Byomkesh Panda, IRS

Twist in the Tale –Controversy of Application of Old Procedure under Section 148 versus New Procedure of section 148A

A. Background:

As we know, in view of the challenges faced in meeting the statutory and regulatory compliances due to the outbreak of COVID-19 pandemic, the Government (Executive Organ of the State) brought the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 on 31.03.2020 which extended time limits for completion of proceedings and compliance of actions. The Ordinance was subsequently replaced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (Hither to referred as the Relaxation and Amendment Act or, “RAA”) on 29th September 2020 by the Parliament (Legislature). This Relaxation and Amendment Act legislated upon several relaxations, notifications and amendments pertaining to Income Tax Act, 1961 (“I.T. Act” or “Act”). The legislation by the Parliament also enabled the Central Government(Executive) for extension of timelines beyond 31.03.2021by way of issuing notifications (subordinate legislations). The empowerment of the Executive (Central Government) by the Legislature to undertake certain legislative actions is termed as ‘Delegated legislation’.

B. Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (RAA) – Substantive Law as well as Delegation of Powers:

In this discussion, we will deal with the ramifications of sub-section 3(1) of the above RAA and clause (a) of the sub-section. The provision is as under:

Twist-in-the-Tale---Old-Section-148-vs

CHAPATER II

RELAXATION OF CERTAIN PROVISIONS OF SPECIFIED ACT

“..3. (1) Where, any time-limit has been specified in, or prescribed or notified under, the specified Act which falls during the period from the 20th day of March, 2020 to the 31st day of December, 2020, or such other date after the 31st day of December, 2020, as the Central Government may, by notification, specify in this behalf, for the completion or compliance of such action as—

(a) completion of any proceeding or passing of any order or issuance of any notice, intimation, notification, sanction or approval, or such other action, by whatever name called, by any authority, commission or tribunal, by whatever name called, under the provisions of the specified Act; or…

….

….

….

and where completion or compliance of such action has not been made within such time, then, the time-limit for completion or compliance of such action shall, notwithstanding anything contained in the specified Act, stand extended to the 31st day of March, 2021, or such other date after the 31st day of March, 2021, as the Central Government may, by notification, specify in this behalf….

(Underline emphasis mine)

The phrase as the Central Government may, by notification, specifyin the body of sub-section 3(1) and the phraseor such other date after the 31st day of March, 2021 as the Central Government may, by notification, specify in this behalf” denotes to the delegation of powers to Central Government for legislation.

Thus, clause (a) of the sub-section 3(1) of the Relaxation and Amendment Act granted relaxation till 31.03.2021 as a part of the original Legislation. However, it delegated powers to the Central Government for relaxation of time beyond 31.03.2021 i.e. from 01.04.2021 and onwards for completion of various proceedings and notice issuance actions to Authorities under the Income Tax Act, 1961 (Act), i.e. the Assessing Officer.

Hence, the Law (Legislation) extended the time limits till 31.03.2021 and conferred powers by way of delegation on “Central Government” to extend the compliance and completion dates from 01.04.2021 and onwards, as the Government deems fit by way of notification. It is pertinent to mention here that the Central Government had constituted the Central Board of Direct Taxes (“CBDT”)as a statutory creature under the Central Board of Revenue Act, 1963, to exercise power and perform duties under its control. Hence, essentially, the Central Board of Direct Taxes (“CBDT”), as a constituent of the Central Government, was empowered by the delegated legislation as per the Relaxation and Amendment Income Tax Act, 1961 (RAA).

This Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act was promulgated on 29.09.2020. In the meanwhile, COVID-19 pandemic continued to rage throughout the country affecting the lives of citizens and the economy of the country. Though lock-down norms were eased in a phased manner; social distancing and other precautionary protocols were enforced at all workplaces of the country.

