Calcutta High Court: Section 148 Notices quashed in line of ruling of the Allahabad High Court

Manoj Jain vs Union of India; WPA No. 11950 of 2021; High Court of Calcutta; 17.01.2022

The Petitioners in the connected petitions are aggrieved by the issuance of impugned notices under Section 148 of the Income Tax Act, 1961 on the following grounds:

1. The notices are barred by limitation
2. The Respondent Income Tax Authority issued the impugned notices under Section 148 of the Income Tax Act, has not observed the statutory formalities under Section 148A of the Act as prescribed by the Finance Act, 2021.
3. The Petitioners sought quashing of the impugned re-assessment notices issued post 31st March, 2021 by the respondent.
4. The Petitioners have sought Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 be declared as ultra vires the parent legislation viz., The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as ‘ Relaxation Act, 2020’).

Contention of Petitioners:

Petitions are covered by the decision of the Division Bench of the Allahabad High Court in the matter of ‘Ashok Kumar Agarwal –vs- Union of India (Writ Tax No. 524/2021) decided in favor of assessees/petitioners.

Observations and Findings:

The Allahabad High Court in the aforesaid decision observed and held as follows:

• Other things apart, undeniably, on 01.04.2021, by virtue of plain/unexpected effect of Section 1(2)(a) of the Finance Act, 2021, the provisions of Sections 147, 148, 149, 151 (as those provisions existed up to 31.03.2021), stood substituted, along with a new provision enacted by way of Section 148A of that Act.
• In absence of any saving clause, to save the pre-existing (and now substituted) provisions, the revenue authorities could only initiate reassessment proceeding on or after 01.04.2021, in accordance with the substituted law and not the pre-existing laws.
• It is equally true that the Enabling Act that was pre-existing, had been enforced prior to enforcement of the Finance Act, 2021. It confronted the Act as amended by Finance Act, 2021, as it came into existence on 01.04.2021. In the Enabling Act and the Finance Act, 2021, there is absence, both of any express provision in itself or to delegate the function – to save applicability of the provisions of sections 147, 148, 149 or 151 of the Act, as they existed up to 31.03.2021.
• Plainly, the Enabling Act is an enactment to extend timelines only.
• 04.2021 onwards, all references to issuance of notice contained in the Enabling Act must be read as reference to the substituted provisions only.
• Equally there is no difficulty in applying the pre-existing provisions to pending proceedings. Looked in that manner, the laws are harmonized.
• The admission of the revenue authorities that all re-assessment notices involved in this batch of writ petitions had been issued after the enforcement date 01.04.2021, is tell-tale and critical. In fact, no jurisdiction had been assumed by the assessing authority against any of the petitioners, under the unamended law.
• Hence, no time extension could ever be made under section 3(1) of the Enabling Act, read with the Notifications issued there under.
• Hence, the enabling Act only protected certain proceedings that may have become time barred on 20.03.2020, up to the date 30.06.2021. Correspondingly, by delegated legislation incorporated by the Central Government, it may extend that time limit. That time limit alone stood extended up to 30 June, 2021.
• It was further clarified that Section 3(1) of the Enabling Act does not itself speak of reassessment proceeding or of Section 147 or Section 148 of the Act as it existed prior to 01.04.2021. It only provides a general relaxation of limitation granted on account of general hardship existing upon the spread of pandemic COVID -19. After enforcement of the Finance Act, 2021, it applies to the substituted provisions and not the pre-existing provisions.
• Reference to reassessment proceedings with respect to pre-existing and now substituted provisions of Sections 147 and 148 of the Act has been introduced only by the later Notifications issued under the Act. Therefore, the validity of those provisions is also required to be examined.
• Hence, it was concluded that:
  • The provisions of Sections 147, 148, 148A, 149, 150 and 151 substituted the old/preexisting provision.
  • In absence of any proceeding of reassessment having been initiated prior to the date 01.04.2021, it is the amended law alone that would apply.
• The bench held that they saw no reason in how the delegate i.e. Central Government or the CBDT could have issued the Notifications, plainly to over reach the principal legislation. Unless harmonized as above, those Notifications would remain invalid.
• Unless specifically enabled under any law and unless that burden had been discharged by the respondents, we are unable to accept the further submission advanced by the learned Additional Solicitor General of India that practicality dictates that the reassessment proceedings be protected.
• Hence, as it was clear that there is no conflict in the application and enforcement of the Enabling Act and the Finance Act, 2021. Juxtaposed, if the Finance Act, 2021 had not made the substitution to the reassessment procedure, the revenue authorities would have been within their rights to claim extension of time, under the Enabling Act.
• However, upon that sweeping amendment made the Parliament, by necessary implication or implied force, it limited the applicability of the Enabling Act and the power to grant time extensions there under, to only such reassessment proceedings as had been initiated till 31.03.2021.
• Consequently, the impugned Notifications have no applicability to the reassessment proceedings initiated from 01.04.2021 onwards.
• Upon the Finance Act 2021 enforced w.e.f. 1.4.2021 without any saving of the provisions substituted, there is no room to reach a conclusion as to conflict of laws. It was for the assessing authority to act according to the law as existed on and after 1.4.2021. If the rule of limitation permitted, it could initiate reassessment proceedings in accordance with the new law, after making adequate compliance of the same.
• That not done, the reassessment proceedings initiated against the petitioners are without jurisdiction.
• In view of the aforesaid, all the writ petitions were allowed to succeed. It was further declared that he Ordinance, the Enabling Act and Sections 2 to 88 of the Finance Act 2021, as enforced w.e.f. 01.04.2021, are not conflicted.
• Insofar as the Explanation appended to Clause A(a), A(b), and the impugned Notifications dated 31.03.2021 and 27.04.2021 (respectively) are concerned, it was declared that the said Explanations must be read, as applicable to reassessment proceedings as may have been in existence on 31.03.2021 i.e. before the substitution of Sections 147, 148, 148A, 149, 151 & 151A of the Act.
• Consequently, the reassessment notices in all the writ petitions were quashed. It is left open to the respective assessing authorities to initiate reassessment proceedings in accordance with the provisions of the Act as amended by Finance Act, 2021, after making all compliances, as required by law.

Held:

• In view of the aforesaid ruling of the Allahabad High Court, Rajasthan High Court in Bpip Infra Private Limited –vs- Income Tax Officer, Ward 4 (1), Jaipur (S.B. Civil Writ Petition No. 13297/2021) and the Delhi High Court in Man Mohan Kohli –vs- Assistant Commissioner of Income Tax & Anr. (W.P. (C) 6176 of 2021) , all the present writ petitions were disposed off by allowing the same.
• Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 were declared to be ultra vires the Relaxation Act, 2020 and are therefore bad in law and null and void.
• All the impugned notices under Section 148 of the Income Tax Act were quashed with liberty to the Assessing Officers concerned to initiate fresh re-assessment proceedings in accordance with the relevant provisions of the Act as amended by Finance Act, 2021 and after making compliance of the formalities as required by the law.