2022 (1) TMI 1315 - HC - Income Tax

Invalid Reassessment Notices Declared Ultra Vires, Writs Allowed

The court held that reassessment notices issued post 31st March, 2021 under Sections 147 to 151 of the Income Tax Act, 1961, did not comply with the new ... Substituted procedure under Sections 147 to 151 of the Income tax Act, 1961 - validity of executive notifications under the Relaxation Act, 2020 - ultra vires delegation of legislative power - quashing of reassessment notices issued under Section 148 post 31st March, 2021Substituted procedure under Sections 147 to 151 of the Income tax Act, 1961 - Reassessment notices issued after 31st March, 2021 which did not follow the substituted procedure under Sections 147 to 151 are invalid. - HELD THAT: - The Court held that the Finance Act, 2021 substituted Sections 147 to 151 with effect from 1st April, 2021 and that reassessment notices issued after 31st March, 2021 therefore had to comply with the new procedure. The power of reassessment as existing prior to 1st April, 2021 continued only for the limited extended period but did not carry forward the old procedure beyond that date. The Court rejected the contention that the Executive could, by administrative notifications under the Relaxation Act, 2020, permit continued use of the erstwhile procedure in place of the substituted statutory scheme. The practical consequence declared was that notices issued under Section 148 post 31st March, 2021 without following the substituted Sections 147-151 are without lawful basis and must be quashed. [Paras 4, 97, 98, 101]Notices of reassessment issued under Section 148 after 31st March, 2021 without compliance with substituted Sections 147-151 are quashed.Validity of executive notifications under the Relaxation Act, 2020 - ultra vires delegation of legislative power - Explanations A(a)(ii)/A(b) in the Notifications dated 31st March, 2021 and 27th April, 2021 are ultra vires the Relaxation Act, 2020 and therefore invalid. - HELD THAT: - The Court found that Section 3(1) of the Relaxation Act empowers the Executive only to extend time limits and does not authorize the Executive to legislate regarding the procedure for initiating reassessment proceedings. The Notifications sought to preserve or defer the operation of the substituted procedure by administrative means, which the Court held to be beyond the delegated power and inconsistent with the legislative intent manifested by the Finance Act, 2021. Consequently those Explanations were declared to be null and void and could not be used to validate reassessment notices issued without following the new statutory procedure. [Paras 3, 99, 100, 103]Explanations A(a)(ii)/A(b) to the Notifications of 31st March, 2021 and 27th April, 2021 are ultra vires the Relaxation Act, 2020 and are void.Final Conclusion: The impugned reassessment notices issued under Section 148 after 31st March, 2021 are quashed as they did not comply with the substituted Sections 147-151 and as the Notifications attempting to preserve the old procedure were ultra vires; the revenue remains free to act in accordance with law subject to compliance with the substituted statutory scheme. Issues:1. Validity of reassessment notices issued post 31st March, 2021 under Sections 147 to 151 of the Income Tax Act, 1961.2. Interpretation of the Finance Act, 2021 and its impact on reassessment procedures.3. Legality of Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021.4. Authority of the Executive/Respondents/Revenue to issue Notifications under Section 3(1) of the Relaxation Act, 2020.Issue 1: Validity of reassessment notices issued post 31st March, 2021 under Sections 147 to 151 of the Income Tax Act, 1961The judgment acknowledges that the impugned notices issued post 31st March, 2021 did not follow the procedure prescribed in the substituted Sections 147 to 151 of the Income Tax Act, 1961 introduced by the Finance Act, 2021. Referring to the Mon Mohan Kohli case, the Court emphasized that reassessment notices after 31st March, 2021 must comply with the substituted sections. It clarified that while the power of reassessment existed until 30th June, 2021, the Finance Act, 2021 altered the procedure effective from 1st April, 2021. The Court rejected the argument that Section 6 of the General Clauses Act saved notices issued post 31st March, 2021, stating that the new legislation manifested an intention to replace the old procedure entirely.Issue 2: Interpretation of the Finance Act, 2021 and its impact on reassessment proceduresThe judgment scrutinized the Relaxation Act, 2020 and the Finance Act, 2021 concerning the initiation of reassessment proceedings. It concluded that the Relaxation Act only empowered the Government to extend time limits and not to legislate on the provisions for reassessment proceedings. The Court held that the impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 were ultra vires the Relaxation Act, 2020. It disagreed with the Chhattisgarh High Court's view but aligned with the Allahabad High Court and Rajasthan High Court's perspectives on the matter. The judgment also dismissed the argument that the substitution made by the Finance Act, 2021 did not apply to past Assessment Years, citing Circular 549 of 1989 and the respondents' submission.Issue 3: Legality of Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021The Court declared Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 as ultra vires the Relaxation Act, 2020, rendering them legally invalid. Consequently, the impugned reassessment notices issued under Section 148 of the Income Tax Act, 1961 were quashed, and the writ petitions were allowed. The judgment granted the respondents/revenue the liberty to take further steps in the matter, with a reminder that the petitioners could seek remedies in accordance with the law if necessary.Issue 4: Authority of the Executive/Respondents/Revenue to issue Notifications under Section 3(1) of the Relaxation Act, 2020The judgment emphasized that the Executive/Respondents/Revenue could not use administrative power under Section 3(1) of the Relaxation Act, 2020 to undermine the legislative supremacy expressed in the Finance Act, 2021. It highlighted that the Executive could not frustrate the purpose of substituted statutory provisions like Sections 147 to 151 of the Income Tax Act, 1961. The Court stressed that the Executive's actions should not dilute or delay the effective implementation of statutory provisions as mandated by the Finance Act, 2021.