C. New Regime of Re-Assessment:

In the meanwhile, Finance Bill 2021, was introduced in the Parliament on 01.02.2021. Clause 37 of the Bill proposed to insert a new Section 148A in the Income Tax Act relating to Conducting inquiry, providing opportunity before issue of notice under section 148. The new section laid down that before issuing a notice under Section 148, the Assessing Officer shall conduct inquiries, if required, and provide an opportunity of being heard to the assessee. After considering the reply, the Assessing Officer shall decide, after passing an order, whether it is a fit case for the issue of notice under Section 148 and serve a copy of such order along with such notice on the assessee. Provisions of section 148 were also proposed to substituted (amended) and section 148 was proposed to be proceeded upon in conjunction with provisions of section 148A.

The newly introduced section 148A, effective from 01.04.2021, read as under:

Conducting inquiry, providing opportunity before issue of notice under section 148.

148A. The Assessing Officer shall, before issuing any notice under section 148,—

(a)  conduct any enquiry…;

(b) provide an opportunity of being heard to the assessee….

(c)consider the reply of assessee….

(d) decide, on the basis of material available on record including reply of the assessee….

On the other hand, with the coming into effect of the Finance Act 2021, the substituted section 148 stood as under:

148. Issue of notice where income has escaped assessment.—Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:

Hence, from 01.04.2021, the machinery section 148 became conjoint with procedural section 148A of the Income Tax Act, 1961.

We can call it as the “New Regime” for issue of re-opening notices (Under amended section 148 read with new section 148A); which hoped to standardise the procedure of re-opening, strengthen it and reduce litigations. Then, by definitional contradiction, previous section 148 without the procedural section 148A and with longer time-limit of 6 years under section 149, would be called the “Old Regime”.

D. At the Assessing Officer’s Desk:

While the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act and the Finance Act were being passed, on account COVID-19 contagion and the consequent lock-down to fight the pandemic; adverse communications to the taxpayers were suspended by the CBDT as a necessary and humanitarian measure till October 2020 vide the Interim Action Plan of the Income Tax Department. Even after October 2020, social distancing norms and less-than-full staff attendance protocols were in place. On account of these virus-fighting measures, the time-bound completion work at the Income Tax Department as well compliances from side of taxpayers and tax practitioners were adversely affected.

E. Exercise of the Delegated Powers – CBDT Notifications:

Under such special extenuating circumstances, the CBDT exercised the powers delegated to Central Government as per sub-section 3(1) of the Relaxation and Amendment Act and issued S.O. 966(E) on 27.02.2021 vide Notification No. 30/2021 (Referred to as “Notification”), asper which the time limit for completion the action which inter alia included the reassessment proceedings was due to expire on 31.03.2021 was extended to 30.04.2021. This extension was declared by the CBDT as per the delegated power conferred to it under sub-section 3(1) of the Relaxation and Amendment Act.

This Notification contained as Explanation which explicitly and unambiguously provided that the notice issuance mechanism would continue as per the old regime, i.e., which was prevalent as on 31stMarch, 2021, (Before coming into effect of Finance Act, 2021 i.e. when section 148A procedure and mechanism did not exist on the statute) shall be applicable.

This Explanation to the Clause (A) of these notifications is the cause of all litigation. It is imperative to go through Explanation:

“Explanation— For the removal of doubts, it is hereby clarified that for the purposes of issuance of notice under section 148 as per time-limit specified in section 149 or sanction under section 151 of the Income-tax Act, under this sub-clause, the provisions of section 148, section 149 and section 151 of the Income-tax Act, as the case may be, as they stood as on the 31st day of March 2021, before the commencement of the Finance Act, 2021, shall apply.”

This Explanation altered the time-line of sections 148, 149 and 151 of the I. T. Act and gave these sections and granted these provisions prolonged life till 30.04.2021.

This Explanation is the moor point which is causing all the controversy and brouhaha!

