Delhi HC Upholds Reassessment Notice as TOLA Extended Limitation Period

Salil Gulati Vs ACIT (Delhi High Court)

In the case of Salil Gulati Vs ACIT, the petitioner challenged the order passed under Section 148A(d) of the Income Tax Act, 1961 and the notice issued under Section 148 dated 30 July 2022 for Assessment Year 2013-14. The petitioner also challenged the constitutional validity of CBDT Instruction No.1/2022 dated 11 May 2022, particularly the portion dealing with operation of amended Section 149 and reopening of past assessment years.

The petitioner argued that the impugned notice was barred by limitation. It was contended that under amended Section 149(1)(a) and (b), reassessment notices could be issued within three years, and up to ten years only where escaped income exceeded Rs.50 lakh. However, reliance was placed on the first proviso to Section 149, which states that no notice can be issued for an assessment year beginning on or before 1 April 2021 if such notice could not have been issued under the old limitation regime. According to the petitioner, under the unamended Section 149(1)(b), reassessment for AY 2013-14 became time-barred on 31 March 2020, and therefore reopening after that date was impermissible. The petitioner also submitted that three High Courts had stayed similar reassessment notices on limitation grounds.

The Revenue opposed the petition and argued that the Supreme Court judgment in Union of India vs. Ashish Agarwal read with the extensions granted under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) validated such reassessment proceedings. It was argued that the Supreme Court had treated notices issued under the old provisions between 1 April 2021 and 30 June 2021 as deemed notices under Section 148A of the amended law. According to the Revenue, the extended reassessment notices could “travel back in time” to their original issuance dates, and the amended Section 149 had to be applied accordingly. The Revenue further argued that accepting the petitioner’s contention would render the Supreme Court judgment ineffective.

The Delhi High Court examined the unamended Section 149 and noted that the time limit for issuing reassessment notices that fell between 20 March 2020 and 31 March 2021 had been extended till 30 June 2021 under TOLA read with Notification Nos.20/2021 and 38/2021. The Court observed that the original notice in the petitioner’s case had been issued on 23 June 2021, which was within the extended limitation period.

The Court further noted that the earlier notice dated 23 June 2021 had been quashed in the petitioner’s previous writ petition decided in Mon Mohan Kohli vs. Assistant Commissioner of Income Tax because the mandatory procedure under Section 148A had not been followed. However, the Court pointed out that while the Delhi High Court had struck down certain explanations in the notifications, it had also clarified that the power of reassessment existing prior to 31 March 2021 continued till the extended date of 30 June 2021, since the Finance Act, 2021 merely changed the procedure for issuance of notices.

The Court then referred to the Supreme Court judgment in Union of India vs. Ashish Agarwal, where notices issued between 1 April 2021 and 30 June 2021 under the old regime were deemed to be notices issued under Section 148A of the amended law. Consequently, the notice dated 23 June 2021 issued to the petitioner stood revived.

The High Court held that since the limitation period for AY 2013-14 stood extended till 30 June 2021 under TOLA and the alleged escaped income exceeded Rs.50 lakh, the first proviso to amended Section 149 did not apply to the petitioner’s case. The Court further held that even without relying on CBDT Instruction No.1/2022, the impugned notice was within limitation.

Accordingly, the Delhi High Court dismissed the writ petition and the pending application. However, the Court clarified that the Assessing Officer should decide the reassessment proceedings independently on merits without being influenced by observations in the order, except on the issue of limitation.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Present writ petition has been filed challenging the order passed under Section 148A(d) of the Income Tax Act, 1961 (‘the Act’) and the notice issued under Section 148 of the Act dated 30^thJuly, 2022 for the Assessment Year 2013-14. Petitioner primarily challenges the constitutional vires of Instruction No.1/2022 dated 11^thMay, 2022 issued by the CBDT. The relevant portion of CBDT Instruction No.01/2022 is reproduced hereinbelow:-

“Subject: Implementation of the judgment of the Hon’ble Supreme Court dated 04.05.2022 (2022 SCC OnLine SC 543) (Union of India v. Ashish Agarwal)– Instruction regarding

…….

6.0 Operation of the new section 149 of the Act to identify cases where fresh notice under section 148 of the Act can be issued:

6.1 With respect of operation of new section 149 of the Act, the following may be seen:

xxx                           xxx                                       xxx

• • • Hon’ble Supreme Court has upheld the views of High Courts that
      the benefit of new law shall be made available even in respect of proceedings relating to past assessment years. Decision of 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.

