The Conundrum Surrounding The Limitation Period For Issuance of Reassessment Notices Under The Income Tax Act, 1961
Mohit Sharma
Introduction:
The scope of reopening assessments under the Income Tax Act, 1961 (IT Act) remains unclear, despite several reformative changes introduced by the Parliament through the Finance Act, 2021. Reassessment is a powerful tool in the arsenal of the IT Department, empowering the Assessing Officers to assess, reassess, or recompute income that the Assessing Officer has reason to believe has escaped assessment. Numerous complex issues arise during the reassessment proceedings, such as the time limit for issuing of a notice and the requirement for prior sanction. Despite guidelines provided by the Hon’ble Supreme Court, the position remains ambiguous.
One such controversy is regarding the validity of reassessment notices for the Assessment Year (AY) 2013-14 and 2014-15, that were issued between 01.04.2021 and 30.06.2021, i.e. after the Finance Act, 2021 amended the assessment and reassessment procedure. The Hon’ble Supreme Court tried to settle the controversy in Union of India Vs. Ashish Agarwal[1], by ruling that all such reassessment notices issued under the erstwhile Section 148 of the IT Act (unamended by the Finance Act, 2021) should be deemed to have been issued under Section 148A of the IT Act, as substituted by the Finance Act, 2021, and should be treated as show-cause notices according to Section 148A(b).
However, the Hon’ble Supreme Court has failed to clarify whether the reassessment proceedings initiated with the notice under Section 148 of the IT Act (deemed to be notice under Section 148-A), issued between 01.04.2021 and 30.06.2021, can be conducted by the Assessment Officers by availing relaxation/extension of time period under the Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020 (TOLA). Furthermore, whether for computation of time limit prescribed under Section 149(1)(b) of the IT Act (as substituted w.e.f. 01.04.2021) the relaxation under TOLA is to be included.
The IT Department seems to claim, as a matter of right, the authority to reopen assessments without appreciating the true intent behind the judgment of the Hon’ble Supreme Court in Ashish Agarwal (supra). The IT Department has issued several fresh reassessment notices to assessees under the substituted Section 148 of the IT Act for the AY 2013-14 and 2014-15, without considering the period of limitation prescribed by the substituted Section 149 of the IT Act. These reassessment notices were challenged before various High Courts, leading to divergent views.
Factual Background:
Erstwhile law for making re-assessment under the Income Tax Act, 1961:
Prior to the enforcement of the Finance Act, 2021, the provisions governing re-assessment under the IT Act were regulated by the erstwhile Sections 147, 148, 149, read with Sections 150, 151, 152, and 153 of the IT Act. Under the previous regime, the jurisdiction to reassess an assessee would arise when the jurisdictional Assessing Officer had a reason to believe that any income chargeable to tax had escaped assessment for any AY. Subsequently, subject to the limitation period as specified in Section 149 of the IT Act and prior sanction (if applicable), the Assessing Officer would assume jurisdiction to reassess the assessee by issuing a notice under Section 148 of the IT Act.
It is relevant to note that under the erstwhile regime there were no inherent statutory safeguards in form of conducting an inquiry and providing an opportunity to the assessee before issue of notice under Section 148 of the IT Act. To address these statutory gaps the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officers & Ors. (2003) 1 SCC 72, held that when a notice under Section 148 of the IT Act is issued, the proper course of action for the noticee is to file a return and, if desired, seek reasons for the issuance of such notice. The assessing officer is therefore obligated to provide reasons within a reasonable time, and upon receiving the reasons, the noticee is entitled to file objections to the notice. Thereafter, the assessing officer must dispose of the objections by passing a speaking order.
Hence, inherent safeguards were read into Section 148 of the IT Act, mandating the assessing officer to furnish reasons, allowing the assessee to file objections thereby granting the assessee an opportunity to be heard, and requiring the assessing officer to dispose of those objections through a speaking order before proceeding with a notice under Section 148 of the IT Act.
Besides the aforementioned safeguards, another crucial aspect for initiating re-assessment proceedings against an assessee is the strict adherence to the time limit for issuing a notice under Section 148 of the IT Act. No notice under Section 148 can be issued for the relevant AY if it exceeds the time limit prescribed in Section 149 of the IT Act. As per Section 149(1), the time limit to issue a notice under Section 148 is four years from the end of the relevant AY when the escaped assessment amount is less than Rs. 1 lakh, and six years from the end of the relevant AY when the escaped assessment amount is more than Rs. 1 lakh.
Therefore, for the AY 2013-14 and 2014-15, where the escaped assessment amount is more than Rs. 1 lakh, the limitation period to initiate re-assessment proceedings by issuing a notice under Section 148 of the IT Act expired on 31.03.2020 and 31.03.2021, respectively.