Thereafter, during last week of April, 2021, it was seenby the CBDT that the society was still reeling under the Second Wave of COVID-19, and the completion and compliance systems are still stressed. Therefore, on 27.04.2021, the CBDT issued another S.O. 1432(E) vide Notification No. 38/2021 (Referred to as “Notification”),which, inter alia, provided that the notices u/section 148 of the Act which were to be issued on or before 30.04.2021, could be issued on or by 30.06.2021. It was again reiterated in Explanation that the reassessment mechanism as per the old system, i.e., only the then extant section 148 and absence of procedure of section 148A, shall be applicable. The Explanation, like sanjeevaniherb, granted two more months of life to the Old Regime and kept it effective till 30.06.2021!

Assessing Officer’s Position:

On the morning of 1st of April, 2021, the Assessing Officer found herself in a dilemma.

As on that day, on one hand, the newly inserted section 148A came into force. So did the substituted section 148, subject to new section 148A and amended time limits under section 149.

While on the other hand, the Assessing Officers and Departmental set up were bound by the notifications S.O. 1432(E) dated. 31.03.2021 (And S.O. 1703(E), dated. 27th April, 2021) andwere guided to completere-opening procedures under the old mechanism as it prevailed on 31st March 2021 (“Old Regime” without the procedural section 148A and with longer time-limit of 6 years under section 149).

It is relevant for us to know here that the Hon’ble Supreme Court of India has held in a plethora of cases, including in Comm. of Customs v. Indian Oil Corporation Ltd., (2004) 267 ITR 272 (SC), that circulars and instructions of the Board are binding on the Assessing Officer.

Hence, in view of the notification by the C.B.D.T. which extended the time periods and application of Old Regime till 30.06.2021, the duty-bound Assessing Officers followed the notifications and undertook the re-opening work without recourse to procedure laid down in section 148A or the shorter time limit of amended section 149.

F. Reactions of the Taxpayers:

When the notices under section 148 for re-assessment were issued and served; it was felt by the noticee taxpayers thatthe issuance of re-opening notices as per Old Regime/Past Procedure, even after 01.04.2021 when the New Regime had already become Law on the Statute is not valid. It was thought that the CBDT vide Explanation to Notifications has wrongly kept the erstwhile law alive (albeit for 3 months from 01.04.2021 till 30.06.2021), which ought tohave ceased to exist from the 01.04.2021.It was asserted that Explanation to clause (A) of Notification No. 30/2021 and 38/2021 are ultra vires the Income Tax Act and are bad-in-law. Therefore, the section 148 notices issued on 01.04.2021 and onwards issued in compliance to the Explanation in the Notifications as per the Old Regime are nothing but nullity.

G. Writs before Hon’ble High Courts:

As we know, the section 148 notices may create compelling circumstances where the Writ jurisdiction of the High Courts can be invoked. This matter was raised in numerous Writs of Mandamus for forbearance of the Income Tax Department before various High Courts all across the country. The leading Writs are:

Armada D1 Pte. Ltd. v. DCIT: Hon’ble Bombay High Court in WP (L) No. 11766 of 2021 dated 3rd June, 2021

Tata Communications Transformation Services Limited v. ACIT: Hon’ble Bombay High Court in WP No. 1334 of 2021 dated 5th July, 2021

Mon Mohan Kohli v. ACIT: Hon’ble Delhi High Court in W.P.(C) 6176 of 2021, dated 7th July, 2021

Sahil International v. ACIT: [2021] Hon’ble Bombay High Court in WP(L) No. 14687 of 2021, dated 9th July, 2021 128 taxmann.com 161 (Bombay)

Bagaria Properties and Investment Pvt. Ltd. v. UoI: Hon’ble Calcutta High Court in WPO/244/2021

Ansal Properties and Infrastructure Limited v. ACIT: Hon’ble Delhi High Court in W.P.(C) 6955/2021 & CM APPL. 21978/2021, Dated. 26.07.2021

Mansi Ankit Bhalaria v.UoI:- Hon’ble Bombay High Court in 1533 of 2021, dated. 02.08.2021

Bhagwati Prasad Jalan v. UoI: Calcutta High Court in WPO/309/2021, dated. 02.08.2021

Vaishno Trades and Services Pvt. Ltd. v. UoI: Calcutta High Court inWPO/319/2021, dated. 06.08.2021

