2022 (4) TMI 40 - HC - Income Tax

Assessment proceedings u/s 148 - Scope of new Section 148A - validity of the assessment proceedings initiated against assessees after 1st April 2021 under the provisions of the Act, as it existed before 1st April 2021, read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (the Relaxation Act) and the notifications issued thereunder - HELD THAT - As relying on SUDESH TANEJA WIFE OF SHRI CP TANEJA 2022 (1) TMI 1212 - RAJASTHAN HIGH COURT no notice under Section 148 would be issued for the past assessment years by resorting to the larger period of limitation prescribed in newly substituted clause (b) of Section 149(1). This would indicate that the notice that would be issued after 01.04.2021 would be in terms of the substituted Section 149(1) but without breaching the upper time limit provided in the original Section 149(1) which stood substituted. No indication of surviving the past provisions after the substitution and in fact an active indication to the contrary, inescapable conclusion that we must arrive at is that for any action of issuance of notice under Section 148 after 01.04.2021 the newly introduced provisions under the Finance Act, 2021 would apply. Mere extension of time limits for issuing notice under section 148 would not change this position that obtains in law. Under no circumstances the extended period available in clause (b) of sub-section (1) of Section 149 which we may recall now stands at 10 years instead of 6 years previously available with the revenue, can be pressed in service for reopening assessments for the past period. This flows from the plain meaning of the first proviso to sub-section (1) of Section 149. In plain terms a notice which had become time barred prior to 01.04.2021 as per the then prevailing provisions, would not be revived by virtue of the application of Section 149(1)(b) effective from 01.04.2021. All the notices issued in the present cases are after 01.04.2021 and have been issued without following the procedure contained in Section 148A of the Act and are therefore invalid. The subordinate legislation could not have travelled beyond the powers vested in the Government of India by the parent Act. Even otherwise it is extremely doubtful whether the explanation in the guise of clarification can change the very basis of the statutory provisions. If the plain meaning of the statutory provision and its interpretation is clear, by adopting a position different in an explanation and describing it to be clarificatory, the subordinate legislature cannot be permitted to amend the provisions of the parent Act. Accordingly, these explanations are unconstitutional and declared as invalid. We are unable to persuade ourselves to accept this analysis of the situation. In our understanding by virtue of notifications dated 31.03.2021 and 01.04.2021 issued by CBDT substitution of reassessment provisions framed under the Finance Act, 2021 were not deferred nor could they have been deferred. The date of such amendments coming into effect remained 01.04.2021. In the result we find that the notices impugned in the respective petitions are invalid and bad in law. The same are quashed and set aside. The learned Single Judge committed no error in quashing these notices. All the writ petitions are allowed. Appeals of the revenue are dismissed.

Summary

Issues Involved:
1. Validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961, after the introduction of new provisions by the Finance Act, 2021.
2. Legality and validity of the explanations contained in the Central Board of Direct Taxes (CBDT) circulars dated 31.03.2021 and 27.04.2021.

Issue-wise Detailed Analysis:

1. Validity of reassessment notices issued under Section 148 after the Finance Act, 2021:

The petitioners challenged the reassessment notices issued by the Assessing Officers under Section 148 of the Income Tax Act, 1961, for various assessment years. These notices were issued after 01.04.2021 but pertained to periods before this date. The core issue was whether the new provisions for reassessment introduced by the Finance Act, 2021, effective from 01.04.2021, could be used for issuing such notices for past years.

The court referred to a previous judgment in "Sudesh Tanesh Vs. Income Tax Officer," where it was observed that the original provisions, upon their substitution, stood repealed and had no existence after the introduction of the new provisions. The court noted significant changes in the reassessment scheme under the Finance Act, 2021, such as altered time limits for issuing notices and the introduction of Section 148A, which mandated a preliminary inquiry before issuing a notice under Section 148.

The court concluded that all notices issued after 01.04.2021 had to comply with the new provisions. It emphasized that there was no indication in the statutory scheme suggesting that the old provisions would continue to apply for periods before the substitution. The court highlighted that the first proviso to Section 149(1) clearly restricted the issuance of notices for past assessment years if they were time-barred under the old provisions. Therefore, the court held that the notices issued in the present cases, which did not follow the procedure under Section 148A, were invalid.

2. Legality and validity of the explanations in CBDT circulars dated 31.03.2021 and 27.04.2021:

The second issue was whether the explanations in the CBDT circulars could save the reassessment notices. The court noted the principle of presumption of constitutionality of statutes and subordinate legislation but emphasized that subordinate legislation does not enjoy the same level of immunity as plenary legislation. Subordinate legislation can be challenged on grounds such as inconsistency with the parent statute or being manifestly arbitrary.

The court examined the Relaxation Act, 2020, which allowed the Central Government to extend time limits for actions and compliances. However, the court found that the explanations in the CBDT circulars, which purported to clarify the applicability of old provisions for issuing notices under Section 148, exceeded the jurisdiction of subordinate legislation. The court held that these explanations could not alter the statutory provisions and were therefore unconstitutional and invalid.

The court also referred to similar views taken by the Allahabad and Delhi High Courts and disagreed with the contrary view of the Chhattisgarh High Court, which had upheld the validity of the notices based on the CBDT circulars.

Conclusion:

The court agreed with the judgment in "Sudesh Tanesh Vs. Income Tax Officer" and found the reassessment notices impugned in the respective petitions to be invalid and bad in law. Consequently, the court quashed and set aside these notices, applying the directions from the Sudesh Tanesh case mutatis mutandis to the present cases. All writ petitions were allowed, and any pending applications were disposed of. The registry was directed to place a copy of this order in other connected petitions.