2022 (1) TMI 742 - HC - Income Tax

Court quashes tax notices, deems explanations ultra vires. Assessing Officers can start new proceedings under amended law.

The court quashed all impugned notices issued under Section 148 of the Income Tax Act and declared Explanations A(a)(ii)/A(b) to the Notifications dated ... Application of substituted provisions from 01.04.2021 - legislative substitution obliterates pre-existing provisions absent a saving clause - ultra vires delegated legislation - non obstante clause limited to saving proceedings already under way - requirement of compliance with newly enacted Section 148A before issuance of reassessment notices - quashing of reassessment notices issued after 31.03.2021 for want of jurisdictionApplication of substituted provisions from 01.04.2021 - legislative substitution obliterates pre-existing provisions absent a saving clause - Whether reassessment notices issued under Section 148 on or after 1st April 2021 must comply with the provisions substituted by the Finance Act, 2021 and not with the pre-existing provisions. - HELD THAT: - The Court adopted the reasoning of the cited High Court decisions that the Finance Act, 2021 effected a legislative substitution of the earlier provisions governing reassessment with effect from 01.04.2021. A substitution operates to omit the earlier provision unless an express saving clause preserves it. In the absence of any express saving, references to issuance of notices after 01.04.2021 must be read as references to the substituted provisions; consequently, reassessment notices issued on or after 01.04.2021 had to be issued in accordance with the law as amended by the Finance Act, 2021 and not under the pre-existing regime.Reassessment notices issued on or after 01.04.2021 must comply with the substituted provisions enacted by the Finance Act, 2021; the pre-existing provisions do not continue to operate absent an express saving.Ultra vires delegated legislation - non obstante clause limited to saving proceedings already under way - Whether Explanations A(a)(ii)/A(b) to the Notifications dated 31.03.2021 and 27.04.2021 (issued under the Relaxation Act, 2020) validly extend the pre existing reassessment provisions beyond 31.03.2021 or are ultra vires the enabling enactment. - HELD THAT: - The Court agreed with the view that the Relaxation Act and the Notifications under it could only extend time limits for proceedings already validly instituted and could not, by delegated legislation, defeat or revive provisions that Parliament had expressly substituted by the Finance Act, 2021. The non obstante language in the Relaxation Act is confined to protecting proceedings already in existence from limitation bars; it does not save or restore pre-existing statutory provisions obliterated by subsequent legislative substitution. Thus the Explanations purporting to extend applicability of the pre-existing reassessment provisions beyond 31.03.2021 exceeded the delegated power and were ultra vires the Relaxation Act, 2020.Explanations A(a)(ii)/A(b) to the Notifications dated 31.03.2021 and 27.04.2021 are ultra vires the Relaxation Act, 2020 and therefore invalid to the extent they purport to extend the pre existing reassessment provisions beyond 31.03.2021.Requirement of compliance with newly enacted Section 148A before issuance of reassessment notices - quashing of reassessment notices issued after 31.03.2021 for want of jurisdiction - Whether reassessment notices under Section 148 issued after 31.03.2021 without observance of the statutory formalities introduced by the Finance Act, 2021 (including Section 148A) are liable to be quashed. - HELD THAT: - The Court held that since the substituted law (including Section 148A) applied from 01.04.2021, issuance of reassessment notices after that date without compliance with the procedural requirements prescribed by the amended statute rendered the notices without jurisdiction. Following the principles and conclusions in the cited authorities, the impugned Section 148 notices issued post 31.03.2021 which did not conform to the amended legal regime were quashed, while leaving the revenue free to initiate fresh proceedings in accordance with the Finance Act, 2021 and after fulfilling required compliances.Impugned reassessment notices under Section 148 issued after 31.03.2021 without compliance with the amended provisions (including Section 148A) are quashed for want of jurisdiction; assessing officers may initiate fresh proceedings in accordance with the Finance Act, 2021 after observing statutory formalities.Final Conclusion: The impugned Explanations in the Notifications dated 31.03.2021 and 27.04.2021 are declared ultra vires the Relaxation Act, 2020 and the reassessment notices issued under Section 148 on or after 01.04.2021 are quashed for failure to comply with the substituted provisions enacted by the Finance Act, 2021; assessing officers remain at liberty to commence reassessment afresh in accordance with the amended statutory regime after fulfilling all legal formalities. Issues Involved1. Validity of impugned notices under Section 148 of the Income Tax Act, 1961 issued post 31st March 2021.2. Compliance with statutory formalities under Section 148A of the Income Tax Act as prescribed by the Finance Act, 2021.3. Ultra vires nature of Explanations A(a)(ii)/A(b) to the Notifications dated 31st March 2021 and 27th April 2021.Issue-wise Detailed Analysis1. Validity of Impugned Notices under Section 148 Post 31st March 2021The petitioners challenged the validity of the impugned notices issued under Section 148 of the Income Tax Act, 1961, arguing that they were barred by limitation and did not comply with the statutory formalities under Section 148A as amended by the Finance Act, 2021. The court observed that the issues involved were covered by the decision of the Division Bench of the Allahabad High Court in 'Ashok Kumar Agarwal vs. Union of India', which held that the old provisions were replaced by the Finance Act, 2021, effective from 1st April 2021. Therefore, any reassessment proceedings initiated after 1st April 2021 must comply with the new provisions.2. Compliance with Statutory Formalities under Section 148AThe court noted that the Finance Act, 2021 introduced new procedural requirements under Section 148A, which must be adhered to before issuing notices under Section 148. The court emphasized that the revenue authorities could only initiate reassessment proceedings post-1st April 2021 in accordance with the substituted law, not the pre-existing laws. The absence of any saving clause meant that the old provisions could not be applied to notices issued after this date.3. Ultra Vires Nature of Explanations A(a)(ii)/A(b) to NotificationsThe petitioners sought a declaration that Explanations A(a)(ii)/A(b) to the Notifications dated 31st March 2021 and 27th April 2021, which extended the applicability of the old provisions, were ultra vires the parent legislation, the Relaxation Act, 2020. The court agreed, citing the Allahabad High Court's reasoning that the Enabling Act did not delegate any power to legislate with respect to the enforceability of any provision of the Finance Act, 2021. The court further noted that the Notifications could not override the principal legislation and were therefore invalid.ConclusionThe court quashed all the impugned notices issued under Section 148 of the Income Tax Act and 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. The court granted liberty to the Assessing Officers to initiate fresh reassessment proceedings in accordance with the relevant provisions of the Act as amended by the Finance Act, 2021, after complying with the necessary formalities.