Hopes of thousands of assessees, apparently, end with the invocation of a rarely used Article viz., Article 142 of the Constitution of India. But is this the real story?
The Supreme Court vide order dated 04.05.2022, has decided the hottest tax controversy of 2021 viz., validity of notices issued u/s 148 of the Act between 01.04.2021 to 30.06.2021. The crux of the matter or the interpretation issue of “repeal clause” and “savings clause” and effect of delegated piece of legislation was not even touched upon by the Apex Court. Merely, the views of all the High Courts were accepted by the Apex Court in para 7 of the judgment. On the contrary, the Apex Court, used special powers under Article 142 of the Constitution of India, to save all the notices issued under the old law by deeming the same to be issued under the new law.
Several questions have arisen as a result of the said judgment which is attempted to be deliberated upon in this article. In the meanwhile, the CBDT has come out with an Instruction No. 1/2022 dated 11.05.2022, providing its interpretation of the judgment and the procedures to be followed uniformly going forward. The said instruction, has raised some further questions.
Without spending any time on the nuances of the old law and the new law, let us just briefly recap the controversy in short and then reflect on the judgment of the Apex Court and try and decipher the effects thereof.
Controversy in a nutshell
Vide Finance Bill, 2021, the Finance Minister, proposed changing the entire reassessment provisions with new set of provisions consisting of different jurisdictional requirements, procedures, sanctions etc. Accordingly, the Finance Act, 2021 substituted sections 147, 148,
149 and 151 of the Income-tax Act, 1961 (‘Act’’) respectively with new sections and inserted a new section 148A in the Act. Thus, the entire old scheme of reassessment was repealed and substituted by new provisions vide the Finance Act, 2021, without any savings clause. The intention of the Legislature was well clear that the new reassessment provisions should apply to all reassessments taking place after 1.4.2021.
At the same time, using the powers under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘TOLA’), notification was issued by the Central Government, one on 31.03.2021 and another on 27.04.2021, extending the time limit to issue notice u/s 148 of the Act till 30.06.2021. However, such extension was qualified with an Explanation that such notice has to be issued under the old law as it existed prior to amendment by Finance Act, 2021.
The Tax Department issued notices after 31.03.2021, admittedly under the old law, relying on the notifications so issued. The same were challenged in thousands of writ petitions filed across India. Barring the judgment of the Single Judge of the Chhattisgarh High Court, eight other High Courts, have in one voice, quashed all such notices. The Department had filed Special Leave Petitions in some of the cases and were in the process of filing petitions in other matters.
Judgment of the Supreme Court in short
Without commenting on the main crux of the
controversy, the Apex Court, has used special powers under Article 142 of the Constitution of India, to save all the notices issued under the old law by deeming the same to be issued under the new law. This was a sympathetic view taken by the Apex Court taking into account, mainly the number of notices issued where the Department would become remediless. Further, the Apex Court has held that such view shall modify all the judgments passed by various High Courts on this issue and it shall also govern all the matters pending before various High Courts.
Before delving into the procedures prescribed, it is pertinent to understand Article 142 of the Constitution of India.
Use of Article 142 of the Constitution of India
The title of Article 142 reads “Enforcement of decrees and orders of Supreme Court and orders as to discovery, etc.”. Article 142(1) of the Constitution reads thus:
“The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as isnecessary for doing complete justice in any cause or matter pending before it, and any decree so passed or order so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe.”
Apex Court, can pass such order or decree for doing complete justice. It can be used only in any cause or matter pending before the Court. However, such order or decree can be made enforceable throughout the territory of India, by way of any law made by the Parliament or
by way of any Ordinance promulgated by the Hon’ble President of India. Further, such power is exclusive to the Apex Court.
The powers of the Apex Court under Article 142(1) are undoubtedly, wide. Even the Courts have laid down that the words “for doing complete justice”, cannot be interpreted narrowly. Though, there are judgment of the same Court that Article 142(1) cannot be invoked in a manner so as to be contrary to any provisions of the Statute. In my humble understanding, if the plain interpretation of a statute supports the cause of justice, then there is no need to invoke special powers under Article 142(1), which means, that such power can be invoked only when the plain interpretation of the statute does not lead to justice.
Having said that, in the present controversy, it would be important to understand the following:
- Whether, the decision taken by the Apex Court was necessary to do complete justice in the matter?
- Whether such decision is applicable only qua the cause or matter pending before the Apex Court? Whether such decision of the Apex Court binds everyone, without there being any law made by the Parliament or any Ordinance in this behalf?
Let us discuss, each of the above questions.
Whether, the decision taken by the Apex Court was necessary to do complete justice in the matter?
