2023 (3) TMI 104 - HC - Income Tax

Reopening of assessment u/s 147 - barred by limitation - Period of limitation to issue notice issued under Section 148A(b) - power to extend the time period under the first proviso to section 149(1) - scope of Taxation and Other Laws (Relaxation and Amendment of Certain Provision) Act, 2022 TLA Act - effect of substituted provisions of sections 147 to 151 - HELD THAT - A conjoint reading of section 149(1) proviso w.e.f. 01.04.2021 along with section 149(1)(b) prior to 01.04.2021. The case of the petitioner for assessment years 2013-14 and 2014-15 cannot be reopened. The assessment year is 2013-14 (01.04.2012 to 31.03.2013) and assessment year 2014-15 (01.04.2013 to 31.03.2014). The end of assessment year is 31.03.2014 and 31.03.2015 respectively. Therefore, the last date for issuance of notice under section 148 of the Act would be 31.03.2020 or 31.03.2021 (being six years from the end of relevant assessment year) whereas the impugned notices under section 148 is issued beyond that period and hence, the same are clearly time barred. There is an erroneous interpretation of the Apex Court s decision which did not say that the extension provided by TLA Act would get extended for issuance of reassessment notices to travel back in time to the original date when such notices were to be issued. While so interpreting, the CBDT overlooked the fact that in para 10(iv) in case of Union of India vs. Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT the Apex Court kept all the defences available to the petitioner including those available under section 149 of the Act open. Accordingly, the petitioner has raised the defence under the first proviso to section 149 of the Act before issuance of notice under section 148 of the Act. The legal effect of enactment of Finance Act, 2021 and substitution of provisions contained in sections 147 to 151 of Finance Act, 2021 when regarded, it is to be appreciated that the TLA Act has extended the last date under unamended section for initiating the actions under sections 147/148 of the Act which is prescribed under unamended section 149. TLA Act is a subsidiary legislation, whereas the unamended sections 147 to 151 being the principal legislation, substitution of sections 147 to 151 by Finance Act with the entire new set of provision having different conditions and procedures on which the existence of subsidiary legislation TLA Act depends itself and ceased to excess, the provision contained in TLA can not have any effect after the enactment of Finance Act, 2021. The CBDT failed to appreciate such legal effect of enactment of Finance Act, 2021 before relying on provisions contained in TLA Act. Again, as mentioned hereinabove the extension under the TLA Act would not mean that it can extend the time limit provided under section 149(1)(b) of the Act as it stood immediately before the commencement of Finance Act, 2021, which remained six years from the end of assessment year. It is apposite to take notice of the language used by the legislature while drafting first proviso to section 149 which contains reference to the time limit specified under clause (b) of the unamended section 149 of the Act being six years from the end of relevant assessment years. This time limit is since not being altered by TLA therefore, extension of time limit for taking the action cannot be said to have been altered. Extension of Limitation from time to time in relation to all the proceedings by the Apex Court led to the enactment of TOLA Act, 2020, which extends time period for various enactments. Circular of CBDT extending time limit for the issuance of notice under section 148 of the IT Act upto 30.06.2021 met with a serious challenge. In wake of coming into effect the new Act of 2021 w.e.f. 01.04.2021 to give an overriding effect over legislation by issuance of notification for issuance of notice under the old provisions was not sustained by various High Courts and eventually the Apex Court intervened to give a balanced solution. It permitted the procedure under the new Act for those proceedings initiated before 01.04.2021 to 30.06.2021 and at the same time all contentions were kept open for the litigating parties to raise. Again, it is an unquestionable proposition that notifications which are the creation of the executives, issued under section 3 of TOLA Act, 2020 cannot override the legislation no matter how grave the situation may be and pandemic due to COVID-19 virus would also not be potent enough to dilute this principle. Resultantly, even though CBDT issued both the notifications of 31.03.2021 and 27.04.2021, they could have no power to extend the time period under the first proviso to section 149(1) of the Act. Resultant outcome would be to negate the submissions of Revenue that these two notifications would extend time period provided under the proviso to section 149(1) of the IT Act. The time limit as per unamended section 149(1)(b) rendered six years from the end of assessment year. TOLA has not altered time limit provided in clause (b) of unamended section 149 of the IT Act. As needed to be clarified that we have since held the notices to be barred by the ground of limitation, other legal and factual aspects are not deal with in any of the petitions and all these petitions are allowed on the issue of limitation. Resultantly, these petitions are allowed. Notices under section 148 of the IT Act and impugned orders under section 148A(d) of the IT Act are quashed and set aside on the ground of limitation. MAUNA M. BHATT,J - Supplementing View - As substituted provisions of sections 147 to 151 shall be applicable w.e.f. 01.04.2021, and as per First Proviso to Section 149, limitation as specified under unamended provision as it stood prior to 01.04.2021, shall be applicable. As per unamended provision prescribing limitation, no notice can be issued under section 148, if six years have elapsed from the end of the relevant assessment year. For assessment year 2013-14, six years had ended on 31.03.2020 and for assessment year 2014-15, six years had ended on 31.03.2021. Had there been no amendment in Section 149, TOLA and through its delegated legislation by way of Notifications could have extended the time for issuance of notice . However in view of express language of 1st proviso to Section 149(1), legislative mandate required that no notice could be issued under the new provision, if such notice could not be issued at that time on account of being beyond the time specified under the said section as it stood before the commencement of the Finance Act 2021, i.e a period of six years. Moreover, in view of decision of Hon ble Supreme Court in case of Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT the notices issued to the respective assessees under section 148 shall be deemed to be notices under section 148A(b) of the Act as substituted by Finance Act 2021. In all the petitions of batch I and batch II, the notices under Section 148A (by deeming fiction) was issued, between the period 01.04.2021 to 30.06.2021 (i.e after 31.03.2021), wherein six years had elapsed from end of the relevant assessment year and therefore they are time barred and the petitions of Batch I- for A.Y. 2013-2014 and Batch-II for A.Y.2014-2015 deserves to be allowed.