Abhimanyu Saagar v. UoI: P&H High Court in CWP-13990 of 2021

Charana Panda (HUF) v. ITO: Odisha High Court, W.P.(C) No.23176 of 2021

D.G. Patel Construction Pvt.Lts. v. UoI: High Court of Gujarat, SCA No. 12621 of 2021, dated. 02.09.2021

Palak Khatuja vs. Union of India: High Court of Chhattisgarh, W.P.(T) No. 149 of 2021

Similar litigations in cases of Vellore Institute of Technology (Madras High Court), BijuJanta Dal (Odisha High Court) etc. have also been initiated.

As it is apparent from above, almost all the High Courts in the country have been seized of the matter.

H. Writ Petitioners’ Arguments:

The aggrieved noticees have challenged the constitutional validity of the Notifications issued by the CBDT.

1. Ultra Vires due to conflict with Parent Act:

The amendment to the laws (Introduction of section 148A, amendment of section 148) governing Re-assessment has been brought vide Finance Act, 2021 which is an act of the Legislature. The CBDT vide Notifications has given lease of life to the erstwhile law which ceased to exist from the 01.04.2021. Though the Relaxation and Amendment Act has been passed for extension of various time limits, but it could not have extended the power to substitute a provision (Amended Section 148 which is read with new provisions of section 148A) of the enacted Finance Act. The Relaxation and Amendment Act and the Notifications cannot suspend the coming into effect and operation of the Finance Act, 2021.

2. Ultra Vires due to excess use of power by the Delegated Authority:

The CBDT is not empowered to issue Notifications in exercise of Delegated Legislation in contravention to the amended law (Amended provisions of Income Tax Act, 1961) as per Finance Act, 2021.The issuance of Notification extending the due date for issuance of Notice under the old provisions of the Act beyond the powers of delegated by the Relaxation and Amendment Act. It has been argued that no intention to override the Finance Act, 2021, is apparent from the Relaxation and Amendment Act. The CBDT has travelled beyond the scope of the delegate power.

Arguments have referred to ratio of Addl. District Magistrate (Rev.), Delhi v. Shri Siri Ram (C.A. No. 6255 of 1995) (SC) whereby it has been laid down:

“…It is well recognised principle of interpretation of a statute that conferment of rulemaking powerby an Act does not enable the rule making authority to make rule which travels beyond the scope ofthe enabling Act or which is inconsistent therewith or repugnant thereto….”

3. Excessive delegation:

Arguments have been made that there is a case of unconstitutionality due to excessive delegation of law-making powers in the Relaxation and Amendment Act to the Executive (Central Government/CBDT) as the legislature has excessively delegated its legislative function to the Central Government.

4. Other Judicial Precedents:

Allusions have been made to case of State of Tamil Nadu vs. P. Krishnamurthy (Civil Appeal No. 5572-5644 of 2005) (SC), wherein it has been held that“…The court considering the validity of a sub-ordinate Legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate Legislation conforms to the parent Statute. Where a Rule is directly inconsistent with a mandatory provision of the Statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non- conformity of the Rule is not with reference to any specific provision of the enabling Act, but with the object an scheme of the Parent Act, the court should proceed with caution before declaring invalidity…”The Hon’ble Apex Court also observed that there is a presumption in favour of constitutionality or validity of a sub-ordinate Legislation.

I. Revenue’s Arguments:

The Income Tax Department (“Revenue” or “I.T. Department or “Department”) has put forth several arguments for defence of the Explanation and the legality of the notices.

