INTRODUCTION
The Hon’ble Apex Court in its recent judgment[1] put quietus to one of the largely litigated issue on validity of notices issued under section 148 of the Income Tax Act (‘Act’) between the period 01.04.2021 to 30.06.2021. Assessees across the country had challenged the notices issued under un-amended section 148 of the Act, seeking to apply the law on reopeningas it stood prior to 01.04.2021, although from 01.04.2021, law was amended as per Finance Act 2021. On other hand, revenue drew strength from the CBDT notifications[2] dated 31.03.2021 and 27.04.2021 to contend the validity of notices issued. While the Hon’ble Allahabad, Delhi and Madras High Courts went in favour of the assessee, the Hon’ble Chattishgarh High Court went in favour of the revenue. The revenue filed an SLP before the Hon’ble Supreme Court as against the order of the Allahabad High Court. The Hon’ble Supreme Court recently vide its order dated 04.05.2022 in the case of Union of India v. Ashish Agarwal, in CA No.3005 /2022 put a quietus to this much debated issue, which was buzzing across the country.
ANALYSIS OF THE JUDGEMENT OF THE HON’BLE SUPREME COURT
The Hon’ble Apex Court in its order held that it is in complete agreement with the views taken by the Hon’ble High Courts that the notices cannot be issued under the un-amended Act after 01.04.2021. However it further held that that due toa bona fide belief that the amendments have not yet been enforced, the assessing officer haveissued notices u/s148 after 01.04.2021 without following the amended law.It is quite surprising that the Hon’ble Supreme Court felt that the executives are unaware of the date of implementation of a statutory provision passed by the Parliament, duly notified by the Government, which the very Officers are required to execute.
Considering that some leeway must be shown in view of such bona fide belief, the Hon’ble Supreme Court was of the opinion that notices issued under section 148 of the un-amended Act, as those deemed to have been issued section 148A of the Act and the revenue may proceed subject to compliance of all procedural requirements and defences which may be available to the assessees under substituted provisions of section 147 to 151 of the Act.
The order of the Hon’ble Supreme Court may be a matter for a review on various grounds including on its invoking Article 142. The present article focuses on what the assessees may do consequent to the order of the Hon’ble Supreme Court.
CBDT INSTRUCTION:
Pursuant to the above said order of the Hon’ble Supreme Court, the Central Board of Direct Taxes (CBDT) issued Instruction No.1/2022 dated 11.05.2022, in an attempt to clarify the Hon’ble Apex Court’s judgment, the crux of which is summarizedbelow:
For the AYs 2013-14, AY 2014-15 and AY 2015-16, fresh notice under section 148 of the Act can be issued in cases only if the case falls under clause (b) of sub-section (1) of section 149 as amended by the Finance Act, 2021, if the income escaping assessment amounts to or is likely to amount to less than fifty lakh rupees;
For the AYs 16-17. AY 17-18,fresh notice under section 148 can be issued in cases under clause (a) of sub-section (1) of new section 149 of the Act, since they are within the period of three years from the end of the relevant assessment year.
IS CBDT INSTRUCTION IN LINE WITH THE ACT?
The restrictions under section 149 of the Act are in respect of issuance of notice u/s148 of the Act and not in respect of the SCN under section 148A(b) of the Act. Under the amended Act, in view of first proviso to section 149 of the Act, no notice under section 148 could be issued after 31.03.2022 for any AY prior to 01.04.2021, where six years have elapsed from the end of the relevant assessment year on the date of such new notice under section 148 of the Act. But as per the instructions of the CBDT such notices may be issued under section 148 of the Act for the AYs 2013-14 to 2015-16. This is contrary to section 149 of the Act.
The Board also presumes that AYs 2016-17 and 2017-18 as falling within three years, while after 31.03.2022, it has crossed the three years’ time limit. Accordingly, for such AYs, section 149(1)(a) of the Act may not apply, although section 149(1)(b) of the Act could apply, if the case satisfies the conditions provided therein. It appears that the CBDT has read the time limit extended under Taxation and Other Laws (Amendment) Act, 2020 (‘TOLA’)and the subsequent order of the Hon’ble Supreme Court, as extension of time limit for issuance of notice under section 148 of the Act. Such interpretation by the CBDT seems contrary to the TOLA and also not in line with the order of the Hon’ble Apex Court. Probably another round of litigation on time barring could be expected since the CBDT circular gives rise to more questions than answers.
WAY FORWARD AND DEFENCES OF THE ASSESSEES
Pursuant to the order of the Hon’ble Supreme Court and the instructions of the CBDT, the assessing officers may issue reasons recorded for reopening the assessments, in respect of the deemed 148A notices. The assessees amongst others, may take the following defences and object the issuance of notice under section 148 of the Act.
TIME BARRING:
The assessees may contend in their objection that all notices under section 148 of the Act, which may be issued for the assessment years upto AY 15-16, irrespective of the income escaping assessment, and for the years AY 2016-17 to 2018-19 where the escapement of the income amounts to or likely to amount to is less than Rs.50 lakhs are time barred.
