Draft of Reply to Section 148A(b) Notice considering SC Order

Draft of Reply to Notice under Section 148A(b) of Income Tax Act, 1961 Pursuance to Supreme Court Order in the case of Union of India & Ors. vs. Ashish Agarwal dated 04-05-2022 (Old regime to New regime)

From,
Mr. __________________,
______________________,
______________________,
Date: ___/___/____

To,
The Income Tax Officer – _____,
Kautilya Bhawan, BKC,
Bandra (East), Mumbai – 400 051.

Ref.: PAN No.: ____________
DIN: _________________________
Notice dated __/__/2022 for A.Y. _______

Respected Sir/Madam,

Sub.: Reply to subsequent proceedings with reference to Section 148A(b) in consequence to Hon’ble SC Order dated 04.05.2022

With respect to the above Notice issued, I would like to state as under:

Your honour had issued Notice u/s 148, under Old Regime, dated ___/___/2021 bearing DIN _______________________ pertaining to Asst. Year _________. The said Notice issued under Old Regime was challenged in many High Courts and the Final Ruling was made by the Hon’ble Supreme Court in the case of Union of India & Ors. vs. Ashish Agarwal (Civil Appeal No. 3005/2022, vide order dated 04/05/2022).

Relying on the Directions of the Supreme Court quoted in the said Judgement:

Your honour has construed / treated the said Notice issued u/s 148 dated ___/___/2021 as the Show-Cause Notice in terms of Section 148A(b) of the Act.

Your honour has also provided me with the information which suggest that income has escaped assessment along with the material which is basis of such information as embedded in reasons recorded (based on the law applicable before 01.04.2021) to re-open my case before issuing notice u/s 148 of the I.T. Act. Also, the copies of documentary material relied upon is also provided to me.

Lastly, your honour has mentioned that the information and material relied upon, suggests that the income chargeable to tax represented in the form of asset has escaped assessment, which is amounting to or likely to amount to more than Rupees Fifty Lakhs, for the Asst. Year for the purposes of Sections 148 and 148A of the Act. (Kindly make changes as per Notice received)

The Hon’ble CBDT has issued Instruction No. 01/2022, dated 11.5.2022, containing Guidelines for Implementation of SC Judgement in this case. It has been directed in Para 6.2 of the said Instruction, that the impugned Re-assessment Notices are to be dealt with as under:

(i) AY 2013-14, AY 2014-15 and AY 2015-16: Fresh Notice u/s 148 can be issued in these cases, with the approval of the specified authority, only if the assessing officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of an asset, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more, for that year.

(ii) AY 2016-17, AY 2017-18: Fresh Notice u/s 148 can be issued in these cases, with the approval of the specified authority, since they are within a period of three years from the end of the relevant assessment years.

Supreme Court Judgement vs. CBDT Instruction No. 01/2022, dated 11.5.2022:

A bare perusal of the Hon’ble Supreme Court judgement along with Para 6.2 of the Instruction No. 01/2022, dated 11.5.2022 makes it duly evident and clear that the Instruction is not supported by any factual and legal basis or merits.

This empirical fact is duly evidenced as under:

1. Issue Date of the Notices:

In the SC judgement, it has been clearly stipulated that the actual issuing dates of such impugned reassessment notices, i.e., on or after 1.4.2021, shall be the dates of issuance of such notices and the only relaxation is that now such notices shall be considered as deemed show cause notices under newly inserted section 148A(b) of the Income Tax Act, as per the Finance Act, 2021.

In para numbers 7 and 8 of its judgement, the hon’ble Supreme Court, has clearly held that:

“Thus the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, 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.”

“However, at the same time, the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act. The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated.”

“…….Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defenses, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.”

Thus, it is duly evident and crystal clear from the above categorical observations, directions and the mandate of the hon’ble Supreme Court that the only relaxation which is now being provided is that such impugned re-assessment notices will be deemed to be issued as per the amended and substituted re-assessment provisions of sections 147-151 of the Act, as per the Finance Act, 2021, w.e.f. 1.4.2021, with the consideration of actual dates of issuance of such notices on or after 1.4.2021, as the determining criteria and not some notional or deeming back dates. Surprisingly and interestingly, the CBDT Instruction has allowed such notional dates.

2. Presumption of Applicability of  Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) Extensions:

The Hon’ble Supreme Court in Para No. 8 of its judgement has clearly held that:

“It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 1-4-2021, under the unamended section 148. 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.

Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so. Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defenses, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.”

Thus, it is empirically evident, that the Hon’ble Supreme Court, has considered the reliance of the respective revenue officers, on TOLA extended timelines, as a bonafide mistake, and it is only to provide some sort of leeway to this bonafide mistake of reliance of applicability of TOLA extensions, that the hon’ble Supreme Court has given a second opportunity to the revenue officers, to issue fresh re-assessment notices but subject to a very critical rider and condition that all such fresh notices have to be strictly and compulsorily in compliance and adherence to the substituted re-assessment provisions in sections 147-151 of the Act, including the amended limitation period u/s 149, applicable w.e.f. 1.4.2021.

However, the CBDT Instruction is making the TOLA extended timelines applicable, even in the substituted re-assessment regime, even after the clear and unambiguous contrary directions and the mandate of the hon’ble Supreme Court, in this regard.

Thus, the very basis or edifice of this presumptuous interpretation in the CBDT Instruction, that TOLA Extensions will hold good simultaneously with the amended provisions of section 149 as per the Finance Act 2021, containing the limitation period, has no factual and legal basis or merit.

3. Presumption of Applicability of Substituted Section 149, from Backdate:

Finally, a very convenient presumption has been made in the CBDT Instruction, that the amended limitation period under substituted Section 149 of the Income Tax Act, as per the Finance Act, 2021, which is undisputedly and undeniably applicable w.e.f. 1.4.2021, is to be made applicable from the deeming back dates/ original dates of such impugned re-assessment notices, when the same were supposed to be issued.

Thus, the CBDT Instruction is trying to make the substituted provisions of section 149, as per the Finance Act, 2021, applicable from the dates, falling prior to 1.4.2021, even when the Finance Act, 2021, has not come into force.

However, it is again a matter of fact that the substituted limitation period mandated under the substituted section 149, as per the Finance Act, 2021, applicable w.e.f. 1.4.2021, by no stretch of imagination, can be read into the pre-amended re-assessment regime, applicable uptill 31.3.2021.

Substituted Provisions of Section 149, applicable w.e.f. 01.04.2021, w.r.t. Limitation Period for Issuance of Notices u/s 148:

(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);

(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession 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:

Provided that no notice under section 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:

(Kindly select the Para Relevant to your Assessment Year from below)

Validity of the Notice issued for A.Y. 2013-14 / A.Y. 2014-15:

The First Proviso to Section 149, provides that no Notice u/s 148, can be issued on or after 1.4.2021, in the new reassessment regime, as per Finance Act, 2021, if it could not have been issued on 1.4.2021, in view of the limitation period, as per old regime.

So effectively, it provides grandfathering protection to four A.Y.s 2011-12, 2012-13, 2013-14 and 2014-15 as on 1.4.2021, and as such, no Notice u/s 148 can be issued, for the A.Y.s 2013-14 and 2014-15, on or after 1.4.2021, even if the amount of alleged escaped income, in any of such assessment years is in excess of Rs.50 lakhs.

However, it appears that the applicability of First Proviso to Section 149 of the Income Tax Act, has not at all been taken into consideration and cognizance, in the CBDT Instruction, and as such its interpretation that Fresh Reassessment Notices for A.Y. 2013-14 and A.Y. 2014-15, can be issued u/s 149(1)(b) of the Act, if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in such assessment years, is bad in law.

Validity of the Notice issued for A.Y. 2015-16 (if Income escaped is below Rs.50 lacs):

The First Proviso to Section 149, provides that no Notice u/s 148, can be issued on or after 1.4.2021, in the new reassessment regime, as per Finance Act, 2021, if it could not have been issued on 1.4.2021, in view of the limitation period, as per old regime.

In respect of A.Y. 2015-16, the CBDT interpretation is correct that fresh notice u/s 148 can be issued u/s 149(1)(b) of the Act, only if the alleged escaped income represented in the form of an asset, exceeds Rs.50 lakhs, in the A.Y. 2015-16, and the assessing authority is having in its possession, books of accounts or other documents or evidence, which reveal that such income in the form of an asset, has escaped assessment.

However, it appears that the applicability of First Proviso to Section 149 of the Income Tax Act, has not at all been taken into consideration and cognizance, in the CBDT Instruction, and as such its interpretation that Fresh Reassessment Notices for A.Y. 2015-16, can be issued u/s 149(1)(b) of the Act, if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in such assessment years, is bad in law.