1. In absence of extension of time limit, the limitation for issuing the notices under Section 148 of the Act stood expired for cases pertaining to A.Y. 2013-14 till AY 2017-18. In fact, the matters of AY 2013-14 would have been barred by limitation on 31.03.2020 and those of AY 2014-15 on 31.03.2021 by virtue of unamended sub-section 149(1) of the Act. Further, as on 01.04.2021, amended section 149 came into effect which had a reach only for 3 A.Y.s prior to 2021-22 i.e. AY 2018-19, 2019-20 and AY 2020-21. Hence, AYs 2015-16, 2016-17 and 2017-18 were out of reach of operation of section 148 r.w.s. 149 as it stood on 01.04.2021, and, therefore, any action under Section 148 would have been time barred. Drawing power from theenactment as per Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020; the time limit for taking action under Section 148 was extended till 30.06.2021. Thus, the Revenue has argued that the impugned notifications only provide that the time limit for issuing notices under old provisions of Section 148 of the I.T. Act has been extended by Act of Parliament (RAA) till 30.06.2021.

2. Reliance has been placed by the Income Tax Department upon Section 6 of the General Clauses Act, 1897.

Effect of repeal.— Where this Act, or any Act made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not

(a) revive anything not in force or existing at the time at which the repeal takes effect; or

(b) affect the previous operation of any enactment so repealed or any thing duly done or suffered thereunder; or

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or

(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or

(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;

and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act had not been passed.

Section 6 of the General Clauses Act saves, inter alia, the rights, privileges, obligations or liabilities acquired/accrued/incurred under any enactment repealed. As per the Section, unless a different intention appears, there is no embargo under law for initiation and/ or continuation of proceedings under the repealed enactment. Thus, it can be translated to the present facts. Even with repeal of old reopening regime, since the proceedings were continuing from past and were pertaining to the Old Regime scenario; the same could be proceeded as per the repealed enactment (Old Regime).

3. The idea behind Department’s argument is simple, if a provision itself has been granted extra time-span and allowed to continue; then the associated old procedure (Old Regime mechanism, sans section 148A) would also be taken as being allowed to live and breathe.

4. The Ordinance has conferred the power on Central Government to:

Cen Government by notification to specify that…where… issuance of any notice, ..has not been made within such time (31.03.2021), then, the time-limit for completion or compliance of such action (Old pending action) shall, notwithstanding anything contained in the specified Act (Notwithstanding new section 148A and amended section 148 and 149), stand extended to …. such other date after the 31st day of March, 2021 (30.06.2021).

5. It is not a case that 148A has been repudiated or over-ridden, it is a case where old section 148 has been allowed to continue. And the old section 148 did not have any reference to section 148A.

6. The Hon’ble Apex Court in State of Tamil Nadu v. P. Krishnamurthy and Ors. (supra) has held that there is a presumption in favour of constitutionality or validity of a sub-ordinate Legislation and the burden is upon him who attacks it to show that it is invalid. The Department vehemently argues that the subordinate Legislation conforms to the parent Statute of I.T. Act.

7. Arguments of petitioners have referred to ratio of District Magistrate (Rev.) Delhi vs. Siri Ram (supra) which lays down that delegation of powers can not enable the rule making authority to make rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. The counter argument of Revenue would be that the Notification did not travel beyond scope of the I.T. Act and it merely allowed issue of Notice under section 148; which was within the scope of amended section 148 also. It is not the case that in the amended Act provisions for re-Assessment notices u/section 148 have been removed, only a new procedure has been added. The Notifications (Delegated legislation) grant only a procedural liberty in operation of Old Regime section 148. This is not a course which has been travelled beyond scope of the Income Tax Act, 1961; but relaxation of rigours of the Income Tax Act, 1961.

J. Prima facie View – Delhi High Court:

When the two sides – Taxpayers & Tax attorneys and Department have taken respective stances, most of the High Courts directed the Central Government/ Income Tax Department (Respondent) to file affidavit-in-opposition within a stipulated time frame. In the meanwhile, the Tax Department was restrained from proceeding any further on the matter.

At this juncture the taxpayers had the first strike.

In the case of Ansal Properties and Infrastructure Limited v. ACIT (supra), the Hon’ble Delhi High Court briefly analysed the matter and announced a prima facie view in favour of the taxpayers on 26.07.2021:

“…This Court is of the prima facie view that the impugned notification is contrary to settled principle of statutory interpretation, namely, that any action taken post the amendment of a procedural section would have to abide by the new procedures stipulated in the amended Act.

