Section 148 and 148A(d) notices quashed as time-barred; six-year limit under unamended Section 149(1)(b) preserved

The HC held the reassessment notices under section 148 and the orders under section 148A(d) to be time-barred for the relevant assessment years (AY 2013-14 and AY 2014-15) and quashed them. The court ruled the TOLA Act and departmental notifications could not extend the six-year limitation under the unamended section 149(1)(b) after substitution by the Finance Act, 2021, and that the Finance Act's first proviso preserves the pre-amendment six-year bar. Reliance on delegated notifications was rejected; other legal and factual defenses were left open.

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Issues Involved:

1. Whether the notices issued under Section 148 of the Income Tax Act for the Assessment Years 2013-14 and 2014-15 are barred by limitation.
2. The applicability and interpretation of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal.
3. The validity and applicability of the notifications issued by CBDT extending the time limit for issuance of notices under Section 148.
4. The impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on the limitation period for the issuance of notices under Section 148.
5. The binding nature and interpretation of CBDT Instruction No. 1/2022 dated 11.05.2022.

Issue-wise Detailed Analysis:

1. Whether the notices issued under Section 148 of the Income Tax Act for the Assessment Years 2013-14 and 2014-15 are barred by limitation:

The Court held that as per the first proviso to Section 149(1) of the Finance Act, 2021, no notice under Section 148 shall be issued if the time limit specified under the unamended provision had expired. For Assessment Year 2013-14, the six-year period ended on 31.03.2020, and for Assessment Year 2014-15, it ended on 31.03.2021. Since the notices were issued after these dates, they are barred by limitation.

2. The applicability and interpretation of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal:

The Court noted that the Supreme Court, in the case of Union of India vs. Ashish Agarwal, directed that the notices issued under Section 148 between 01.04.2021 and 30.06.2021 shall be deemed to have been issued under Section 148A(b) of the Act as substituted by the Finance Act, 2021. However, the Supreme Court also kept all defenses available to the assessee under Section 149 open. Thus, the limitation period prescribed under the first proviso to Section 149(1) cannot be ignored.

3. The validity and applicability of the notifications issued by CBDT extending the time limit for issuance of notices under Section 148:

The Court held that the notifications dated 31.03.2021 and 27.04.2021 issued by CBDT, extending the time limit for issuance of notices under Section 148, cannot override the legislative mandate of the first proviso to Section 149(1). These notifications were applicable only to the unamended provisions and cannot extend the time limit prescribed under the amended provisions effective from 01.04.2021.

4. The impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) on the limitation period for the issuance of notices under Section 148:

The Court held that while TOLA extended the time limit for issuance of notices under the unamended provisions, it cannot extend the time limit prescribed under the amended first proviso to Section 149(1). The amended provisions of Section 149, which came into force on 01.04.2021, do not permit the issuance of notices if they were barred by limitation under the unamended provisions.

5. The binding nature and interpretation of CBDT Instruction No. 1/2022 dated 11.05.2022:

The Court held that the instructions issued by CBDT are binding on the departmental authorities but not on the courts or the assessees. The interpretation adopted by the revenue in the said instruction, which allows the notices to travel back in time to their original date, is erroneous and not legally tenable. The notices must pass the limitation test as laid down in the first proviso to Section 149 of the Act.

Conclusion:

The Court held that the notices issued under Section 148 of the Income Tax Act for the Assessment Years 2013-14 and 2014-15 are barred by limitation as per the first proviso to Section 149(1) of the Finance Act, 2021. The petitions were allowed, and the notices under Section 148 and the orders under Section 148A(d) were quashed and set aside on the ground of limitation.

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