Validity of the Notice issued for A.Y. 2016-17 / A.Y. 2017-18 (if Income escaped is below Rs.50 lacs):

It has been directed in para no. 6.2 of the CBDT Instruction, that the impugned re-assessment notices for A.Y. 2016-17 and A.Y. 2017-18, are to be considered as issued within a period of three years from the end of the relevant assessment year and hence are to be covered in the amended section 149(1)(a) of the Income Tax Act.

It is presumed that such re-assessment notices for A.Y. 2016-17 and A.Y. 2017-18, will travel back in time to their original dates, when these were supposed to be issued, and as such their issuance dates will be deemed as 31.3.2020 and 31.3.2021, respectively, and not their actual issuance dates, which undisputedly are, on or after 1.4.2021. CBDT Instruction, further goes to the extent of presuming, that since the dates 31.3.2020 and 31.3.2021, falls in the period of TOLA extensions, and as such, will be considered as valid dates, even in the amended re-assessment regime, and then the amended limitation period of three years as per section 149(1)(a) is to be applied.

However, as discussed above, the SC judgement has nowhere in its entire judgement, has directed or allowed the fictional concept of impugned re-assessment notices travelling back in time, to their original dates, and as such the actual dates of issuance of such notices, i.e., on or after 1.4.2021, shall have only to be considered, for determining their eligibility criteria, of three years, as per the provisions of amended section 149(1)(a), and clearly, such impugned re-assessment notices for A.Y. 2016-17 and A.Y. 2017-18, issued on or after 1.4.2021, can by no stretch of imagination, be considered as falling within a period of three years from the end of the relevant assessment year.

Accordingly, Fresh Reassessment Notices for A.Y. 2016-17 / A.Y. 2017-18 can be issued only, if the alleged escaped income, represented in the form of an asset, exceeds Rs.50 lakhs, in such assessment year, and the assessing authority is having in its possession, books of accounts or other documents or evidence, which reveal that such income in the form of an asset, has escaped assessment.

(The Below Para should be included only when Information / Material not received from the Department)

Supply of Information and Material relied upon by the Revenue:

As per the order of the Hon’ble Supreme Court, the respective Assessing Officer shall within thirty days from the date of Order provide to the Assessees the Information and Material relied upon by the Revenue so that the Assessees can reply to the notices within two weeks thereafter.

Relevant Case Laws supporting the same:

Shujaat Ali Khan Vs ITO (ITAT Jaipur) [ITA. No. 170/JP/2019]:

The Tribunal held: In Meenakshi Overseas Pvt. Ltd. Delhi HC has held that “the reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act.” Accordingly, in present case it is held that the assumption of jurisdiction and initiation of the proceedings under Section 147 of the Act to reopen the assessment proceedings does not satisfy the requirement of law and is hereby set-aside.

Technicon Holdings Pvt. Ltd, Vs. ACIT, Circle-25(1) (ITAT New Delhi) [ITA No. 465/Del/2019 (Assessment Year: 2010-11)]:

The Delhi bench of the ITAT comprising Shri R. K. Panda, Accountant Member and Shri N. K. Choudhry, Judicial Member has held that the re-assessment under section 147 and 148 of the Income Tax Act, 1961 cannot be held valid in the absence of an independent inquiry by the Assessing Officer who merely relied on the information received from the investigation wing to conclude the proceedings.

So only providing information is not sufficient and provision of tangible material based on which the AO has framed opinion is also required to be provided. Not providing the same makes the proceedings bad in law.

In view of the above, I say that, your above referred notice dated ___/___/2022 as well as notice dated ___/___/2021 (Original 148 Notice), is bad, illegal and void and without jurisdiction.

However, under protest and without prejudice, I hereby submit my reply to the Deemed Notice u/s 148A(b) as under:
 Basis of forming reason to believe and details of escapement of income:
Our Scrutiny was selected on the ground that ___________________________________________________________________________________________________________________.

 Our response to the aforesaid reason is as under:
1. ____________________________:

2. _____________________________:

I hope the above details fulfill your requirements and are sufficient enough to consider a fit case for dropping the re-opening of case u/s 148.

In case you require any further information/clarification in this regard, I shall be glad to furnish the same and for furnishing the same, kindly grant me an opportunity of 7 (seven) days.

Thanking You,
Yours Faithfully,
Sd/-
Mr. ______________
Encl.: As above.