Article 142(1) is a rarely used section. Especially in the context of Income-tax Act, or for that matter, Tax laws, Article 142(1), is hardly used. A division bench of the Apex Court in case of Prashanti Medical Services & Research Foundation vs. UOI reported in  416 ITR 485 (SC), dealing with the constitutional validity of sub-section (7) of section 35AC of the Act, while dealing with the plea of the assessee trust to invoke Article 142 to allow the donors of the Trust to claim deduction u/s 35AC inspite of sub-section (7), refused to do so. While refusing, the Court held as under:
“First, as held above, in tax matter, neither any equity nor hardship has any role to play while deciding the rights of any taxpayer qua the Revenue; Second, once the action is held in accordance with law and especially in tax matters, the question of invoking powers under Article142 of the Constitution does not arise”
The above findings lay down the approach of the Court in invoking Article 142 in a tax matter. In two income tax matters, the Apex Court invoked Article 142(1). In case of Whirlpool of India Ltd.
v. CIT  245 ITR 3 (SC), the Court, while dealing with allowability of deduction u/s 43B of the Act, in one year or another, on an affidavit filed by the assessee, invoked its power under Article 142 to prevent any technical difficulty to the AO to disallow a deduction, allowed by AO, in the second year, which was allowed by the Apex Court to be claimed in the first year. Also, in other case, in CIT v. Greenworld Corporation  314 ITR 81 (SC), allowed the Department to reopen the assessment, in the peculiar facts of the said case.
In the judgment under consideration dated 04.05.2022, the Court, has given the following reasons for invoking Article 142:
- The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated;
- The entire controversy arose due to a bonafide mistake and in view of subsequent extension of time vide various notifications;
- Invocation of Article 142 will strike a balance between the rights of the Revenue as well as the respective assesses;
- Revenue may not suffer as ultimately it is the public exchequer which would suffer.
Further, the Court has also given a reasoning that as the issue is common and there will be multiplicity of the proceedings and to lessen the burden of the Court, the said judgment would be applicable to modify all judgments of all the High Courts on this issue and that it shall also apply to pending writs.
When, the reasons given by the Court are analysed in light of the discussion made earlier, it may, in my humble opinion, appear that invocation of Article 142 was not appropriate. The said Article can be invoked if the Court feels it is necessary to do complete justice in the matter. Can it be said that by legalising the notices issued u/s 148 of the Act, as deemed to be notices issued u/s 148A of the Act, complete justice has been done. In my humble understanding, “complete justice” would require justice to both the parties, such that some or the other rights of both the parties are compromised but the larger rights are saved. The reason given in para ‘c’ earlier that invocation of Article 142 will strike a balance between the rights of the Revenue as well as the respective assesses is, in my humble opinion, not correct. Certainly, by legalising the notices, the right of the respective assessees to challenge such notice as being illegal, has gone for a toss. Therefore, one may argue, that by invoking Article 142, there is no complete justice.
For the reasons given in para “a” and “b” above, attention is drawn to Article 265 of the Constitution of India, which states that no tax shall be levied and collected except with the authority of law. The notices issued u/s 148 of the Act are without authority as held by various High Courts and as accepted by the Apex Court. Once, that is the case, there is no question of Department being remediless. Article 142, in my humble understanding, cannot be invoked to prevent the object and purpose of reassessment proceedings from being frustrated. Moreover, Article 142 cannot be invoked on account of bonafide mistake on the part of the Revenue Officers. It is very well settled by various judgments of the Apex Court, that equity and tax are strangers, therefore, the Court should be very slow in weighing equity over tax. This, was the precise reason, why the Apex Court refused to invoke Article 142 in case of Prashanti Medical Services & Research Foundation (supra). Both, the judgment in case of Prashant (supra) and the present judgment are by division bench.
At the most, invocation of Article 142 may appear to be appropriate only on account of reasons given in para ‘d’ earlier i.e., public exchequer has suffered. However, the repercussions of this are very grave. Every tax dispute has a bearing or impact on public exchequer. But the said power cannot be used in every case. Every bonafide mistake on the part of the Assessing Officer costs the public exchequer, and therefore, in each and every case, will there be a ground to invoke Article 142? By that logic, the Apex Court ought to have invoked such article in the famous controversy of Vodafone reported in 341 ITR 1(SC) as the tax revenue involved in that case was about Rs. 12000 crores. There are umpteen number of cases, wherein due to jurisdictional defects, various notices and orders have been set aside. In such cases, can the Court invoke Article 142 and legalise something which is patently illegal just because, it has an impact on the public exchequer?
The Apex Court, as a one-time measure, has dispensed with the requirement of making prior inquiry u/s 148A(a) of the Act, before issuing notice u/s 148A(b) of the Act. This is one of the jurisdictional requirements to issue notice u/s 148 of the Act. With utmost respect, it is submitted that, by invoking, Article 142, such mandatory and jurisdictional requirements cannot be dispensed with. Certainly, no assessees would agree for such kind of biased treatment. In fact, requirement for making inquiry was present under the old law as has been brought out by the Apex Court in para 6 of the judgment. Thus, the requirement to make inquiries before issuing notice u/s 148 of the Act is present in the old as well as new law. In such a situation, there cannot be any reason, to dispense with the said requirement.
In my humble opinion, as being portrayed by some people, such judgment cannot and should
not be considered as a precedent in any matter. Its effect should be restricted to the facts of the case. If the Department is not following the jurisdictional conditions laid down in the law, such acts cannot be and should not be cured or condoned by relying on Article 142 of the Constitution of India, only on the ground of bonafide mistake which may cost the public exchequer.