Such contention may be raised on the ground that the notices which are proposed to be issued have crossed the period of 6 years from the end of relevant assessment year for assessment years upto AY 2015-16 and therefore are covered by the exception carved out in the first proviso to section 149 of the Act. Similarly the assessees may object that notices for AY 2016-17 to 2018-19 are beyond three years on the date of notices to be issued under section 148 of the Act.
Such contentions of the assessees may be tenable, particularly in view of the fact that the order of the Hon’ble Supreme Court did not extend the statutory time barring period. Hon’ble Supreme Court on the contrary, protected the rights of the assessees holding that the assessees could object on grounds, including the time barring aspect, as per section 149 of the Act.
Although notice under section 148 of the Act could be issued up to ten years from the end of the relevant AY, in view of the first proviso to section 149 of the Act, no notice could be issued beyond six years from the end of the relevant assessment year. The said proviso thus carves out an exception, restricting the time limit. The first proviso is required to be tested only on the basis of date of notice to be issued under section 148 of the Act and not with reference the date of notice under section 148A of the Act.
The third proviso to the said section, provides for exclusion of the time limit or extended time limit allowed to the assessee as per SCN issued u/s148A(b) or the period during which the proceedings u/s148A is stayed by an order (or) injunction of any Court. Therefore it is quite possible that the assessees contend that the third proviso is an independent exception and cannot be read into the first proviso and accordingly notice u/s.148 are timebarred by applying the first proviso to section 149 of the Act.On such interpretation, in respect of all the years upto AY 2015-16, irrespective of the quantum of escapement involved the notices would be time-barred. It is interesting to note that while the fourth proviso to section 149 of the Act refers to the third proviso, making them interdependent, in absence of such reference between first and third proviso, the assessees’ objection that the first and third proviso are independent is fortified.
Further, the assessees may contend that the third proviso to Section 149 of the Act,only seeks to exclude time or extended time allowed by the AO himself or the period of stay by any Court. Theorder of the Hon’ble Supreme Court to treat the earlier notice under old section 148 as a notice u/s148A of the Act, in strict sense, is not an extension of time which would fall within the ambitofthe third proviso.
On the same analysis as above, the assessees may also contend that the notices for AYs 16-17 and AY 17-18 would fall beyond three years and therefore cases with income escaping or likely to escape is less than Rs.50 lakhs are time barred u/s 149(1)(a) of the Act.
OTHER DEFENCES
“Reason to Believe”, “Information which suggest” or ‘”Evidence which Reveal’ are different concepts. Hence reopening on the basis of an inappropriate concept may be objected to.The assessees may seek the ‘evidences’ that may be in possession of the Assessing Officer which ‘reveal’ that income had escaped assessment in appropriate cases.
The assessees may object absence of income escaping the assessment represented in the form of “asset”. Whether the definition of “asset” under the Act is exhaustive or illustrative and whether it only targets specific assets is another possible moot question. In this connection, the effect of prospective amendment in section 149(1)(b) by adding income escaping assessment represented by “entries in the books of accounts” or “in respect of expenditure” in respect of the notices that were challenged in the Writ Petition is another very interesting issue that would arise.
Information not arising out of ‘final audit objection’ or information “which is not flagged” is beyond the scope of reopening for any of the years. It would be necessary for the AOs to show that these conditionsare satisfied where the assessee demands the same. It is also not clear as to what constitutes the “risk management strategy” or whether the same is communicated to the officers from time to time. The effect of amendments removing ‘final’ with reference to audit objections and ‘flagging’ in respect of information by the Finance Act, 2022 w.e.f. 01.04.2022 also will play a vital role in deciding the validity of issuing notice under section 148 of the Act.
The assesses who had not preferred Writ Petitions to challengethe notice issued under un-amended section 148 of the Act between 01.04.2021 and 30.06.2021, may also object that the Supreme Court’s order is applicable only in respect of matters pending before it and which are/were before the Hon’ble High Courts. In view of the same, they may claim that the proceedings are time barred.
CONCLUSION:
Apparently, the notices issued by the department without adhering to the amended provisions and having snatched the legislative powers through the notifications issued under TOLA had caused the entire confusion. The Hon’ble Supreme Court although had granted a second innings to the department had also protected the interests of the assessees, particularly with reference to time barring issue.
However, the present Instruction No.1/2022 dated 11.05.2022 has placed a different interpretation on time limit for issuance of notice leading to the revenue’s claim that the reopening notices could be issued for the years as early as AY 2013-14. This being a binding instruction of the CBDT, the objections of the assessees that may be made as above are only likely to be dismissed. Naturally this would open the gateway for another huge round of litigation.
[1]UOI VS Ashish Agarwal [2022] 286 Taxman 183 (SC)
[2]Notification No. 20/2021, dated 31-3-2021 and Notification No. 38/2021, dated 27-4-2021
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