2022 (1) TMI 742 - HC - Income Tax

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

Bagaria Properties and Investment Pvt. Ltd. & Anr. Versus U.O.I & Ors.

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 ... Validity of reopening of assessment u/s 147 - re-assessment notice issued under the erstwhile section147/148 after 1.4.2001 without following the mandate of new section 148A - Notice as barred by limitation - enforcement of the Enabling Act and the Finance Act, 2021 - scope of provisions of Section 148 read with Section 148A as substituted by Finance Act, 2021 - substituting the provisions of the Act by means of the Finance Act, 2021 with effect from 01.04.2021, the old provisions were omitted from the statute book and replaced by fresh provisions with effect from 01.04.2021 - time limitation existing under the Act had been extended under the Ordinance - relaxation of limitation granted on account of general hardship existing upon the spread of pandemic COVID -19 - as argued respondent Income Tax Authority concerned, before issuing the impugned notices under Section 148 of the Income Tax Act, have not observed the statutory formalities under Section 148 A of the Income Tax Act as prescribed by the Finance Act, 2021 which are applicable with effect from 1st April, 2021 before issuance of notices under Section 148 of the Act on or after 1st April, 2021 - HELD THAT:- As decided in ‘Ashok Kumar Agarwal –vs- Union of India [2021 (10) TMI 697 - ALLAHABAD HIGH COURT], Bpip Infra Private Limited –vs- Income Tax Officer, Ward 4 (1), Jaipur [2021 (12) TMI 207 - RAJASTHAN HIGH COURT] and Man Mohan Kohli –vs- Assistant Commissioner of Income Tax & Anr.[2021 (12) TMI 664 - DELHI HIGH COURT] 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. Keeping in view the aforesaid conclusions, Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are declared to be ultra vires the Relaxation Act, 2020 and are therefore bad in law and null and void. All the impugned notices under Section 148 of the Income Tax Act are quashed with liberty to the Assessing Officers concerned to initiate fresh re-assessment proceedings in accordance with the relevant provisions of the Act as amended by Finance Act, 2021 and after making compliance of the formalities as required by the law. 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.