Landmark Judgement: Allahabad High Court quashed notices issued under section 148 in old laws after 31.03.2021 | Income tax case law

The above judgement has been passed in case of Ashok Kumar Agarwal vs. Union of India through its Revenue Secretary North Block and 2 Others WRIT TAX No. – 524 of 2021 wherein it has been held that: all notices issued under section 148 in old provision after 01.04.2021 is invalid in law and stands quashed.

 

Brief facts of the case:

Since, the dispute arising in the present writ petitions is purely legal, with respect to the validity of the re-assessment proceedings initiated against the individual petitioners, after 01.04.2021, having resort to the provisions of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) as they existed, read with the provisions of Act No. 38 of 2020 and the notifications issued thereunder, the peculiar fact pleadings of each case are not material to the adjudication of the legal issues involved here.

As to the exact challenge raised, it may be noted, the petitioners have challenged the validity of the re-assessment notices issued to them, under Section 148 of the Act. Another challenge has been raised to the validity of the Explanation appended to clause (A)(a) of CBDT Notification No. 20 of 2021, dated 31.03.2021 and Explanation to clause (A)(b) of CBDT Notification No. 38 of 2021, dated 27.04.2021. Those notifications have been issued under the powers vested under Section 3(1) of the Act 38 of 2020 namely, the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (hereinafter referred to as the ‘Enabling Act’).

 

Assessee’s contention:

Shri Rakesh Ranjan Agarwal, learned Senior Advocate has first submitted, upon enforcement of the Finance Act, 2021, the pre-existing Sections 147 to 151 of the Act stood repealed and replaced by the above noted provisions. The entire statutory scheme of initiating, inquiring, conducting, and concluding the reassessment proceedings underwent a sea change. The act of substitution of the old provision obliterated from the statute book the pre-existing provisions pertaining to reassessment under the Act. The unamended provision became dead and unenforceable, by that operation of law. Since the Enabling Act only sought to enlarge limitation with respect to the pre-existing provisions, it could not, and it did not resurrect the pre-existing provisions that were already dead. In short, it has been submitted, the procedural amendments cannot recreate a non-existing substantive law.

The Enabling Act was enacted solely to extend the limitation under the pre-existing provisions of the Act, as they stood prior to the amendment made by the Finance Act, 2021. The later Act, i.e. the Finance Act, 2021 does not contain any saving clause as may allow the pre-existing provisions an extended life, after the enactment of the Finance Act, 2021. Thus, the pre-existing provisions cannot be pressed into service by the revenue.

The Enabling Act (i.e. Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020) does not, and it could not save the pre-existing Sections 147, 148 and other provisions pertaining to reassessment, nor overriding effect can arise or be given (to itself) by the Enabling Act, since on the date of enactment of the Enabling Act, the Finance Act, 2021 was not born. Therefore, it was only through the Finance Act, 2021 that the provisions of the pre-existing law may have been saved if it had been so intended by the Parliament. In absence of that saving clause, there exists no power either under Section 3(1) of the Enabling Act or any other law as may validate the issuance of the impugned Notification.

To validate such Notification, would be to resurrect and enforce a dead law, contrary to the statutory law in force, on the date of issuance of impugned Notification dated 27.04.2021. Clearly, that would be a legislative overreach by the delegate and therefore, ultra vires the Constitution of India.

 

Observation by court:

Prior to enforcement of the Finance Act, 2021, the law for making re-assessment under the Act was governed by the provisions of Sections 147, 148, 149 read with Sections 150, 151, 152 and 153 of the Act. Under that law, the jurisdiction to reassess an assessee could arise upon necessary ‘reason to believe’ being recorded by the jurisdictional Assessing Officer, of that assessee – as to escapement of any income from assessment. Subject to the rule of limitation and prior sanction (where applicable), the Assessing Officer would then assume jurisdiction to reassess such an assessee, by issuing a notice under Section 148 of the Act.

 

As to the challenge procedure available to that assessee, the Supreme Court, in the case of GKN Driveshafts (India) Ltd. Vs. Income-tax Officer, (2003) 259 ITR 19 (SC), had observed as below:

“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years.”

 

The Central Government also recognized that difficulty and promulgated the Ordinance No. 2 of 2020 dated 31.03.2020 titled Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (hereinafter referred to as the ‘Ordinance’).

 

The aforesaid Ordinance was succeeded by the Enabling Act. It received the assent of the President on 29.09.2020 and was published in the Official Gazette, on that date itself. It was enforced retrospectively, with effect from 31.03.2020. By the Enabling Act, further provisions were made in addition to the provisions of Section 3 of the Ordinance.

 

Last, serious attempt has been made by Shri Agarwal, learned Senior Advocate to demonstrate that the decision of the learned Single Judge of the Chhattisgarh High Court in W.P. (T) No. 149 of 2021 Palak Khatuja Vs Union of India & Ors., decided on 23.08.2021 does not lay down the correct law. He has taken us through that decision at length and sought to draw points of distinction. Thus, it has been submitted that the Chhattisgarh High Court has applied a wrong test to look at the notification dated 31.03.2021 issued under the Enabling Act to interpret the principal legislation made by Parliament, being the Finance Act, 2021.

In absence of any specific clause in Finance Act, 2021, either to save the provisions of the Enabling Act or the Notifications issued thereunder, by no interpretative process can those Notifications be given an extended run of life, beyond 31 March 2020. In fact, any notification issued under the Enabling Act, after the date 31.03.2021 is plainly in conflict with the law as enforced by the Finance Act 2021.

It may also not infuse any life into a provision that stood obliterated from the statute with effect from 31.03.2021.

On facts, once the principal legislature expressed its intent otherwise by enforcing those provisions w.e.f. 01.04.2021, the situation in law arises otherwise. The pre-existing provisions no longer continue to exist.

 

Judgement:

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.

As to the decision of the Chhattisgarh High Court, with all respect, we are unable to persuade ourselves to that view. According to us, it would be incorrect to look at the delegation legislation i.e. Notification dated 31.03.2021 issued under the Enabling Act, to interpret the principal legislation made by Parliament, being the Finance Act, 2021.

A delegated legislation can never overreach any Act of the principal legislature. Second, it would be over simplistic to ignore the provisions of, either the Enabling Act or the Finance Act, 2021 and to read and interpret the provisions of Finance Act, 2021 as inoperative in view of the fact circumstances arising from the spread of the pandemic COVID-19. Practicality of life de hors statutory provisions, may never be a good guiding principle to interpret any taxation law. In absence of any specific clause in Finance Act, 2021, either to save the provisions of the Enabling Act or the Notifications issued thereunder, by no interpretative process can those Notifications be given an extended run of life, beyond 31 March 2020.

They may also not infuse any life into a provision that stood obliterated from the statute with effect from 31.03.2021. Inasmuch as the Finance Act, 2021 does not enable the Central Government to issue any notification to reactivate the pre-existing law (which that principal legislature had substituted), the exercise made by the delegate/Central Government would be de hors any statutory basis. In absence of any express saving of the pre-existing laws, the presumption drawn in favour of that saving, is plainly impermissible. Also, no presumption exists that by Notification issued under the Enabling Act, the operation of the pre-existing provision of the Act had been extended and thereby provisions of Section 148A of the Act (introduced by Finance Act 2021) and other provisions had been deferred. Such Notifications did not insulate or save, the pre-existing provisions pertaining to reassessment under the Act.

In view of the above, all the writ petitions must succeed and are allowed. It is declared that the 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, we declare 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 are 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.

Accordingly, reassessment notice issued to the present petitioner dated 09.04.2021 for A.Y. 2017-18 is quashed.

 

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