There is another interesting facet to this issue i.e., whether the Apex Court would use Article 142 to do justice to the assessees where due to bonafide mistake, excess amount is offered to tax. We have come across several cases, wherein due to various statutory limitations, an assessee is denied legitimate benefits available under the Act. The remedies available to an assessee under the Act to reduce its income, if erroneously offered to tax, is very limited and the limitation period is also short. In contrast, the Tax Department has wide limitation period to reopen an assessment i.e., ten years from the end of the assessment year as per section 149 of the Act as amended w.e.f. 1.4.2021. In view of the disparity, can, in such cases, where assessee has been taxed on a sum which is not chargeable to tax, the Apex Court invoke Article 142 to do complete justice in as much as, if an income is not taxable at all, under Article 265, no tax can be levied and if any tax is paid by any assessee it has to be refunded?
Whether such decision is applicable only qua the cause or matter pending before the Apex Court? Whether such decision of the Apex Court binds everyone, without there being any law made by the Parliament or any Ordinance in this behalf?
As already seen, Article 142 can be invoked to do justice in any cause or matter pending before the Court. Article 142 cannot be extended to anything beyond the case pending before the Court. Such judgment can be enforced throughout the territory of India either by or under any law made by Parliament or by way of an Ordinance promulgated by the Hon’ble
President. In the fact of the present case, the Apex Court has directed the judgment be made applicable to all the judgments and orders passed by various High Courts on identical issue as well as all the pending writs before the High Courts. Such direction, in my humble opinion and with utmost respect, may not be correct. For such wide directions, either an ordinance or law of the Parliament is necessary.
Moreover, by such directions, the Court has foreclosed the remedy to approach the Apex Court and to request the Court to refer the matter to a larger bench without even hearing the particular assessee. This is especially, where in the judgment is has been stated in para 9 that there was broad consensus between the advocates appearing for both the parties. Thus, in my humble view, such judgment should be applicable only to the cases under consideration before the Apex Court and not to the other assessees.
The Apex Court has, on one hand, held that the orders of the High Courts were right is so far as they held that the new provisions of the reassessment proceedings shall kick in from 01.04.2021, but on the other hand, it also states that High Courts, instead of quashing the notices, should have treated notices issued u/s 148 of the Act, as being issued u/s 148A of the Act. With utmost respect, the Apex Court has invoked the rarely used Article, viz., Article 142 and High Courts have no power to invoke Article 142. Therefore, in my humble opinion, the High Courts could not have done what the Apex Court has done.
Notices deemed under the new law and procedures to be followed:
Having gone through the provisions of Article 142, the bottom line is that the Apex Court has legalised the notice by treating the same as being issued under the new law. The Apex Court has passed the following order:
- The Apex Court has deemed the notices issued u/s 148 of the Act, to be notices issued u/s 148A of the Act, and treated as show cause notices issued u/s 148A(b) of the Act;
- AO has been directed to provide the assessee with the information and material relied upon within 30 days from 04.05.2022 i.e., the date of the judgment;
- Assessee has been given two weeks’ time to reply to the notice, material and information provided;
- Requirement of conducting inquiry, with the prior approval of the specified authority, has been dispensed with, as a one-time measure;
- AO has to thereafter, pass order in terms of section 148A(d) of the Act, as per the Act;
- All the defences available u/s 149 of the Act or under the amended provisions relating to reassessment shall be available to the assessees;
- The said findings and directions of the Apex Court shall substitute and modify the respective judgments passed by High Courts.
Let us deliberate upon the above directions.
Whether applicable to all notices even if not challenged?
First and foremost, it has to be contemplated
whether the findings of the Apex Court are confined to the judgments which were challenged before it and other judgments of the High Courts where similar view is taken, or matters which are pending before the High Courts as on such date? Or does it also, apply to all notices issued after 01.04.2021 irrespective of challenge in a writ jurisdiction.
One view which is prevailing is that the directions and findings of the Apex Court is confined to only such cases where writ remedy has been exercised. There are many places in the order, wherefrom such inference can be drawn and the same are brought out hereunder:
- in para 8, it has been stated that “we propose to modify the judgments and orders passed by the respective High Courts”
- In para 8(i), it has been stated that “respective section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act”
- In para 8(iii), it has been stated that “The assessing officers shall thereafter pass an order in terms of section 148A(d) after following the due procedure as required under section 148A(b) in respect of each of the concernedassessees;”
- In para 8(v), it has been stated that “The present order shall substitute/modify respectivejudgments and orders passed by the respectiveHigh Courts quashing the similar notices issued under unamended section 148 of the IT Act irrespective of whether they have been assailed before this Court or not.”
- In para 9, it has been stated that “Therefore, we have proposed to pass the present order with a view avoiding filing of further appealsbefore this Court and burden this Courtwith approximately 9000 appeals against the similar judgments and orders passed by the various High Courts, the particulars of some of which are referred to hereinabove. We have also proposed to pass the aforesaid order in exercise of our powers under Article 142 of the Constitution of India by holding that the present order shall govern, not onlythe judgments and orders passed by the HighCourt of Judicature at Allahabad, but shallalso be made applicable in respect of the similarjudgments and orders passed by various HighCourts across the country and therefore thepresent order shall be applicable to PANINDIA.”
