In a significant relief to thousands of taxpayers, a division bench of the Delhi High Court (HC) has asked the income-tax (I-T) department to quash all notices issued under Section 148 of the I-T Act after 1 April 2021. The division bench was hearing a batch of 1,346 writ petitions filed by taxpayers against notices issued by the tax authorities under Section 148 of the I-T Act. Earlier, a single judge bench of the Delhi HC and the Rajasthan High Court had quashed the re-assessment notices issued under Section 148 of the I-T Act.
In an order issued last week, a division bench of justices Manmohan and Navin Chawla
says, "...this Court is of the view that the executive/ respondents/ revenue cannot use the administrative power to issue notifications under section 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021. This Court is also of the opinion that the executive/ respondents/ revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of I-Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation."
"Consequently, the impugned re-assessment notices issued under Section 148 of the I-T Act, 1961 are quashed and the present writ petitions are allowed. If the law permits the respondents/ revenue to take further steps in the matter, they shall be at liberty to do so. Needless to state that if and when such steps are taken and if the petitioners have a grievance, they shall be at liberty to take their remedies in accordance with the law," the bench says.
The HC opined that Section 3(1) of the Relaxation Act empowers the government or executive to extend only the time limits and it does not delegate the power to legislate on provisions to be followed for initiation of re-assessment proceedings.
"In fact, the Relaxation Act does not give power to the government to extend the erstwhile sections 147 to 151 beyond 31 March 2021 and/ or defer the operation of substituted provisions enacted by the Finance Act 2021. Consequently, the impugned explanations in the notifications dated 31 March 2021 and 27 April 2021 are not conditional legislation and are beyond the power delegated to the government as well as ultra vires the parent statute, i.e. the Relaxation Act. Accordingly, this Court is respectfully not in agreement with the view of the Chhattisgarh High Court in Palak Khatuja (supra), but with the views of the Allahabad High Court and Rajasthan High Court in Ashok Kumar Agarwal (supra) and Bpip Infra Pvt Ltd (supra), respectively," the Delhi HC says.
In the petitions, 1,346 taxpayers sought quashing of the re-assessment notices issued after 31 March 2021 by the I-T department under Section 148 of the I-T Act. The counsels for the taxpayers submitted that the notices are invalid in the eyes of the law and void from inception as they were issued without following the process of issuance of prior notice under Section 148A of the Act. He submitted that the impugned notices are invalid as they have been issued under the pre-amended provisions of the Act which were no longer in force on the date of the impugned notices. He also emphasised that the amendments apply to all the notices issued under Section 148 of the Act post 1 April 2021.
The counsel for the I-T department contended that the time limit for issuing the notices under Section 148 of the Act stood expired and, therefore, any action under Section 148 would have been time-barred by virtue of the proviso to Section 149(1) of the Act. The counsel also submitted that by virtue of the introduction of Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the time limit for taking action under Section 148 has been extended till 30 June 2021.
The counsel further contended that the notifications only provide time limit for issuing notice for re-assessment under Section 148A of the Act and has been extended by deemed fiction. The procedure to be followed till 30 June 2021 would be the old procedure mentioned under the Act, he added.
After hearing both sides, the division bench was of the prima facie view that the impugned notification is contrary to the settled principle of statutory interpretation, namely, that any action taken after the amendment of a procedural section would have to abide by the new procedures stipulated in the amended Act.
"Further, this Court is of the prima facie view that by virtue of a notification, which is a delegated legislation, the date for implementation of the statutory provision, as stipulated in the Act, cannot be varied or changed. This Court is also of the prima facie opinion that section 6 of the General Clauses Act, 1897 offers no assistance to the respondents as the new Section 148A demonstrates an intent 'to destroy' the old procedure," the bench says.
The bench of justices Manmohan and Chawla observed that had the intention of the legislature been to keep the erstwhile provisions alive, it would have introduced the new provisions with effect from 1 July 2021, which has not been done.
"Accordingly, the notices relating to any assessment year issued under Section 148 on or after 1 April 2021 have to comply with the provisions of sections 147, 148, 148A, 149 and 151 of the I-T Act as specifically substituted by the Finance Act, 2021 with effect from 1 April 2021," the HC stated in its order.
According to the HC, the legislative intent behind the substitutions or amendments should be to reduce the time limit in ordinary cases to three years and to increase the threshold amount of income having escaped assessment to Rs50 lakh for invoking an extended time limit of 10 years to reduce litigation and compliance burden, remove discretion, impart certainty and promote ease of doing business.
The bench opined that the new provisions are remedial and benevolent provisions meant and intended to protect the rights and interests of assessees and promote the public interest. "If the procedural rules are defective, the legal apparatus works less efficiently and the public interest suffers. If legislation is introduced to remedy the defective rule and no one suffers thereby, it is sensible to apply it to pending proceedings."
"Consequently, this Court is of the view that the Finance Act 2021 introduces a new regime regarding the procedure to be complied with in respect of the re-opening of an I-T assessment and accordingly, the benefit of the new provisions must necessarily be made available even in respect of proceedings relating to past assessment years (AYs) provided, of course, section 148 notice has been issued on or after 1 April 2021," the bench added.
While declaring the notifications issued on 31st March and 27 April 2021 to be ultra vires the Relaxation Act 2020 and, therefore, bad in law and null and void, the Delhi HC quashed reassessment notices issued under Section 148 of the I-T Act.