Enactment of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020:
However, in March 2020, the COVID-19 pandemic led to the enforcement of a lockdown, severely affecting the normal functioning of the Government and other institutions. In light of these circumstances, the Hon’ble Supreme Court intervened and relaxed the rules of limitation for instituting various proceedings. Recognizing the difficulties faced by various institutions, the Central Government enacted the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. TOLA provided for relaxation and amendment of provisions in specified acts, including the IT Act as mentioned in Section 2(1)(b) of TOLA.
In accordance with Section 3 of TOLA, if a time limit for the completion or compliance of any action, such as proceedings, orders, notices, etc., falls during the period from 20.03.2020 to 31.12.2020 or any date after 31.12.2020 (COVID-19 period), the time limit is extended to 31.03.2021 or any date specified by the Central Government through notification. In essence, TOLA empowers the Central Government to extend the time for completing actions and proceedings under the IT Act beyond 31.03.2021.
In exercise of the power conferred by Section 3 of TOLA, the Central Government issued various notifications, extending the time limit prescribed under Section 149 of the IT Act for issuing re-assessment notices. According to the latest notification dated 27.04.2021 issued in this regard, the limitation period to initiate re-assessment proceedings by issuing a notice under Section 148 of the IT Act for the AY 2013-14 and 2014-15 was extended till 30.06.2021.
Changes introduced by the Finance Act, 2021:
Meanwhile, the Parliament introduced several reformative changes to the provisions governing reassessment proceedings by way of the Finance Act, 2021, which was passed on 28.03.2021 and became effective from 01.04.2021. The new regime introduced by the Finance Act, 2021, marks a paradigm shift in the re-assessment proceedings from the earlier regime.
A notable addition made by the Parliament is the inclusion of Section 148A in the IT Act, which serves as a statutory safeguard. According to this provision, no notice under Section 148 of the IT Act can be issued unless the assessing officer passes an order under Section 148A(d) of the IT Act. Section 148A acts as a condition precedent, aiming to simplify tax administration, facilitate compliance, and reduce litigation.
Additionally, the Parliament has revised the time limit for issuing a notice under Section 148 of the IT Act. In general cases, the time limit has been reduced to three years, with exceptions where it can extend up to ten years. However, the first proviso to Section 149(1) specifies that for cases where AY is falling before 01.04.2021, the assessing officer must adhere to the timelines prescribed under the erstwhile Section 149 of the IT Act and not the period extended by TOLA. As a result, for the AY 2013-14 and 2014-15, the limitation period to initiate re-assessment proceedings by issuing a notice under the substituted Section 148 of the IT Act is six years from the end of the relevant AY.
Issuance of re-assessment notices post 01.04.2021 under the erstwhile regime:
Despite the enactment of the substituted Sections 147 to 151 of the IT Act through the Finance Act, 2021, which came into effect on 01.04.2021, the IT Department proceeded to issue re-assessment notices to various assessees under the erstwhile Sections 148 to 151 of the IT Act. They relied on the Notifications issued under Section 3(1) of TOLA to support their actions.
These reassessment notices became the subject of writ petitions filed before different High Courts. In response, the respective High Courts have ruled that all such reassessment notices issued under the erstwhile Sections 148 to 151 of the IT Act, on or after 01.04.2021 are legally invalid. This is because the re-assessment notices issued on or after 01.04.2021 should have been governed by the substituted Sections 147 to 151 of the IT Act, introduced by the Finance Act, 2021. As a result, the respective High Courts have set aside all re-assessment notices issued under the erstwhile Section 148 of the IT Act.
Law laid down by the Hon’ble Supreme Court in Union of India Vs. Ashish Agarwal:
Feeling dissatisfied with the decisions of various High Courts, the IT Department appealed to the Hon’ble Supreme Court against the nullification of the notices issued under the erstwhile Section 148 of the IT Act.
The Hon’ble Supreme Court by its Judgment dated 04.05.2022 in Union of India Vs. Ashish Agarwal allowed the Special Leave Petitions filed by the IT Department and held that the new provisions substituted by the Finance Act, 2021 are remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee. As a result, the benefit of such new provisions shall be made available even in respect of the proceedings relating to past AYs.
Therefore, the Hon’ble Supreme Court held that re-assessment notices issued under the erstwhile Section 148 of the IT Act should be deemed to have been issued under Section 148A of the IT Act, as substituted by the Finance Act, 2021. Such notices are to be treated as show-cause notices in accordance with Section 148A(b) of the IT Act. Additionally, the requirement of conducting any inquiry with prior approval from the specified authority, as stated in Section 148A(a), is waived as a one-time measure for these notices. Consequently, all reassessment notices issued after 01.04.2021 under the erstwhile Sections 148 to 151 of the IT Act were validated as show-cause notices under Section 148A(b).