- In para 10(i), it has been stated that “The section 148 notices issued to the respectiveassessees which were issued under unamended section 148 of the IT Act, which were thesubject matter of writ petitions before thevarious respective High Courts shall be deemed…”
- Para 11 reads thus “The present order shall be applicable PAN INDIA and all judgments andorders passed by different High Courts on theissue and under which similar notices which were issued after 01.04.2021 issued under section 148 of the Act are set aside and shall begoverned by the present order and shall stand modified to the aforesaid extent. The present order is passed in exercise of powers under Article 142 of the Constitution of India so asto avoid any further appeals by the Revenue on the very issue by challenging similar judgments and orders, with a view not to burden this Court with approximately 9000 appeals. We also observe that present order shall also governthe pending writ petitions, pending beforevarious High Courts in which similar notices under Section 148 of the Act issued after 01.04.2021 are under challenge.”
Thus, from the above, it can be noticed that the judgment would apply to the cases, where a writ petition has been filed challenging the notice u/s 148 of the Act. Either such writ petition has been disposed by setting aside such notice, or such writ petition is pending as on the date of the judgment. Consequently, it appears, that such judgment is not applicable to the cases where no writ petition has been filed challenging the notice u/s 148 of the Act. Accordingly, cases where the assessees have continued with the reassessment proceedings and cases where reassessment proceedings have culminated into assessment order and where an appeal has been filed with the Commissioner (Appeals), the same would not be governed by the judgment of the Apex Court.
It is to be borne in mind, that cases before the Apex Court are those cases, where the notices were directly, challenged. It is in such type of case, the Apex Court, invoking Article 142, has laid down the procedure to be followed from such stage. Such procedure cannot be followed, especially in a case, where the assessment proceedings have been completed. In such cases, since the proceedings have been completed under the old law, therefore, one can contend that, the proceedings and notices have to be quashed on the ground that old law has been followed. Similar contention can be raised in cases where the notices have not been challenged in a writ petition and cases are pending at various stages viz., reasons provided, objections filed, objections disposed of etc. In such cases, one can take a plea, that the judgment of the Apex Court is not applicable, as the same is restricted to cases where writ petitions were filed before the Apex Court.
Counter argument can be that the Apex Court has used the words “PAN INDIA” at some places in caps and in bold. However, the same has been used in the context that there are several writs pending before the High Courts across India and that there are several orders of the High Courts across India and that such proceedings or orders would be governed by the judgment of the Apex Court. Moreover, the findings of the Court are typical to cases, where notices have been challenged per se. Also, where no writs have been filed, it is difficult to implement the judgment of the Apex Court, especially in a case, where assessments have been completed. The above arguments are, apart from the issue of Article 142 raised earlier, that to make such judgment enforceable across India, either an Ordinance is required to be promulgated to Act has to be passed by the Parliament.
Of course, the other view is that the judgment shall apply to all cases, including cases where writ remedy has not been exercised. This view is also taken by the Department in para 5.1. of the Instruction No. 1/2022 (supra).
However, in such cases, there would be certain practical difficulties in implementing the procedures laid down. For the AY 2013-14, 2014- 15 and 2015-16, as discussed later, the notices will become time barred. Further, it is to be seen as to how will AO, follow the procedures in following cases:
- where assessment order has been passed;
- where show cause notice has been issued;
- where order disposing objections have been passed as if under the old law
- where reasons have been furnished and objections have been filed.
Will the Department recall the assessment order (for which there is no provision under the Act) if already passed, or in case where the assessment order has not been passed, will it withdraw all the notices issued till date and follow the new process? Though, Instruction No. 1/ 2022 (supra) has been issued, however the same is silent on this aspect.
Procedural aspects regarding issue of notice
The notices issued u/s 148 of the Act, are deemed to be notices issued u/s 148A of the Act, and treated as show cause notices issued u/s 148A(b) of the Act. The entire regime has changed. Whereas, under the old law, the notice u/s 148 is the jurisdictional notice issued after recording reasons and obtaining sanction, under the new regime, notice u/s 148A(b) of the Act, is a show cause notice issued before issuing notice u/s 148 of the Act. Reasons recorded to reopen the assessment under the old regime is now issued to an assessee by way of show cause notice u/s 148A(b) of the Act. An assessee can file reply to the show cause notice, in the same manner as objections to reasons recorded. Thereafter, the AO shall pass an order u/s 148A(d) of the Act similar to order disposing objections.
