implied force, it limited the applicability of the Enabling Act and the power to grant time extensions thereunder, to only such reassessment proceedings as had been initiated till 31.03.2021. Consequently, the impugned Notifications have no applicability to the reassessment proceedings initiated from 01.04.2021 onwards. Upon the Finance Act 2021 enforced w.e.f. 1.4.2021 without any saving of the provisions substituted, there is no room to reach a conclusion as to conflict of laws. It was for the assessing authority to act according to the law as existed on and after 1.4.2021. If the rule of limitation permitted, it could initiate, reassessment proceedings in accordance with the new law, after making adequate compliance of the same. That not done, the reassessment proceedings initiated against the petitioners are without jurisdiction. It would be incorrect to look at the delegation legislation i.e. Notification dated 31.03.2021 issued under the Enabling Act, to interpret the principal legislation made by Parliament, being the Finance Act, 2021. A delegated legislation can never overreach any Act of the principal legislature. Second, it would be over simplistic to ignore the provisions of, either the Enabling Act or the Finance Act, 2021 and to read and interpret the provisions of Finance Act, 2021 as inoperative in view of the fact circumstances arising from the spread of the pandemic COVID-19. Practicality of life de hors statutory provisions, may never be a good guiding principle to interpret any taxation law. In absence of any specific clause in Finance Act, 2021, either to save the provisions of the Enabling Act or the Notifications issued thereunder, by no interpretative process can those Notifications be given an extended run of life, beyond 31 March 2020. They may also not infuse any life into a provision that stood obliterated from the statute with effect from 31.03.2021. Inasmuch as the Finance Act, 2021 does not enable the Central Government to issue any notification to reactivate the pre-existing law (which that principal legislature had substituted), the exercise made by the delegate/Central Government would be de hors any statutory basis. In absence of any express saving of the pre-existing laws, the presumption drawn in favour of that saving, is plainly impermissible. Also, no presumption exists that by Notification issued under the Enabling Act, the operation of the pre-existing provision of the Act had been extended and thereby provisions of Section 148A of the Act (introduced by Finance Act 2021) and other provisions had been deferred. Such Notifications did not insulate or save, the pre-existing provisions pertaining to reassessment under the Act. All the writ petitions must succeed and are allowed. It is declared that the Ordinance, the Enabling Act and Sections 2 to 88 of the Finance Act 2021, as enforced w.e.f. 01.04.2021, are not conflicted. Insofar as the Explanation appended to Clause A(a), A(b), and the impugned Notifications dated 31.03.2021 and 27.04.2021 (respectively) are concerned, we declare that the said Explanations must be read, as applicable to reassessment proceedings as may have been in existence on 31.03.2021 i.e. before the substitution of Sections 147, 148, 148A, 149, 151 151A of the Act. Consequently, the reassessment notices in all the writ petitions are quashed. It is left open to the respective assessing authorities to initiate reassessment proceedings in accordance with the provisions of the Act as amended by Finance Act, 2021, after making all compliances, as required by law. Reassessment notice qaushed - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961 after 01.04.2021.
2. Interpretation and application of the Enabling Act and Finance Act, 2021.
3. Legal effect of substitution of statutory provisions.
4. Scope of delegated legislation under the Enabling Act.

Detailed Analysis:

1. Validity of Reassessment Notices Issued Under Section 148 After 01.04.2021:
The petitioners challenged the validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961, for different assessment years, all initiated after 01.04.2021. The court noted that these notices were issued after the enforcement of the Finance Act, 2021, which substituted the pre-existing provisions of Sections 147 to 151 of the Act with new provisions effective from 01.04.2021. It was held that the old provisions were no longer in force, and any reassessment proceedings initiated under them after 01.04.2021 were invalid.

2. Interpretation and Application of the Enabling Act and Finance Act, 2021:
The Enabling Act was enacted to extend time limits for various actions under the Income Tax Act due to the COVID-19 pandemic. However, the Finance Act, 2021, introduced new provisions for reassessment, effective from 01.04.2021. The court held that the Enabling Act did not save the old provisions of Sections 147 to 151 of the Income Tax Act beyond 31.03.2021. Therefore, any reassessment proceedings initiated after 01.04.2021 must comply with the new provisions introduced by the Finance Act, 2021.

3. Legal Effect of Substitution of Statutory Provisions:
The court emphasized that substitution of statutory provisions involves simultaneous omission and re-enactment. Once new provisions are substituted, the old provisions are obliterated from the statute book unless expressly saved. In this case, the Finance Act, 2021, substituted the old provisions of Sections 147 to 151 with new provisions effective from 01.04.2021, without any saving clause. Therefore, the old provisions could not be applied to reassessment proceedings initiated after 01.04.2021.

4. Scope of Delegated Legislation Under the Enabling Act:
The court examined the scope of delegated legislation under the Enabling Act, which was enacted to extend time limits due to the COVID-19 pandemic. The court held that the Enabling Act only extended the time limits for actions under the pre-existing provisions of the Income Tax Act up to 31.03.2021. It did not authorize the extension of time limits for reassessment proceedings initiated under the new provisions introduced by the Finance Act, 2021. Therefore, the notifications issued under the Enabling Act extending time limits for reassessment proceedings beyond 31.03.2021 were invalid.

Conclusion:
The court quashed the reassessment notices issued to the petitioners after 01.04.2021, as they were based on the old provisions of Sections 147 to 151 of the Income Tax Act, which were no longer in force. The court declared that the reassessment proceedings must comply with the new provisions introduced by the Finance Act, 2021, and left it open to the assessing authorities to initiate reassessment proceedings in accordance with the new law.