6.2 Based on above, the extended reassessment notices are to be dealt with as under:-

(i) AY 2013-14, AY 2014-15 and AY 2015-16: Fresh notice under section 148 of the Act can be issued in these cases, with the approval of the specified authority, only if the case falls under clause (b) of sub-section (1) of section 149 as amended by the Finance Act, 2021 and reproduced in paragraph 6.1 above. Specified authority under section 151 of the new law in this case shall be the authority prescribed under clause (ii) of that section.”

2. Learned counsel for the petitioner submits that the impugned notice dated 30^th July, 2022 issued under Section 148 of the Act is barred by limitation inasmuch as the Section 149(1)(a) & (b) of the Act as substituted by the Finance Act, 2021 provides that any case can be reopened within three years from the end of relevant assessment year if Assessing Officer has information which suggests that income chargeable to tax has escaped assessment and up to ten years in case income chargeable to tax which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year. He, however, submits that the First Proviso to Section 149 provides that no case can be reopened for any assessment year beginning on or before 1^st April, 2021 if such notice could not have been issued at that time on account of being beyond the time limit specified under old Section 149(1)(b).

3. He further states that the time limit for reassessment under old Section 149(1)(b) was six years from the end of the Assessment Year which means that cases for Assessment Year 2013-14 and prior cannot be reopened under clause (b) of Section 149(1) as they have already become time barred on 31^stMarch, 2020.

4. Learned counsel for the petitioner states that three High Courts have stayed the Section 148 notices on the ground of limitation.

5. Per contra, learned counsel for the respondent-revenue who appears on advance notice states that the decision of the Supreme Court in Union of India vs. Ashish Agarwal, 2022 SCC OnLine SC 543 read with the time extension provided by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short ‘TOLA’) allows 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. He contends that had the notice been beyond limitation, the Apex Court would have set aside the impugned notice. He states that the Apex Court has in fact legalised/validated all the notices issued under unamended provisions by treating them to be deemed show cause notice under Section 148A of the Act (as substituted by Finance Act, 2021) as a one time measure. He also states that if the submission of the learned counsel for the petitioner is accepted, then it would render the judgment of the Supreme Court in Union of India vs. Ashish Agarwal (supra)

6. This Court is of the view that the contention of the learned counsel for the petitioner that the present proceedings is time barred is not correct, as reassessment proceeding was initiated during the time limit extended by TOLA. Section 149, as it read prior to its amendment by Finance Act, 2021 reads as under:

“Time limit for notice.

1. 149. (1) No notice under Section 148 shall be issued for the relevant assessment year,-

(i) if found years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) and clause (c);

(ii) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;

…”

7. The time limit for issuing notice under unamended Section 149 which was falling between 20^th March, 2020 and 31st March 2021 was extended by Section 3 of TOLA read with Notification No. 20/2021 dated 31^st March, 2021, and Notification No. 38/2021 dated 27^th April, 2021, until 30^th June, 2021. The initial notice in the present proceedings was issued on 23^rd June, 2021 i.e. extended time limit. The said notice was quashed by this Court in petitioner’s earlier writ petition being W.P.(C) 7582/2021 vide judgment reported as Mon Mohan Kohli vs. Assistant Commissioner of Income Tax and Anr., 2021 SCC OnLine Del 5250 as the mandatory procedure of Section 148A of the Act was not followed before issuing the said notice. In the said judgment though this Court struck down the Explanations A(a)(ii) and A(b) to the said notifications, yet it clarified that the power of reassessment that existed prior to 31^st March, 2021 continued to exist till the extended period i.e. till 30^th June, 2021; as the Finance Act, 2021 had merely changed the procedure to be followed prior to issuance of notice with effect from 1^st April, 2021.

8. When the judgment of this Court in Mon Mohan Kohli (supra) was carried forward in appeal, the Supreme Court held that the Section 148 notices issued between 1^stApril 2021 to 30^th June, 2021, will be deemed to have been issued under Section 148A of the Act and therefore the notice dated 23^rd June, 2021, issued to the petitioner stood revived.

9. Consequently, since the time period for issuance of reassessment notice for assessment year 2013-14 stood extended until 30^thJune, 2021 and the income alleged to have escaped assessment is beyond Rs.50 lakhs, the first proviso of Section 149 (as amended by the Finance Act, 2021) is not attracted in the facts of this case and even without the benefit of Instruction No.01/2022 the impugned notice is within limitation.

10. Accordingly, the present writ petition along with the pending application is dismissed. However, this Court clarifies that the Assessing Officer shall decide the matter on its own merits without being influenced by any observation made in the present order, except the issue of limitation.