AO has to provide the assessee with the information and material relied upon within 30 days from 04.05.2022 i.e., the date of the judgment. Such judgment is applicable to all cases, where writ petition has been filed, whether disposed of or not. Thus, in all cases, AO has to issue material and information within 30 days from 04.05.2022 i.e. upto 03.06.2022. The same has been accepted in the Instruction No. 1/2022. Even in a case, where the writ petition may be disposed off after 04.05.2022 or even after 03.06.2022, the AO will have to provide material and information upto 03.06.2022. This, would also be irrespective of any stay granted by any High Court. If such time lines are not followed, in such case, it can be argued that the jurisdictional conditions have not been adhered to and therefore, the proceedings are bad in law. The AO cannot give any excuse in this regard, as the said opportunity of making the notices alive is a onetime opportunity, provided to the AOs by using special power under Article 142 of the Constitution of India.
Assessee has been given two weeks to reply. Under the Act, assessee can be provided time from 7 days to 30 days. But the Apex Court has capped such time period to two weeks. However, in the Instruction No. 1/2022, the Board has clarified that such extended time may be allowed, if the assessee so seeks.
There would be cases, where an assessee would have already filed return of income in response to notice u/s 148 of the Act. As a result, of the judgment under consideration, the said return would now no longer be valid.
Defences available under the new law All the defences u/s 149 of the Act or under the amended provisions relating to reassessment are made available to the assessees. There are various defences, which an assessee can take under the new regime, which were either available under the old regime and also which are special in the new regime. The same are brought out hereunder:
- There should be a conclusive statement that income has escaped assessment and not merely “reason to believe” that income has escaped assessment.
- Change of opinion is not permissible.
- Notices and order are to be issued by Jurisdictional AO
- Cannot reopen for verification purpose/ for making fishing and roving inquiries. There has to be a valid statement that income has escaped assessment.
- Various issues related to issue and service of a valid notice u/s 148 and 148A of the Act like, beyond the time limit, at the wrong address, unsigned notice etc.
- Approval of specified authorities at various stages and after application of mind.
- Prior information with the AO suggesting that the income chargeable to tax has escaped assessment. Such information should one of the prescribed ones viz., either any information flagged with the risk management strategy formulated by the Board or any audit objection that assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.
It is very important to note that the onus to prove that all the jurisdictional conditions have been fulfilled is on the AO.
It is most important to note that a show cause notice u/s 148A(b) of the Act, has to be issued with the prior approval of specified authority as specified u/s 151 of the Act. The approvals under the old and the new law, is tabulated hereunder:
|Old Law||New Law|
|Within 4 years from the end of
|Joint Commissioner||Within 3 years
from the end of
|Principal Commissioner or Principal Director or Commissioner or Director|
|After 4 years from the end of AY||Principal Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner
|After 3 years from the end of
|Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General|
Since, the notices u/s 148 of the Act, have been issued under the old law, therefore, all the notices which were issued for the AY 2013-14 upto AY 2015-16, were either issued with the approval of CIT/ Pr. CIT and notices for AY 2016-17 and 2017-18 were issued with the approval of Jt. CIT/ Addl. CIT. Under the new law, since three years have expired from the end of the AY in respect of all the years, therefore, approval of Pr. Chief Commissioner is required. In none of the cases, approval of Pr. CCIT or Pr. DGIT has been taken.
The Apex Court merely treats the notices u/s 148 to be issued u/s 148A(b) of the Act and at the same time, all the defences of the assessees have been kept open. This therefore, leaves us with the question, has the Apex Court also cured the defect of deemed notice u/s 148A(b) of the Act being issued with the prior approval of specified authority. The answer, in my humble understanding, is no. Court has only dispensed with the prior inquiries u/s 148A(a) of the Act, but has not dealt with the approval of specified authority u/s 148A(b) of the Act. The conclusion of this point is that, all the notices which are deemed to be show cause notices u/s 148A(b) of the Act are issued with the approval of an inferior authority, which is not a specified authority, in which case, the notices shall become bad in law.
An interesting view has been taken by the Board in Instruction No. 1/2022, in this regard. In para 8.1., it has been stated that since the Court has
deemed such notice to be issued u/s 148A(b) of the Act, therefore it is deemed that all the prior requirements have been complied with. The Apex Court has merely dispensed with the requirement of prior inquiry and nothing more. Therefore, this statement of the Board appears to be incorrect.
Moreover, in respect of AY 2016-17 and 2017- 18, the Board has clarified that such notices are issued within three years from the end of the relevant assessment year and therefore, approval would be required of Principal Commissioner or Principal Director or Commissioner or Director. This is apparently, explained in para 6.1 that extension provided by TOLA will allow the extended reassessment notices “to travel back in time” to their original date when such notices were to be issued and the new section 149 of the Act is to be applied at that point. The above clearly defies logic. Firstly, the theory of travel back in time was negated by the High Courts. Secondly, High Courts have also held that TOLA has no application, once the provisions have been substituted with effect from 01.04.2021. In fact, the High Courts have held that TOLA does not apply to AY 2015-16 and subsequent years, as those years were not getting time barred. The said findings of the High Court have not been modified or reversed by the Apex Court. If the notices were to travel back in time before 31.03.2021, the new section 149 could not have applied as the same is not retrospective in nature. Also, the clarification states that the notices would travel back to their original date when such notices were to be issued. But what is the original date. As such, an assessment can be reopened upto 6 years under the old law. Therefore, there is no such original date. The above, it appears, is only a ploy to saves cases, for these years where the conditions of section 149(1)(b) are not getting complied.
