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2023 (11) TMI 763 - HC - Income TaxPeriod of limitation for invoking reopening of assessment - Scope of new section/regime u/s 148A - what was the period of limitation available to revenue for issuance of notice under Section 148 of the Act? - Whether the impugned order passed u/s 148A(d) and the consequent notice issued u/s 148 of the amended 1961 Act as obtaining with the enactment of FA 2021 , falls foul of the limitation prescribed in Clause (a) of Sub-Section (1) of Section 149? HELD THAT - As per directions contained in Ashish Agarwal s case 2022 (5) TMI 240 - SUPREME COURT notices issued on or before 31.03.2021 will be governed by the old regime, while those issued on or after 01.04.2021 must be aligned with the new regime. Accordingly, all those notices issued between 01.04.2021 and 30.06.2021 stood converted to notices issued under Section 148A(b) of the new regime and were, thus, subject to the amended Section 149 of the 1961 Act Court noted (which was a matter of fact) that the power of reassessment which existed before 31.03.2021 continued to exist till 30.06.2021, with alteration in procedure brought about upon the enactment and enforcement of FA 2021. This is abundantly clear if one were to read the paragraphs following paragraph 99, i.e., paragraphs 100 to 105 of the judgment. The Court, in no uncertain terms, declared explanation A(a)(ii)/A(b) of Notifications dated 31.03.2021 and 27.04.2021 as being ultra vires the parent statute, i.e., TOLA. The said explanations sought to impose the unamended provisions of Sections 148, 149 and 151 of the 1961 Act, although the substituted provisions had kicked in. The Court refused to countenance a situation that the amended provisions, i.e., Sections 147 to 149 and 151, would not be applicable, firstly, to past AYs and/or would not operate during 01.04.2021 and 30.06.2021, as the Covid-19 pandemic was prevailing in the country. The coordinate bench specifically observed that the Legislature was aware of the situation when it enacted FA 2021. The argument that the stop the clock provision would operate was decried by the coordinate bench. In our opinion, the observations of the coordinate bench make it amply clear that Section 149 of the amended 1961 Act continued to operate despite attempts to the contrary made by the introduction of the aforementioned explanations in Notifications dated 31.03.2021 and 27.04.2021. A careful perusal of the judgment of the Supreme Court rendered in Ashish Agrawal s case and the provisions of TOLA would show that neither the said judgment nor TOLA allowed for any such modality to be taken recourse to by the revenue, i.e., that extended reassessment notice would travel back in time to their original date when such notices were to be issued and thereupon the provisions of amended Section 149 would apply. Apart from anything else, the aforesaid provisions contained in the Instruction dated 11.05.2022 are beyond the powers conferred on the CBDT under Section 119 of the 1961 Act. The paragraphs mentioned above are clearly ultra vires the provisions of Section 149(1) of the amended 1961 Act. A perusal of the judgment of the Supreme Court rendered in Ashish Agrawal s case would show that it did not rule on the provisions contained in TOLA or the impact they could have on the reassessment proceedings. In any event, TOLA conferred no such power on the CBDT. Also as correctly argued on behalf of the assessees, there is no clarity in the aforementioned Instruction regarding the original date when such notices were to be issued . The impugned provisions of the Instruction dated 11.05.2022 are also unsustainable in law because they are vague. Certainty in taxing statutes is one of the grund norms, as ordinarily, they are agnostic to equitable principles. Time limit for reopening under the new regime was reduced from six (06) years to three (03) years and only in respect of serious tax evasion cases , that too, where evidence of concealment of income of Rs. 50 lakhs or more in a given period was found, the period for reopening the assessment was extended to ten (10) years. In order to ensure that utmost care was taken before invoking the extended period of limitation, the proposal was that approval should be obtained from the Principal Chief Commissioner of Income Tax, at the highest hierarchical level of the department. Likewise, the Memorandum emphasized that the new regime was forged with the hope that it would result in less litigation and would provide ease of doing business to tax payers, as there was a reduction in the time limit by which notice for assessment, reassessment and re-computation could be issued. Thus, as per the Memorandum, in normal cases , no notice was intended to be issued if three (03) years had elapsed from the end of the relevant AY. Notice, beyond the prescribed three (03) years from the end of the relevant AY, could be issued only in a few specific cases; one such example which is given in the Bill is where the AO was in possession of evidence that escaped income amounted to Rs. 50 lakhs or more. Sense that one gets upon a holistic reading of the backdrop in which the new regime for reopening assessments was enacted is that where escapement of income was below Rs. 50 lakhs, the normal period of limitation, i.e., three (03) years was to apply. In comparison, the extended period of ten (10) years would apply in serious tax evasion cases where there was evidence of concealment of income of Rs. 50 lakhs or more in the given period. Therefore, the impugned actions, which include orders passed under Section 148A(d) and the consequent notices issued under Section 148 of the amended 1961 Act, concerning AY 2016-17 and AY 2017-18 cannot be sustained. It is ordered accordingly.
Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961, in light of Clauses (a) and (b) of Section 149(1). 2. Applicability of the extended period of limitation for escaped income below Rs. 50 lakhs. 3. Impact of the Supreme Court judgment in Ashish Agrawal's case on the reassessment notices. 4. Legality of CBDT Instruction dated 11.05.2022 regarding the "travel back in time" theory. Summary: Issue 1: Validity of Notices under Section 148 The primary issue was whether the notices issued to the petitioners under Section 148 of the Income Tax Act, 1961, are sustainable in law, considering Clauses (a) and (b) of Section 149(1). The contention was that for escaped income below Rs. 50 lakhs, the limitation period is three years from the end of the relevant assessment year (AY). If the escaped income is less than Rs. 50 lakhs, the extended period of limitation up to ten years under Clause (b) does not apply. Issue 2: Applicability of Extended Limitation The court analyzed that for AYs 2016-17 and 2017-18, the limitation period expired on 31.03.2020 and 31.03.2021, respectively. The revenue's argument that the limitation period was extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and subsequent notifications was found unconvincing. The court held that TOLA did not have the power to extend the limitation period prescribed under Section 149(1)(a). Issue 3: Impact of Supreme Court Judgment in Ashish Agrawal's Case The Supreme Court in Ashish Agrawal's case directed that notices issued under the unamended Section 148 between 01.04.2021 and 30.06.2021 should be treated as notices under Section 148A(b) of the new regime. The Supreme Court also clarified that all defenses under Section 149 of the amended Act would be available to the assessees. The court emphasized that the judgment did not support the revenue's "travel back in time" theory. Issue 4: Legality of CBDT Instruction Dated 11.05.2022 The court found the CBDT Instruction dated 11.05.2022, which proposed that reassessment notices would "travel back in time" to their original date, to be ultra vires the provisions of Section 149(1) of the amended Act. The instruction was declared bad in law for being vague and beyond the powers conferred on the CBDT under Section 119 of the Income Tax Act. Conclusion: The court concluded that the impugned actions, including orders under Section 148A(d) and notices under Section 148 for AYs 2016-17 and 2017-18, are unsustainable in law. The reference to the "travel back in time" theory in the CBDT Instruction dated 11.05.2022 was declared invalid. The writ petitions were disposed of accordingly.
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