Further, this Court is of the prima facie view that by virtue of a notification, which is a delegated legislation, the date for implementation of statutory provision, as stipulated in the Act, cannot be varied or changed.

This Court is also of the prima facie opinion that Section 6 of the General Clauses Act, 1897 offers no assistance to the respondents as the new Section 148A..”

The Hon’ble Delhi High Court adopted the view:

1. Procedural amendments are binding as per principles of interpretation of statutes i.e. procedure of section 148A was bound to be followed by the Income Tax Department;

2. A delegated legislation cannot vary or change implementation of statutory provision i.e. the Notifications could not have halted coming into force of section 148A;

3. Section 6 of the General Clauses Act lends no support to the cause of Department i.e. the amended section 148 (Old provision) did not subsist from 01.04.2021.

These views were expressed in a prima facie manner and no speaking or comprehensive reasoning was provided by the High Court. At the preliminary hearing stage, the Hon’ble Court did not delve deep into the matter and allowed the parties to further the litigation.

However, no other High Court has expressed any such prima facie view. Even the interim orders pronounced by other High Courts after 26.07.2021 (After the Ansal Properties and Infrastructure Limited judgment) are silent regarding any prima facie view.

K. Chhattisgarh High Court Judgement:

In this background, the Hon’ble High Court of Chhattisgarh took the lead to finalised the hearings and delivered a final verdict on the Writ matter on 23.08.2021. The judgment is path-breaking in many aspects.

In case of Palak Khatuja vs. Union of India, the Hon’ble High Court of Chhattisgarh vide W.P.(T) No. 149 of 2021, did not allow the Writ to stand against the section 148 notice. The Hon’ble Court upheld validity of notice u/s. 148 issued after 01.04.2021, though it was issued without following procedure laid down in section 148A.

1. The Hon’ble. Court took note that the delegation in Taxation & Others Laws (Relaxation & Amendment of Certain Provisions) Act, 2020, is not a self-contained and not a complete Act. Delegation has only been made in the interest of flexibility and smooth working of the Act, and the delegation therefore was a practical necessity.

2. The Hon’ble High Court held that as per the Notifications; the application of section 148 of the Income Tax Act, which was originally existing before the amendment was deferred meaning thereby the reassessment mechanism as prevalent prior to 31.03.2021 was saved by the Notifications.

3. The Hon’ble Court took note of the fact that since the notification has been made by the Ministry of Finance, Central Government considering the fact of lock-down all over India; it can be assumed that the deferment of the application of section 148A was done in a controlled way. Therefore, this legislative delegation which is exercised by the Central Government by notification to uphold the mechanism as prevailed prior to March, 2021 is not in conflict with any Act and notification by Executive e. Ministry of Finance and CBDT would be the part of legislative function.

4. The Hon’ble Court observed that the power to issue a notification for bringing into force the provisions of a constitutional amendment is not a constituent power, because it does not carry with it the power to amend the Constitution in any manner.

5. Likewise, in this case, the delegation to the Executive with conferment of the power to the Central Government to specify the date by way of relaxation of time limit, the main purpose of the Finance Act is not defeated. Therefore, it would be a conditional legislation only and the legislature has resorted to conditional legislation to give the power to Executive.

6. Considering such situation for the benefit of the assessee and to facilitate the individual to come out of woods the time limit framed under Income Tax Act was extended. Likewise, certain right which was reserved in favour of the Income Tax Department was also preserved and was extended at parity.

The Hon’ble High Court has held that by effect of such Notification (Which is due exercise of conditional delegation), the provision of Section 148, which was prevailing prior to amendment and prior to insertion of section 148A was insulated and saved uptill 30.06.2021.

L. Salient Features of the Judgment:

1. The delegation of Legislative powers in the Relaxation and Amendment Act is neither self-contained nor complete. The limited delegation has been made merely for purpose of extension of time-limit in the interest of flexibility and smooth working of the Act, as a matter of practical necessity. Therefore, there is no case of excess delegation by the Legislature.

