Invalidity of Income Tax Act Section 148 notices post 01.04.2021 due to non-compliance with Finance Act, 2021 reassessment provisions

The court held that notices issued under Section 148 of the Income Tax Act after 01.04.2021 were invalid as they did not comply with the new reassessment provisions introduced by the Finance Act, 2021. Additionally, the explanations in the CBDT circulars dated 31.03.2021 and 27.04.2021 were deemed unconstitutional and invalid as they exceeded the delegated powers of the CBDT. Consequently, the court quashed the notices, following the precedent set in "Sudesh Taneja Vs. Income Tax Officer," and disposed of all pending applications in favor of the petitioners.

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Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961, after the introduction of new reassessment provisions by the Finance Act, 2021.
2. Legality and validity of the explanations contained in the Central Board of Direct Taxes (CBDT) circulars dated 31.03.2021 and 27.04.2021.

Detailed Analysis:

Issue 1: Validity of Notices Issued Under Section 148 Post-01.04.2021
The petitioners challenged the notices issued by the Assessing Officers under Section 148 of the Income Tax Act, 1961, for reopening assessments for various assessment years, all issued after 01.04.2021. The core issue was whether the substituted provisions introduced by the Finance Act, 2021, effective from 01.04.2021, could be used for issuing reassessment notices for past years.

The court referred to a previous judgment in "Sudesh Taneja Vs. Income Tax Officer," where it was established that the original provisions were repealed and had no existence after the introduction of the new provisions. The court emphasized that the new scheme under the Finance Act, 2021, significantly changed the time limits for issuing reassessment notices and the procedures under Section 148A, which includes making inquiries and issuing notices to the assessee. There was no indication that the new scheme was intended to apply only post-01.04.2021, and thus, all notices issued after this date had to comply with the new provisions.

The court highlighted that the new Section 149 modifies the time limits for issuing notices, reducing the period to three years under normal circumstances and extending it to ten years for cases involving income escaping assessment amounting to or likely to amount to 50 lakhs or more. The first proviso to Section 149(1) clarifies that no notice under Section 148 shall be issued for assessment years before 01.04.2021 if it was time-barred under the previous provisions. Therefore, any notice issued post-01.04.2021 without following the new procedure under Section 148A was invalid.

Issue 2: Legality and Validity of CBDT Circulars
The second issue was whether the explanations in the CBDT circulars dated 31.03.2021 and 27.04.2021 could save the situation for the revenue. The court noted that while there is a presumption of constitutionality for statutes and delegated legislation, subordinate legislation does not enjoy the same level of immunity as primary legislation. Subordinate legislation must conform to the statute under which it is made and cannot be inconsistent with it or other applicable statutes.

The court found that the CBDT, in issuing the explanations, exceeded its jurisdiction as these explanations attempted to clarify provisions of the Income Tax Act, which was beyond the delegated powers under the Relaxation Act, 2020. The explanations could not alter the statutory provisions, and thus, they were declared unconstitutional and invalid.

Conclusion:
The court concluded that the notices impugned in the respective petitions were invalid and bad in law, quashing and setting them aside. The judgment of the Co-ordinate Bench in the case of "Sudesh Taneja Vs. Income Tax Officer" was fully endorsed, and the same directions were applied mutatis mutandis to the present cases. All writ petitions were allowed, and any pending applications were disposed of.

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