Clearly, therefore, AY 2016-17 and AY 2017-18 are reopened beyond three years from the end of the relevant years.
Defence u/s 149(1)(b)
In case where the assessments have been reopened after three years from the end of the relevant AY (i.e. for AY 2013-14 till AY 2017- 18) – various conditions prescribed u/s 149(1)
(b) of the Act has to be fulfilled – i.e. AO has to be in possession of books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year, revealing escapement, more than 50 lakh, in the form of asset.
Thus, cases, where the income escaping assessment is less than Rs. 50 lakhs, the same cannot be reopened and the said fact is accepted by the Board in the Instruction No. 1/2022. However, as specified earlier, the Board has considered AY 2016-17 and 2017-18 to be proceedings within 3 years from the end of the AY and therefore, according to the Board, such cases fall within provisions of section 149(1)(a) of the Act. As already discussed earlier, such view is not in accordance with law.
Inquiry, as a onetime measure, dispensed with
Requirement of conducting inquiry, with the prior approval of the specified authority has been dispensed with as a one-time measure. As already discussed earlier, requirement of conducting inquiry was present under the old law as well as new law. Therefore, ideally it should not have been dispensed with. In any case, such dispensing is stated to be for those notices issued from 01.04.2021 till date. It cannot be till date, as the controversy before the Court is only in respect of notices issued on or after 01.04.2021 and upto 30.06.2021. Thus, where notices have been issued u/s 148(b) of the Act, after 30.06.2021, the Department cannot rely upon the judgment of the Apex Court to say that there was no need to conduct prior inquiries. As is well settled, the judgment of the Apex Court should be read in the context in which the controversy arose.
Amendment vide Finance Act, 2022 whether applicable?
The next issue for consideration is whether, the amended provisions as amended by Finance Act, 2022 would apply to the notices issued u/s 148 of the Act as a consequence of the judgment of the Apex Court. This is especially applicable in context of section 149 of the Act. Scope of reopening has been made wider with amendments in section 149(1)(b) and 149(1A) of the Act.
Notice u/s 148, in consequence of the order of the Apex Court, shall be issued after 01.04.2022. Therefore, the Department can argue, that since the notices are issued after such date, such notices can be issued under the new law which is wider in nature. This appears to be incongruent. Firstly, leeway given to the Department is by way of special powers to not make them remediless. They cannot get benefit of their own wrong, by getting a wider scope. Therefore, it is submitted, that notice, if any to be issued u/s 148 of the Act has to be issued under the law as it existed between 01.04.2021 till 31.03.2022. This stand has been fairly accepted by the Board in the Instruction No. 1/2022.
Notices for AY 2013-14 and 2014-15 Next issue is reassessment proceedings for AY 2013-14 and 2014-15. What the Apex Court has done, is they have merely deemed the notices issued u/s 148 of the Act to be issued u/s 148A(b) of the Act, keeping all contentions open. The respective notices were issued between 01.04.2021 till 30.06.2021. One has to, therefore, test, whether:
- any notice u/s 148A(b) could have been issued in first place, between 01.04.2021 and 30.06.2021 for AY 2013-14 and 2014-15? and
- having issued such notice, can a notice u/s 148 be issued today, as a result of the judgment of the Apex Court?
The last day to issue notice for AY 2013-14 and AY 2014-15 under the old law was 31.03.2021. In so far as AY 2013-14 is concerned, it was 31.03.2020, but by virtue of TOLA, the same was extended to 31.03.2021. At this stage, it would be appropriate to refer to first proviso to section 149(1) of the Act, as amended by Finance Act, 2021. It states that no notice u/s 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 01.04.2021, if such notice could not have been issued at that time on account of being beyond the time limit specified u/s 149(1)(b) of the Act, as they stood immediately before the commencement of the Finance Act, 2021. Thus, if a particular year cannot be reopened under the old law, the same cannot be reopened under the new law. As a result, one of the views, is that assessment of AY 2013-14 and AY 2014-15 cannot be reopened under the new law after 01.04.2021.
However, the problem to this argument is Notification No. 20/2021 dated 31.03.2021 which extends the date to issue notice u/s 148 of the Act to 30.04.2021. By Notification No. 38/2021 dated 27.04.2021, such date is further extended to 30.06.2021. In light of the same, one can argue that, the time limit to issue notice for AY 2013-14 and 2014-15 have been extended till 30.06.2021. Moreover, the explanation in the notification have specifically extended the dates under the old law. Since, the dates have been extended under the old law, therefore, the time barring provisions under the first proviso to section 149(1) of the Act, should not have any implication.
There is a flaw in the above argument. Even if Notification No. 20/2021 dated 31.03.2021 is assumed to be valid as the same was notified prior to 31.03.2021, even then the same does not further the case of the Department. Such Notification seeks to extend the operation of the old sections upto 30.04.2021. However, such sections stand repealed with effect from 01.04.2021, by another legislation i.e., the Finance Act, 2021, as also held by various Courts including the Apex Court. Therefore, such notification will cease to be effective with the unamended provisions of the Act dealing with reassessment ceasing to be operative and it shall pave the way for the new provisions as brought in by the Finance Act, 2021 w.e.f. 1.4.2021. Thus, it is a case of legislation misfiring.
