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'Reassessment Notices Validated - Supreme Court Verdict'

MAY 18, 2022

By Laxmi Narayan Pant, Senior Advisor & Gauri Agarwal, Manager with Deloitte Haskins and Sells LLP
 

THERE has been much controversy around the issuance of notices under Section 148 of the Income-tax Act, 1961 (IT Act), issued during the period 1 April 2021 to 30 June 2021 by Revenue authorities without following the due procedure laid down by Finance Act, 2021 (effective from 1 April 2021).

Radical changes have been made in the procedure governing reassessment proceedings, by the Finance Act, 2021. Further, timelines for issuance of notice for initiation of reassessment proceedings have been reduced from 4,6 or 16 years (in the erstwhile law) to 3 or 10 years (under the new law), with the intent to reduce litigations and foster ease of doing business.

Due to the Covid-19 pandemic, the government relaxed timelines for undertaking certain compliances (including issuance of notices under Section 148 of the IT Act) by way of enactment of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [Relaxation Act]. As per the Relaxation Act, read with the notification issued in this regard, relaxation in timelines for issuance of notices under Section 148 of the IT Act has been provided as follows:

Act/ Notifications applicable

Relaxation period

Extended timelines for issuance of notice for years which were getting time barred in relaxation period

As per Relaxation Act

March 20, 2020 - December 31, 2020

March 31, 2021

Notification no. 20/ 2021

March 20, 2020 - March 31, 2021

April 30, 2021

Notification No. 38/2021

March 20, 2020 - March 31, 2021

June 30, 2021

Explanation to the above notifications stipulated that the provisions of Section 148, 149 and 151 of the IT Act, as they stood as on March 31, 2021, before the commencement of Finance Act, 2021, shall apply.

Taking recourse to the Relaxation Act, read with above mentioned notifications, the assessing officers issued notices under Section 148 of the IT Act for AY 2013-14, AY 2014-15, AY 2015-16, AY 2016-17 and AY 2017-18 on or after April 01, 2021, without following the procedure laid down by Finance Act, 2021. Writ petitions were filed before various High Courts by taxpayers challenging the validity of issuance of these notices as these were issued without following the procedure laid down by Finance Act, 2021.

However, the Revenue authorities contended that:

(i) the notices for reopening were valid considering the same were issued for any period prior to 01 April 2021 and the provisions as they stood at the relevant time, would apply and (ii)

(ii) substitution of old provisions (by Finance Act, 2021) would not obliterate the previous set of provisions.

Disregarding the plea of Revenue authorities, High Courts (Allahabad HC, Madras HC, Bombay HC, Calcutta HC, Rajasthan HC) had quashed the notices issued (without following the new procedure as laid down by Finance Act, 2021) on or after April 01, 2021, stating that the notices are bad in law for the following reasons:

- Once a new provision has been put in place of existing provisions, the old law gets omitted.

- Relaxation Act is an enactment to extend the timelines only. It only provides a general relaxation of limitation.

- The intention of the legislature was to apply the substituted provision from 01 April, 2021 as the Relaxation Act was in existence when Parliament introduced the new law without any savings clause in the IT Act.

- Explanations in the notification 'to clarify' that unamended provisions would apply for issuance of notice under section 148 is ultra vires the Relaxation Act (which has only an objective to extend the limitation period).

- Explanations do not cover Section 147 (which includes Section 148, 148A etc.) to be followed as a procedure for reassessment. Hence, even if explanations are valid, the mandatory procedure as to be followed by Section 148A of the Act has not been followed.

- The time limit for issuance of notice for AY 2015-16 and onwards are not expiring within the period (20 March, 2020 to 31 March, 2021) for which section 3(1) of the Relaxation Act was applicable. Hence, the Relaxation Act would not be applicable for these years. Period of limitation cannot be extended for these years.

