Bombay HC Quashed Tax Reassessment Notice issued to more than 1000 taxpayers

The Bombay High Court on Tuesday quashed and set aside notices issued to Tata Communications Transformation Services and other companies for income tax reassessment proceedings initiated after April 1, 2021 under Section 148 of the Income Tax Act (IT Act).

The order was issued in response to a slew of petitions filed by various assessees challenging the legality of assessment proceedings initiated against them after April 1, 2021, under the provisions of the IT Act as it existed prior to April 1, 2021, as read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act of 2020.

The High Court bench of Justices K R Sriram and N J Jamadar quashed reassessment notices issued under section 148 of the Income Tax Act and held that an extension of three months time beyond April 1 for such reassessment under the old regime is illegal. The HC dismissed over 1000 separate petitions challenging the respective notices issued by Assessing Officers under Section 148 of the Income Tax Act, 1961 for reopening assessments for various assessment years in this order.

The provisions for reassessment to reopen the assessment under certain circumstances was amended by the Finance Act, 2021 with effect from 1st April 2021. Prior thereto, under Section 147 of the Act, the Assessing Officer, if he had reason to believe that any income chargeable to tax had escaped assessment for any assessment year, he could, subject to the provisions of Sections 148 to 153 of the Act, assess or reassess such income and also any other income chargeable to tax which had escaped assessment. As per Section 148 of the Act, before making such assessment or reassessment under Section 147 of the Act, the Assessing Officer had to serve a notice on the assessee requiring him to furnish the return of his income. Sub-section (2) of Section 148 provided that the Assessing Officer shall, before issuing any notice, record his reasons for doing so.

The Coram found out that, “Mr. Pardiwalla submitted that even assuming for a moment that the primary contention of petitioners that the Explanations in the notifications are invalid is not accepted, still the impugned notices will be bad in law as the Explanation only seeks to effectuate the provisions of the erstwhile Sections 148, 149 and 151 of the Act. It does not cover the erstwhile Section 147 of the Act. As rightly submitted by Mr. Pardiwalla, the Assessing Officer could have assumed jurisdiction while issuing the impugned notices only after complying with the amended Section 147. The same has not been done by the Assessing Officers as (a) his assumption of jurisdiction is on the basis of his ‘reason to believe’ that income chargeable to tax has escaped assessment, a concept, which is no longer recognised in the amended Section 147; and (b) the amended Section 147 is in any event subject to Sections 148 to 153, which would also include the procedure contained in Section 148A, which has not been followed. Therefore, the impugned notices do not even comply with the relevant statutory provisions, even if we do not find fault with the Explanations in the two notifications. Infact the Delhi High Court in paragraph 84 of Mon Mohan Kohli (Supra) has also considered and accepted this aspect of the matter.

Section 297 of the Act provides a saving clause for applicability of various provisions of the 1922 Act, even though the Act itself had been repealed. In the absence of such a saving clause for applicability of erstwhile Sections 147 to 151 of the Act, the amended provision of the Act would apply from 1st April, 2021.

Moreover, the reopening notices issued after 1st April, 2021 are bad in law even if one was to apply the Explanations to the Notification Nos.20 and 38. The Explanations seek to extend the applicability of erstwhile Sections 148, 149 and 151. They do not cover Section 147, which empowers revenue to reopen subject to Section 148 to 153, which includes Section 148A. Thus, even if Explanation are valid, procedure of Section 148A is not followed and hence, notices are invalid.”

The High Court ruled out that, “To sum up, since we are in respectful agreement with the reasons recorded and views taken by the Allahabad High Court, Rajasthan High Court, Delhi High Court and Madras High Court, in the cases referred hereinabove, and for reasons noted above, all these writ petitions listed above are disposed by allowing the same. The explanations to the Notification No.20 of 2021 dated 31st March 2021 and Notification No.38 of 2021 dated 27th April 2021 are declared ultra vires and are, therefore, bad in law and null and void.

All the impugned notices issued under Section 148 of the Act are quashed and set aside.

It will be open to the Assessing Officers concerned to initiate fresh reassessment proceedings in accordance with the relevant provisions of the Act as amended by the Finance Act, 2021 after strictly complying with the provisions of the Act.”

The Judgment was made by Hon’ble K.R. SHRIRAM.

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