Moreover, the explanation in the Notification stating that such notice had to be issued under the old law, has been quashed and struck down by Delhi, Madras, Calcutta, Bombay and Rajasthan High Court. Such finding of the Courts, have not been modified or reversed by the Apex Court. Once, the explanation in the Notification has been quashed, therefore, one cannot argue, that the extension to issue notice u/s 148 of the Act, was under the old law. As a result, the notice u/s 148 of the Act for the AY 2013-14 and 2014-15 would become time barred.
The second notification i.e., Notification No. 38/2021 was issued on 27.04.2021 when the new sections had already become operative and the old sections were repealed. Thus, without prejudice to the other contentions, Notification No. 38/2021 which extends the validity of the old section till 30.06.2021 was issued when the said sections were not even there on the statute book and therefore, the same cannot further the case of the Department. Moreover, even the explanation in the said notification has been quashed by various High Courts. Viewed from any angle, AY 2013-14 and AY 2014-15 have become time barred.
Lastly, in consequence of the judgment of the Apex Court, a notice u/s 148 will be issued by the Department after 03.05.2022 after disposing the objections to be raised by the assessees. As on today, certainly, no notice u/s 148 can be issued in respect of AY 2013-14 and AY 2014-15 by virtue of first proviso to section 149(1) of the Act. The Department may probably rely on the third proviso to section 149(1) which excludes the period during which time is given to file reply which cannot extend beyond 30 days and the period of stay granted by the Courts if any while computing the limitation period. Since, the High Courts have granted stay to the notices issued u/s 148 of the Act, therefore, such period has to be excluded. The probable reply to the same is as under:
- Stay granted, if any, by the High Court was to the notice u/s 148 of the Act and not to a notice u/s 148A(b) of the Act. The said notice got converted into a notice u/s 148A(b) of the Act, due to invocation of special powers of the Apex Court. Thus, the same cannot therefore, be relied upon to say that notice u/s 148A(b) of the Act was stayed.
- Moreover, there would be various categories of cases like:
- Cases where assessees would have preferred a writ petition challenging the notice u/s 148 of the Act and stay was granted by the High Court immediately;
- Cases where assessees would have preferred a writ petition challenging the notice u/s 148 of the Act, after expiry of certain time or after filing of objections or after disposal of objections. Such writ would have been filed 2-3 months after the receipt of notice u/s 148 of the Act, meaning thereby the stay would not have been immediate; or
- Cases where the High Court would have disposed the petitions before the judgement of the Apex Court and therefore, the stay would have vacated.
In all the above cases, subject to the peculiar facts of each case, it appears, the notice u/s 148 cannot be issued for the AY 2013-14 and AY 2014-15, as the last date to issue such notice would have expired.
If an assessee, has not filed any writ petition challenging the notice, and there is no stay in his case, in such a scenario, AY 2013-14 and AY 2014-15 have certainly become time barred. This is apart from the contention, that the judgment of the Apex Court does not apply to cases where the writ remedy has not been exercised.
The Board in Instruction No. 1/2022 has, in para 6.2, stated that notice u/s 148 of the Act for AY 2013-14 and AY 2014-15 can be issued if the case falls in section 149(1)(b) of the Act. There is no mention about the first proviso to section 149 of the Act. In any case, the Department is of the view that the notices shall travel back to the time of their original date when such notices were to be issued and therefore, the notices for these years are valid. The above issue has already been dealt with earlier.
Notice for AY 2015-16
In some cases, we have seen that for AY 2015-16, since the last day to issue notice u/s 148A and 148 of the Act was 31.03.2022, the Department has issued notice u/s 148A(b) and 148 very recently. This is also in cases, where notice u/s 148 was issued for AY 2015-16 between 01.04.2021 and 30.06.2021. Thus, in such cases, since the old notice gets revived automatically, therefore, the new notice issued has to be dropped, as there cannot be two proceedings for same issues and for same year.
In so far as the old notice, is concerned, one will have to test, whether the same is not time barred, depending upon the peculiar facts of such case.
If an assessee has not challenged the notice issued between 1.4.2021 till 30.06.2021, then as already discussed earlier, such notice even if deemed to be issued u/s 148A(b) of the Act, cannot mean much, as the time limit to issue notice u/s 148 of the Act has already expired.
The Board in Instruction No. 1/2022 has, in para 6.2, stated that notice u/s 148 of the Act for AY 2015-16 can be issued if the case falls in section 149(1)(b) of the Act. There is no mention about the first proviso to section 149 of the Act. In any case, the Department is of the view that the notices shall travel back to the time of their original date when such notices were to be issued and therefore, the notices for these years are valid. The above issue has already been dealt with earlier.
Instruction No. 1/2022
The above instruction only represents the view of the Department about the judgment of the Apex Court. The same is not binding on anyone except the Officers. There are umpteen number of precedents on this issue. Further, the specific stand taken by the Department, has been dealt with under the relevant headings in this article.