It will not be out of place to mention that the Chhattisgarh HC had decided the issue against the assessee and in favour of the Revenue authorities validating the issuance of notices under section 148 of the IT Act, post 01 April, 2021.

The Revenue filed an appeal before the Supreme Court against the order of the High Courts.

Supreme Court upheld the validity of notices issued under Section 148 on or after 01 April, 2021 by using its power under Article 142 of the Constitution of India and stated as follows:

- the new provisions as substituted by the Finance Act, 2021 are substituted with a specific aim and object to protect the rights and interest of the assessee as well as the same being in public interest.

- the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021.

- However, judgement of the High Courts would result in no reassessment proceedings at all even if same are permissible under Finance Act, 2021;

- The Revenue cannot be made remediless and object and purpose of reassessment proceedings cannot be frustrated;

- Due to bona fide mistake and extension of timelines vide various notifications, there appears to be genuine non-application of the amendments as the Revenue may have been under a bona fide belief that the amendments may not yet have been enforced;

- Some leeway should be shown in this regard.

Having said so, SC modified the judgement of the High Courts as under:

- The impugned notices issued under section 148 shall be deemed to have been issued under Section 148A(b) of the IT Act;

- The assessing officers shall provide the information and material relied upon by the Revenue to assessees - within thirty days from the date of pronouncement of order by SC (that is by June 02, 2022);

- Assessees to reply to the notices within two weeks thereafter (which is by June 16, 2022);

- The requirement of conducting an enquiry as per Section 148A(a) [before issuance of notice under Section 148A(b)] has been dispensed with as a one-time measure for all the notices issued on or after 01 April, 2021 till date (including notices quashed by various High Courts);

- Thereafter, the assessing officer to pass an order Section 148A(d) with due procedure to be followed as per 148A(d) (for example, timelines to be followed; approval from specified authority etc.);

- All the defences available under Section 149 or available under the Finance Act, 2021 shall be made available to the assessee;

CBDT vide Instructions no. 01/2022 dated 11 May 2022 issued instructions for implementing the decision of the SC:

- reassessment notices issued by the Assessing Officers during the period beginning on 1 April 2021 and ending 30 June 2021, has been referred as 'extended reassessment notices'

- It is clarified that the judgment applies to all cases where extended reassessment notices have been issued. This is irrespective of the fact whether such notices have been challenged or not;

- Decision of Hon'ble Supreme Court read with the time extension provided by the Relaxation Act will allow extended reassessment notices to travel back in time to their original date when such notices were to be issued and then new section 149 of the Act to be applied at that point.

- AY 2013-14, AY 2014-15, AY 2015-16 - Fresh Notice under Section 148 only if case falls under section 149(1)(b) of the Act;

- AY 2016-17 and AY 2017-18 - Fresh notice can be issued if case falls under Section 149(1)(a) of the Act;

- AY 2013-14, AY 2014-15 and AY 2015-16 to be disposed off as no information can be provided in these years if income escaping assessment is less than INR 5 million;

- The procedure required to be followed by the Assessing Officers in compliance with the decision of the Supreme Court, has been stated.

CBDT instructions to drop cases for AY 2013-14, AY 2014-15 and AY 2015-16 wherein income escaping assessment is less than INR 50 lakhs will give relief to some taxpayers. It is pertinent to note that the Supreme Court has given life to the notices already issued by the tax authorities (under old section 148) as a notice under section 148A(b). However, it has neither specifically validated the extension given by the notifications under the Relaxation Act nor confirmed that the notices will be deemed to have been issued within the prescribed timelines (this would be relevant especially because different timelines apply for different AYs). Further, the Supreme Court has also mentioned that the taxpayer would have all defences including under section 149 (relating to time limit for issuance of reassessment notice).

Accordingly, taxpayers would need to evaluate the facts of their specific cases (including with respect to the assessment year and timelines involved) to determine the way forward once the tax authorities continue with the proceedings and possibility of second round of litigation may not be ruled out.

[The views expressed are strictly personal.]

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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