The controversies with respect to reassessment notice issued post 31-03-2021 for the AY 2013-14 & AY 2014-15 were expected to settle after the Hon’ble Supreme Court’s decision in the case of Union of India vs Ashish Agarwal (2022) 138 taxmann.com 64. However, in reality, the decision has left ample questions unanswered. In addition, CBDT instruction no. 01/2022 have opened up a new bone of contention, by overruling the interpretation of the Hon’ble Supreme Court decision. Pursuant to that, the assessees are flooded with the show cause notices u/s 148A(b). This article aims to give you the summarised approach to the reply to the notice issued u/s 148A(b) after the Hon’ble Supreme Court’s decision for the aforesaid AYs. In brief, the Apex Court, in UOI v. Ashish Agarwal (supra) held that:
i) The Apex Court affirmed the view of various High Courts that notice u/s 148 under the old provisions [i.e. prior to the introduction of section 148A] could not be issued.
ii) The notices already issued as per old law after the introduction of the new mechanism shall be deemed to be issued u/s 148A(b).
iii) AO shall provide the Assessee with the material and reasons basis which AO proposed to reassess the income escaped and Assessee to respond to it within 15 days.
iv) After receipt of the objections, the AO shall dispose of the objections raised by the Assessee and accordingly decide whether it is a fit case for the issue of notice u/s 148. Where it is a fit case, notice u/s 148 shall be issued along with the order u/s 148A(d).
v) All the defences and rights available to the Assessee under the newly amended section 149(1) shall be available against such notices.
In this article, the discussion will be in two parts. First being notice issued for AY 2013-14 and AY 2014-15, second being for notices issued with respect to AY 2015-16 and onwards. A perusal of the above would exhibit that the CBDT while treating the notice u/s 148 as a show-cause notice u/s 148A(b) of the Act has completely ignored the substituted provisions of section 149 of the Act.
A. First part – Potential arguments that can be raised with respect to challenging the constitutional validity of the notice issued u/s 148A for the AY 2013-14 & AY 2014-15.
- Challenging the notice, since it is time barring:
Para 8 of the SC Hon’ble SC decision has safeguarded the interest of the Assessee that all the defences which may be available to the assessee under section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021 are kept open and/or shall continue to be available;
If we refer to the first proviso to the amended section 149 of the Act the which says that –
“no notice u/s 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021”.
Further, as per the erstwhile provisions of section 149 of the Act, the time barring date to issue the notice u/s 148 of the Act for the AY 2013-14 and AY 2014-15 was 31st March 2021, thereafter no notice could have been issued as the amended proviso to section 149 of the Act clarifies the position of the law that no notice can be issued after 1st April 2021, if it could not be issued as per the provisions stood immediately before the commencement of the Finance Act, 2021.
However, CBDT instruction no. 01/2022 has extended the interpretation of the Order and ultra-virus first proviso to section 149(1)(b) of the Act by providing the jurisdictional validity to the notices issued for the AY 2013-14 and AY 2014-15 by stating in para 6.1 that –
“Hon’ble Supreme Court has upheld the views of the High Courts that the benefit of new law shall be made available even in respect of proceedings relating to past assessment years. Decision of the Hon’ble Supreme Court read with the time extension provided by TOLA will allow extended reassessment notices to travel back in time to their original date when such notices were to be issued and then new section 149 of the Act is to be applied at that point.”
Now the question arises can the CBDT instruction override the SC decision, with regards to the same attention is invited to the decision of Kerala High Court in case of K.V. Produce. v. CIT (1992) 196 ITR 293 (Ker) held that “Though circulars issued under section 119 of the Income-tax Act, may have the force of law, they may not override the law itself. Concepts like “ultra vires” would come into play if a notification or a rule runs derogatory to the parent law.”
Further, section 119 of the Act, gives the power to the board to issue instruction and direction to the income-tax authorities, the same cannot be used to give a judicial interpretation of any law, whether statutory or a judge made law. Thus, in general, instruction cannot override judicial decisions rendered for interpretation of the statute. The same was held by the Hon’ble Delhi High Court in case of Geep Industrial Syndicate Vs. CBDT (1987) 166 ITR 88 (Del)
Attention can also be drawn to the CBDT instruction no. 225/135/2021 dated 10th December 2021, which dwells into the aspect of what constitutes the information for the purposes of formulating the Risk Management System (RMS) for the issue of notice under the amended section 148 of the Act. Interestingly the instruction categorically directs the AO to identify the cases pertaining from AY 2015-16 to AY 2018-19 which fall within the ambit of RMS as mentioned therein. Therefore, it can be inferred that the CBDT itself never intended to reopen the cases prior to AY 2015-16.