Some other pertinent findings qua the new law
While dealing with the controversy, the Apex Court has given certain findings qua the new law. The same are analysed hereunder:
In para 6.3, the Court has specified that, under the old law, the procedure was governed by the judgment in case of GKN Driveshafts (supra). However, the same has been now streamlined and simplified u/s 148A of the Act. This is precisely, what the Bombay High Court has also held in case of Tata Communications Transformation Services Limited vs. ACIT (Writ Petition No.1334 of 2021). In the words of the Bombay High Court, section 148A, in a way codifies the procedure prescribed in the well-known case of the Supreme Court in GKN Driveshafts (India) Ltd. (supra).
In para 6.2, the Apex Court has stated that no notice u/s 148 of the IT Act can be issued without following the procedure prescribed u/s 148A of the IT Act. Along with the notice u/s 148 of the Act, the AO is required to serve the order passed u/s 148A of the IT Act. It is further stated that section 148A of the IT Act is a new provision which is in the nature of a condition precedent. It is humbly submitted that, proviso to section 148A of the Act, specifies the cases, wherein the procedures prescribed u/s 148A of the Act need not be followed like cases where search has been initiated u/s 132 of the Act, or books of account, other documents or any assets are requisitioned u/s 132A of the Act etc. But can one argue, as a result of the judgment of the Apex Court, that in all cases, irrespective of the exceptions given in the proviso to section 148A of the Act, procedures u/s 148A has to be followed as the same, according to the Apex Court, is a condition precedent? It is also well settled that even an obiter of the Apex Court is binding on all.
Next, at several places, it has been stated that inquiry u/s 148A(a) of the Act, is not mandatory. As already discussed earlier, such requirement was present even under the old law. Thus, it is humbly, submitted that such requirement has to be treated as mandatory. It is a settled law, when an AO is acting mechanically on the information supplied by another officer, and without applying his mind to such information, such action of the AO will render the reopening of assessment as invalid. This position continues even under the new regime. This is because, an AO has been mandated to make an inquiry u/s 148A(a) of the Act, before issuing any notice u/s 148 of the Act. Further, as per section 148A(d) of the Act, an Assessing Officer has to decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice u/s 148 of the Act. Thus, simple reliance on the information from outside source would not suffice.
In para 6.5, it has been mentioned that adequate safeguards have been provided and at every stage, prior approval of specified authority is required, even for the purpose of conducting enquiry. The Apex Court has stressed on the various safeguards prescribed under the Act. There are two inferences arising from the same viz., approval before each stage of the specified authority is a condition precedent and a jurisdictional requirement and therefore, any defiance in this regard would be fatal and two, there has to be an application of mind by the approving authority, before granting any such approval. Approval cannot be mechanical in nature and that it has to be granted only after going through the records and documents. In fact, in case where reopening of the assessment is beyond 3 years from the end of the AY, approval has to be given by the Pr. CCIT (the topmost person). Even such officer, has to apply his mind to each and every proposal for reopening the assessment.
In para 8 and 10, the Apex Court has directed the AOs to provide the assessees with document and material on which reliance has been placed to reopen the assessment. This is what has been held by the Bombay High Court in case of Tata Capital Financial Services Limited vs. ACIT  137 taxmann.com 315 (Bombay) under the old regime. Similar view is taken by the Delhi High Court in case of SABH Infrastructure Ltd. v. ACIT  398 ITR 198. Under the new regime, in many cases, the AOs have refused to part with the information and material relied upon by the assessees and have directly passed order u/s 148A(d) of the Act with the comment that such material shall be provided during the course of the re-assessment proceedings. Now, the Apex Court has cleared the air, and such material and documents have to be provided along with the show-cause notice itself.
Some jurisdictional requirements under the old law
Apart from some findings on the new procedures, the Apex Court in para 6, has brought out various challenges made under the old law and the same are as follows:
- no valid “reason to believe”;
- no tangible/reliable material/information in possession of the assessing officer leading to formation of belief that income has escaped assessment;
- no enquiry being conducted by the assessing officer prior to the issuance of notice; and reopening is based on change of opinion of the assessing officer and
- lastly the mandatory procedure laid down by this Court in the case of GKN Driveshafts (India) Ltd., has not been followed.
It can therefore, be argued that the Apex Court has acknowledged that such challenges are permissible under the old law, which shall assist an assessee for the litigation under the old law.
Having discussed the judgment and ramifications, it is clarified that, the same constitutes a humble opinion of the author and the same is, with utmost respect, to the judgment of the Apex Court. As they say, Supreme Court is not supreme because it is infallible, but it is infallible because it is supreme. Everything said and done, parking aside one’s thoughts and views, one has to bow down and accept the judgment of the Apex Court, as it is now the law of the land. This is of course, subject to the possibility of either review petition or an application for reference of the issue to a larger bench. All in all, with all due regards to the assessees in general, a judgment and the consequential instruction, which would give lot of work and food for thought for the lawyers and the CAs.