A batch of writ petitions were filed by various individual petitioners before the Allahabad High Court, challenging the validity of initiation of re-assessment proceedings under the erstwhile Section 148 of the Income Tax Act, by way of notices issued after 1 April 2021. The writ petitioners also challenged the validity of:
- Explanation to clause (A)(a) of CBDT Notification No. 20/2021, dated 31 March 2021 (‘Notification 1’) and
- Explanation to clause (A)(b) of CBDT Notification No. 38/2021, dated 27 March 2021 (‘Notification 2’)
The aforesaid Notifications were issued in furtherance to Section 3(1) of the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (‘TOLA’). Notification 1 provided extension of time for initiation of reassessment proceedings, by issuance of a notice under the erstwhile Section 148. Subsequently, Notification 2 again extended the time till 30 June 2021, to initiate reassessment proceedings, by issuance of a notice under the erstwhile Section 148; further in relation to the same, an ‘Explanation’ clause, identical to the one in Notification 1 was also added in Notification 2.
The Finance Act 2021 (‘FA 21’) amended the procedure for reassessment given under the IT Act, with the new procedure coming into effect from 1 April 2021. While the pre- amendment reassessment procedure was governed by the erstwhile Sections 147-153 (‘Erstwhile Provisions’), the new procedure is governed by the existing Sections 147, 148, 148A, 149, 151 and 151A of IT Act (‘New Provisions’). Subsequently, by virtue of FA 21, the New Provisions became operative from 1 April 2021.
The challenge in these writs essentially revolved around the question whether the relevant ‘Explanation’ in each of the Notifications, can be said to extend the application of the Erstwhile Provisions beyond 31-Mar-2021, even though the FA 21 categorically states that the New Provisions shall come into effect from 1 April 2021. Thus, were the impugned notices, all issued after 1 April 2021, under the erstwhile Section 148, could be said to be validly issued.
The High Court decided in favor of the petitioners and quashed the impugned notices as being invalid and without jurisdiction. The Court in the case Ashok Kumar Agarwal v. Union of India [[2021] 131 taxmann.com 32 (Allahabad)] categorically held that any reassessment proceedings initiated after 1 April 2021 can be initiated only in accordance with the New Provisions. For arriving at these conclusions, the Court gave the below reasonings:
- FA 21 substituted the Erstwhile Provisions with the New Provisions. By such acts of legislative substitution, and in absence of any express savings clause, such earlier provisions cannot survive, except for things already done or already undertaken to be done.
- There is no saving clause, in either the TOLA or the FA 21 which saves the applicability of the Erstwhile Provisions beyond 31 March 2021.
- The relevant provisions of TOLA (i.e. Section 3(1) of TOLA which extends timelines) merely protects certain proceedings from being barred by limitation – these provisions do not mention saving any proceeding from any law that may be enacted by the Parliament in the future.
- The non-obstante clause in Section 3(1), TOLA applies to ongoing proceedings only. The amendments brought about by the FA 21 have restricted the application of TOLA and the power to grant extension of timelines thereunder, to only such reassessment proceedings which have been initiated on or before 31 March 2021.
- Also, reassessment proceedings can be initiated only upon the valid assumption of jurisdiction by the assessing authority. In the facts of the case, no valid jurisdiction was assumed by the assessing authorities under the Erstwhile Provisions, i.e. no valid notice under the erstwhile Section 148 was issued, which could then be saved and given a time extension under the TOLA or the Notifications.
- The timelines as extended by the TOLA were further extended by the Central Government by way of delegated legislation (i.e. the Notifications) up till 30 June 2021. In absence of any specific delegation made, to allow the delegate of the Parliament to indefinitely extent the limitation periods would lead to the validity of the FA21, an enacted law, to be defeated by a purely colourable exercise of power by the delegate.
- In any case, the specific reference of reassessment under the Erstwhile Provisions appears only in the Notifications and not in Section 3(1), TOLA. The delegate of the Parliament, i.e. the Central Government or the CBDT, could not have issued the Notifications plainly to overreach the principal legislation, i.e. the FA 21. Here, the Allahabad High Court also clearly distinguished the opposite view taken by the Chhattisgarh High Court favoring the revenue on this issue in the recent decision of Palak Khatuja v. UoI, [2021] 130 taxmann.com 44.
- After enforcement of the FA 21, the TOLA applies to the New Provisions and not the Erstwhile Provisions.
- Consequently, the impugned Explanation in each of the Notifications must be read to be applicable only on reassessment proceedings initiated on or before 31 March 2021.