The respective High Courts have held that “the revenue cannot use the administrative power to issue notifications under section 3(1) of the TOLA Act, 2020 to undermine the expression of the Parliamentary supremacy in the form of an Act of the Parliament, namely, the Finance Act, 2021. Also, the revenue cannot frustrate the purpose of substituted statutory provisions, like sections 147 to 151 in the present instance, by emptying it of content or impending or postponing their effectual operation.
The Hon’ble Supreme Court in para 7 of the order has held that “the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021. We are in complete agreement with the view taken by the various High Courts in holding so.”
Further at para 8 with regards to the validity of the notices issued under the unamended law, it was held that “In our view, the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021. There appears to be genuine non-application of the amendments as the officers of the Revenue may have been under a bonafide belief that the amendments may not yet have been enforced”
The Hon’ble Supreme Court has not mentioned the extension of the time limit under section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act and has upheld the decision of the respective High Courts decision.
The original provisions of reassessment upon their substitution stood repealed for all purposes and had no existence after the introduction of the substituting provisions. In this regard reference can be drawn to Section 6 of the General Clauses Act, 1897
The same was highlighted by the Rajasthan High court in the case of Sudesh Taneja [2022] 135 taxmann.com 5
- Faceless Procedure
The CBDT has vide notification no. 18/2022 dated 29th March 2022 notified the faceless reassessment scheme with effect from 29th March 2022.
On perusal of the scope of the faceless reassessment scheme, it can be concluded that from 29th March 2022, the show-cause notice u/s 148A(b) should have been issued only by the National Faceless Assessment Centre (“NFAC”) and not by the Jurisdictional Assessing Officer (“JAO”). Therefore, a possible view is that show cause notice issued by any authority other than NFAC is liable to be quashed.
Reliance for the same is placed on the Ahmedabad Tribunal in the case of ACIT vs. Resham Petrotech Ltd (2021) (21 taxmann.com 161) wherein it has been held that notice u/s 148 of the Act can be issued only by the AO having jurisdiction over the Assessee. Notice issued by any other officer will be invalid and vitiate the entire proceedings.
Post 29.03.2022, the jurisdiction would lie with NFAC, and hence the issuance of show cause notice by NFAC is a mandatory requirement. And in the absence of the same, the entire proceedings will become void ab initio.
Second part – Challenging the notices issued for the AY 2015-16 onwards:
If the Income escaped assessment is below 50 Lakhs
Time limit
For income escaping assessment is below 50 lakhs, it is vital to refer to section 149(1), which says: (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b)
The cases beyond 3 years can be reopened only if the income escaped assessment is more than 50 Lakhs. Here, the benefit of the first proviso to section 149 of the Act will not sustain. Considering a case of AY 2016-17, the time barring date under the old law to reopen the case is on 31st March 2023. Thus, one has to be cautious with regards to the usage of the particular proviso.
Faceless procedure
As mentioned above, if the notice has been issued by the Jurisdictional Assessing Officer then a valid argument can be taken as discussed above for the AY 2013-14 and AY 2015-16, a similar argument can sustain.
If the Income escaped assessment is above 50 Lakhs
For the cases pertaining to AY 2016-17 and onwards, where income escaped assessment is more than 50 lakhs it would be difficult to challenge on time barring ground. As under the old law, the cases could be reopened on or after 1st April 2021.
Thus in such cases, it would be in the interest of the assessee if he challenges on the following grounds:
> Issue of notice by the jurisdictional officer;
> Reasons recorded based on the borrowed satisfaction;1
> Information and material provided are not as per the CBDT instruction no. 225/135/2021 dated 10th December 2021
Author Bio
the notice issued under the erstwhile section 148 were time barred in respect to year 2013-14,2014-15, however supreme court had deemed them to be issued u/s 148A.the time limit is specified u/s 149(1) states that notice should not be issued before section 1.4.21 for earlier years . but by deeming that issued notice is valid has it overridden the time limit for those notices extending them upto 30-06-21 ???