Summary

Issues Involved:

1. Whether the notices issued under Section 148 of the Income Tax Act for the Assessment Years 2013-14 and 2014-15 are barred by limitation.
2. The applicability and interpretation of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal.
3. The validity and applicability of the notifications issued by CBDT extending the time limit for issuance of notices under Section 148.
4. The impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on the limitation period for the issuance of notices under Section 148.
5. The binding nature and interpretation of CBDT Instruction No. 1/2022 dated 11.05.2022.

Issue-wise Detailed Analysis:

1. Whether the notices issued under Section 148 of the Income Tax Act for the Assessment Years 2013-14 and 2014-15 are barred by limitation:

The Court held that as per the first proviso to Section 149(1) of the Finance Act, 2021, no notice under Section 148 shall be issued if the time limit specified under the unamended provision had expired. For Assessment Year 2013-14, the six-year period ended on 31.03.2020, and for Assessment Year 2014-15, it ended on 31.03.2021. Since the notices were issued after these dates, they are barred by limitation.

2. The applicability and interpretation of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal:

The Court noted that the Supreme Court, in the case of Union of India vs. Ashish Agarwal, directed that the notices issued under Section 148 between 01.04.2021 and 30.06.2021 shall be deemed to have been issued under Section 148A(b) of the Act as substituted by the Finance Act, 2021. However, the Supreme Court also kept all defenses available to the assessee under Section 149 open. Thus, the limitation period prescribed under the first proviso to Section 149(1) cannot be ignored.

3. The validity and applicability of the notifications issued by CBDT extending the time limit for issuance of notices under Section 148:

The Court held that the notifications dated 31.03.2021 and 27.04.2021 issued by CBDT, extending the time limit for issuance of notices under Section 148, cannot override the legislative mandate of the first proviso to Section 149(1). These notifications were applicable only to the unamended provisions and cannot extend the time limit prescribed under the amended provisions effective from 01.04.2021.

4. The impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on the limitation period for the issuance of notices under Section 148:

The Court held that while TOLA extended the time limit for issuance of notices under the unamended provisions, it cannot extend the time limit prescribed under the amended first proviso to Section 149(1). The amended provisions of Section 149, which came into force on 01.04.2021, do not permit the issuance of notices if they were barred by limitation under the unamended provisions.

5. The binding nature and interpretation of CBDT Instruction No. 1/2022 dated 11.05.2022:

The Court held that the instructions issued by CBDT are binding on the departmental authorities but not on the courts or the assessees. The interpretation adopted by the revenue in the said instruction, which allows the notices to travel back in time to their original date, is erroneous and not legally tenable. The notices must pass the limitation test as laid down in the first proviso to Section 149 of the Act.

Conclusion:

The Court held that the notices issued under Section 148 of the Income Tax Act for the Assessment Years 2013-14 and 2014-15 are barred by limitation as per the first proviso to Section 149(1) of the Finance Act, 2021. The petitions were allowed, and the notices under Section 148 and the orders under Section 148A(d) were quashed and set aside on the ground of limitation.