In pursuance of the Judgment of the Hon’ble Supreme Court, the Central Board of Direct Taxes issued a Circular/Instruction bearing No. 01/2022, dated 11.05.2022, outlining the procedure to be followed in cases where notices were issued under the erstwhile Section 148 of the IT Act.
The controversy surrounding the issuance of fresh reassessment notices:
In pursuance of the Judgment of the Hon’ble Supreme Court and the CBDT Circular/Instruction dated 11.05.2022, the IT Department/Revenue sought a reply from all such assessees to whom extended reassessment notices were issued under the old law and such reassessment notices were subsequently converted to notices under Section 148A(b) of the IT Act by the Hon’ble Supreme Court. Post considering the reply filed by such assesses (if any), the IT Department/Revenue passed an order under Section 148A(d) and issued fresh reassessment notices to all such assesses under the substituted Section 148 of the IT Act.
The fresh re-assessment notices were issued without considering the amended limitation period of six years in terms of the substituted Section 149 of the IT Act. Therefore, various writ petitions have been filed before several High Courts challenging the orders passed by the IT Department under Section 148A(d) of the IT Act as well as the consequent fresh reassessment notices issued under the substituted Section 148 of the IT Act.
In one of such writs the Hon’ble Delhi High Court in Touchstone Holdings Pvt. Ltd. Vs. ITO, Delhi[2] has held that the re-assessment notices issued between 01.04.2021 and 30.06.2021 i.e. within the extended period of limitation in terms of TOLA are not time-barred. Such re-assessment notices are within the period of limitation in terms of Section 149 of the IT Act, as amended by the Finance Act, 2021.
However, the Allahabad High Court in Rajeev Bansal Vs. UOI & Ors.[3] has held that reassessment proceedings initiated with the notice under Section 148 (deemed to be notice under Section 148-A), issued between 01.04.2021 and 30.06.2021, cannot be conducted by giving benefit of relaxation/extension under TOLA, and the time limit prescribed in Section 149(1)(b) (as substituted w.e.f. 01.04.2021) cannot be counted by giving such relaxation from 30.03.2020 onwards to the revenue. Thus, all reassessment notices for the AY 2013-14 and AY 2014-15, issued between 01.04.2021 and 30.06.2021 are time barred as the limitation period prescribed under Section 149 of the IT Act expired.
Even the Punjab and Haryana High Court in Kulwant Singh Vs. UOI & Ors.[4] and the Calcutta High Court in SS Commotrade Private Limited Vs. ITO[5]have taken a contrary prima-facie view and held that re-assessment notices issued between 01.04.2021 and 30.06.2021 w.r.t. AY 2013-14 and AY 2014-15 are time-barred in terms of substituted Section 149 of the IT Act.
Conclusion:
Despite the introduction of reformative changes by the Parliament to the provisions governing reassessment proceedings, the controversy surrounding the reassessment notices for the AYs 2013-14 and 2014-15 remains unresolved. Various High Courts have taken divergent views on this matter, and the lack of consensus among the High Courts has resulted in the issue remaining unsettled.
The principal argument put forth by the IT Department is that the reassessment notices for the AYs 2013-14 and 2014-15 are within the period of limitation, as the time limit to issue such notices was extended to 30.06.2021 by invoking TOLA.
However, the assessees argue that the extension of the time limit to issue notices under Section 148 of the IT Act, as amended by the Finance Act, 2021, through the invocation of TOLA, contradicts the provisions of Sections 147 to 153 of the IT Act as amended by the Finance Act, 2021. They contend that TOLA is not mentioned in the amended sections, and a plain reading of the substituted provisions indicates that the time limit for issuing reassessment notices for the AYs 2013-14 and 2014-15 should be determined based on the previous Section 149 of the IT Act, without any changes brought by TOLA. They further assert that executive notifications (TOLA Notifications) cannot override the law established by the legislature (Finance Act, 2021).
Therefore, unless the Hon’ble Supreme Court clarifies the applicability of the amendments introduced by TOLA on the amended Sections 147 to 153 of the IT Act, there will continue to be a controversy regarding the limitation period for all reassessment notices issued for the AYs 2013-14 and 2014-15.
[1] 2022 SCC OnLine SC 543
[2] WPC 13102/2022
[3] WRIT TAX No. – 1086 of 2022
[4] CWP-18032-2022 (O&M)
[5] W.P.A. 19111 of 2022
suprme court has rejected one delhi assee special leave petition mr gulati for assment year 2013 14.
suprme court also give stay for assment year 2014 15,2016 ,17 However some other Delhi assee is pending Specil leave petition in another bench of judge of suprme court
lot of Technical ground is also has decided by suprme court .But it seems suprme court will not give decision in favour of assee.