Invalidity of Income Tax reassessment notices under Section 148 post Finance Act, 2021

The court held that reassessment notices issued under Section 148 of the Income Tax Act after the Finance Act, 2021, must comply with the new provisions introduced. Notices issued without following the new procedures were deemed invalid. Additionally, the explanations in CBDT circulars were found to be unconstitutional and unable to save the validity of the notices. Following the precedent set in a previous case, the court quashed the impugned notices, allowing all writ petitions and disposing of pending applications.

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Issues Involved:
1. Validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961, after the introduction of new 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.

Issue-wise Detailed Analysis:

1. Validity of reassessment notices issued under Section 148 after the Finance Act, 2021:

The petitioners challenged the reassessment notices issued by the Assessing Officers under Section 148 of the Income Tax Act, 1961, for various assessment years. These notices were issued after 01.04.2021 but pertained to periods before this date. The core issue was whether the new provisions for reassessment introduced by the Finance Act, 2021, effective from 01.04.2021, could be used for issuing such notices for past years.

The court referred to a previous judgment in "Sudesh Tanesh Vs. Income Tax Officer," where it was observed that the original provisions, upon their substitution, stood repealed and had no existence after the introduction of the new provisions. The court noted significant changes in the reassessment scheme under the Finance Act, 2021, such as altered time limits for issuing notices and the introduction of Section 148A, which mandated a preliminary inquiry before issuing a notice under Section 148.

The court concluded that all notices issued after 01.04.2021 had to comply with the new provisions. It emphasized that there was no indication in the statutory scheme suggesting that the old provisions would continue to apply for periods before the substitution. The court highlighted that the first proviso to Section 149(1) clearly restricted the issuance of notices for past assessment years if they were time-barred under the old provisions. Therefore, the court held that the notices issued in the present cases, which did not follow the procedure under Section 148A, were invalid.

2. Legality and validity of the explanations in CBDT circulars dated 31.03.2021 and 27.04.2021:

The second issue was whether the explanations in the CBDT circulars could save the reassessment notices. The court noted the principle of presumption of constitutionality of statutes and subordinate legislation but emphasized that subordinate legislation does not enjoy the same level of immunity as plenary legislation. Subordinate legislation can be challenged on grounds such as inconsistency with the parent statute or being manifestly arbitrary.

The court examined the Relaxation Act, 2020, which allowed the Central Government to extend time limits for actions and compliances. However, the court found that the explanations in the CBDT circulars, which purported to clarify the applicability of old provisions for issuing notices under Section 148, exceeded the jurisdiction of subordinate legislation. The court held that these explanations could not alter the statutory provisions and were therefore unconstitutional and invalid.

The court also referred to similar views taken by the Allahabad and Delhi High Courts and disagreed with the contrary view of the Chhattisgarh High Court, which had upheld the validity of the notices based on the CBDT circulars.

Conclusion:

The court agreed with the judgment in "Sudesh Tanesh Vs. Income Tax Officer" and found the reassessment notices impugned in the respective petitions to be invalid and bad in law. Consequently, the court quashed and set aside these notices, applying the directions from the Sudesh Tanesh case mutatis mutandis to the present cases. All writ petitions were allowed, and any pending applications were disposed of. The registry was directed to place a copy of this order in other connected petitions.

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