2023 (3) TMI 1538 - HC - Income Tax

Validity of reopening of assessment - Time limit for notice u/s 149 - Applicability of the time limit for issuing such notices as per the old regime and the new regime introduced by the Finance Act, 2021 - notice issued in the old regime period due to becoming time barred - scope of notices issued u/s 148 of the new regime between July and September 2022 - Application of TOLA to the Income Tax Act after 1 April 2021 - HELD THAT - Limitation of six years from the end of relevant assessment year operated as timeline in the old regime for issuance of notice u/s 148 beyond which period, it was not competent for the assessing officer to issue notice for reassessment. This embargo is made to continue in the new regime also. Now the reopening notices which related to the period prior to 01.04.2021, but issued between 01.04.2021 to 30.06.2021 came to be challenged before the Division Bench of this Court in Keenara Industries Pvt. Ltd. 2023 (3) TMI 104 - GUJARAT HIGH COURT by placing reliance on directions of Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT , and thus by contending that since they were issued after six years from the end of the relevant assessment year, they were barred and were without jurisdiction. Stating differently, as per the old regime, for issuance of notice under section 148, in relation to AY 2013-14, the outer time limit would expire on 31.03.2020 and for issuing such notice in relation with AY 2014-15, the time period would conclude on 31.03.2021. As already noted, the department took shelter of the time limit extended by Notifications of the Central Board of Direct Taxes to treat the above class of notices to be within time. In Keenara Industries Pvt. Ltd. (supra), this Court proceeded to hold that enacting the provisions in Taxation and Other Laws (Relaxation Amendment of Certain Provisions) Act, 2020, was not the permissible device whereby the time limit could be legitimately extended for the purpose of issuing Notices under Section 148, which were otherwise barred in terms of Section 149, as it exists in the old regime. The Taxation and Other Laws Act, 2020 was rightly viewed to be a secondary legislation. It was therefore held that secondary legislation would not override the principal legislation-the Finance Act, 2021. Also negatived by the Division Bench in Keenara Industries Pvt. Ltd. (supra) as per observations the concept of freezing the time limit. It was held that it was not permissible in law for the Revenue to travel back in time. Nor does the Taxation and Other Laws Act endorse to such concept. It was held as per paragraphs 38 and 39 of the Keenara Industries Pvt. Ltd. (supra) that Notifications extending the due dates under the old provisions could not breath any more after the repeal of the old provisions. Therefore, the point is no more res integra that all original notices under section 148 of the Act referable to the old regime and issued between 01.04.2021 to 30.06.2021 would stand beyond the prescribed permissible timeline of six years from the end of Assessment Year 2013-14 and Assessment Year 2014-15. Therefore, all such notices when they would relate to Assessment Year 2013-14 or Assessment Year 2014-15 would be time barred as per the provisions of the Act as applicable in the old regime prior to 01.04.2021. These notices cannot be issued as per the amended provision of the Act. Revenue was entirely at his receiving end, unable to dispute the position of law holding the field as above. All the impugned notices in the respective petitions u/s 148 of the Act relatable to Assessment year 2013-14 or the assessment year 2014-15, as the case may be, are beyond the permissible time limit, therefore, liable to be treated illegal and without jurisdiction.

Summary

Issues Involved:

1. Legality and jurisdiction of notices issued under Section 148 of the Income Tax Act, 1961, for reopening assessments for the years 2013-14 and 2014-15.
2. Applicability of the time limit for issuing such notices as per the old regime and the new regime introduced by the Finance Act, 2021.
3. Impact of the Supreme Court's decision in Union of India vs. Ashish Agarwal on the validity of the notices.
4. Relevance of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, in extending the time limit for issuing notices.

Detailed Analysis:

1. Legality and Jurisdiction of Notices:

The core issue revolves around the legality of notices issued under Section 148 of the Income Tax Act, 1961, for reopening assessments for the assessment years 2013-14 and 2014-15. The petitioners challenged these notices on the grounds of being time-barred, as they were issued beyond the permissible time limit of six years from the end of the relevant assessment year. The court noted that these notices, issued after the expiration of six years, are illegal and without jurisdiction.

2. Applicability of Time Limit:

The judgment delves into the time limits set by the old and new regimes for issuing notices under Section 148. Under the old regime, notices could be issued within four to six years from the end of the relevant assessment year, provided the income that escaped assessment exceeded one lakh rupees. The Finance Act, 2021, introduced a new regime effective from 01.04.2021, reducing the time limit to three years, extendable to ten years if the escaped income exceeds fifty lakh rupees. However, the court emphasized that the first proviso to Section 149 of the new regime stipulates that notices cannot be issued for assessment years beginning on or before 01.04.2021 if they were time-barred under the old regime.

3. Impact of Supreme Court's Decision:

The Supreme Court's decision in Union of India vs. Ashish Agarwal played a pivotal role in this case. The Supreme Court had ruled that notices issued between 01.04.2021 and 30.06.2021 under the old regime should be treated as show-cause notices under Section 148A(b) of the new regime. However, the Supreme Court also clarified that all defenses available under Section 149 of the Finance Act, 2021, and in law, would remain available. The Gujarat High Court, relying on this decision, concluded that the notices in question were still time-barred as per the old regime and could not be revived under the new regime.

4. Relevance of the Taxation and Other Laws Act, 2020:

The court examined the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, which extended timelines due to the COVID-19 pandemic. However, it was held that this Act, being secondary legislation, could not override the principal legislation of the Finance Act, 2021. The court rejected the argument that the extended timelines under this Act could legitimize the otherwise time-barred notices.

Conclusion:

The court allowed the petitions, setting aside the impugned notices and orders under Section 148 and 148A(d) for the assessment years 2013-14 and 2014-15. The court held that these notices were issued beyond the permissible time limit and were therefore illegal and without jurisdiction. All other factual and legal issues were left open for consideration in future proceedings.