2. The Hon’ble Court has decreed that since the deferment of the application of section 148A has been done in a controlled way, there is no uncertainty or arbitrariness in the notification. The Court has taken tax uncertainty into perspective.

3. This legislative delegation which is exercised by the Central Government by notification to uphold the mechanism as prevailed prior to March, 2021 is not in conflict with any Act. The Hon’ble Court has ruled that the Explanation has not cause any friction with the operation of I.T. Act.

4. As per the Hon’ble High Court, the delegation to the Executive with conferment of the power to the Central Government to specify the date by way of relaxation of time limit, the main purpose of the Finance Act is not defeated. The High Court has undertaken the “Purpose Test” of the new provisions of Finance Act and has arrived at a conclusion that the purpose has not been tampered with.

5. Doctrine of Conditional Legislation:

The Hon’ble Court has explained that when the law (Legislation) is complete and only certain conditions are laid down as to how and when the law would be applied by the delegate, it is conditional legislation. It includes no law-making powers but only the power of determining when it should come into force or when it should be applied. The Hon’ble Supreme Court in Hamdard Dawakhana v. Union of IndiaAIR 1960 SC 554 has stated that in conditional legislation, the delegate’s power is that of determining when a legislative declared rule of conduct shall become effective.

The deferment of application of old provisions of section 148 was done by the CBDT, Ministry of Finance by way of conditional legislation in the peculiar circumstances which arose during the pandemic and lock down. Hence, there being no full delegation of powers in the scenario, the Central Government cannot be said to have encroached upon turf of Parliament.

Thus, the Hon’ble High Court took a view that under the power of conditional legislation, the CBDT (Delegate) decided that the Law and procedure as prevalent under the Old Regime will be applicable till 30.06.2021. Hence, the Notificationscan not be faulted to be excessive delegation of power. In fact, no new provision was imposed by the CBDT, only the Old RegimeProvisions were allowed to survive. This is saved under the Conditional Legislation Doctrine.

6. Considering such situation for the benefit of the assessee and to facilitate the individual to come out of woods the time limit framed under Income Tax Act was extended. The Hon’ble Court has held that the Board Notifications are beneficial communications.

7. Doctrine of Parity:

The Notifications had two aspects – relief in compliance burden of the taxpayers and relief in completion time-lines to the I.T. Department. The Hon’ble Court observed that as taxpayers were allowed breather by the Notifications; certain rights would also accrue in favour of the Income Tax Department in terms of time horizon relaxation, preservation of Old procedures and extension of application of those procedures. Such a principle of parity in respect of an organ of State has been acknowledged by a Court of Law for the first time.

M. Conclusion:

1. This is perhaps an issue which would command the highest possible tax effect, ever. The quantum of escaped income whose fate hangs in balance is immeasurable. Any guess for the total alleged escaped income involved (For issues alleged escaped income of 5 Assessment Years – Assessment Year 2013-14 till Assessment year 2017-18) would be hazardous. Therefore, the Hon’ble Courts would anxiously weigh arguments of both sides for arriving at justice.

2. Judicial precedents and history of litigation shows that constitutional legality of sub-ordinate legislations like Notifications etc. have been normally upheld with presumption in favour of validity. But COVID-19 pandemic and its deleterious effects have led to times of great flux and uncertainty.

3. The Hon’ble High Court of Chhattisgarh has rendered a ground-breaking judgement.

4. The controversy is going to flare up and the matter will travel to the Hon’ble Apex Court sooner than later.

5. It is speculated that the other High Courts may adopt a technical stance and quash the notices due to over-stepping of delegated legislation powers by the Board Notifications. Or the Hon’ble Courts may adopt a broad view of the matter and since the proceedings are in notice stage; validate the notices since the rights have not been infringed yet. Or some Courts may adopt a middle path which is not to declare the notice as nullity but to direct the A.O. to take due recourse of section 148A and re-start the proceedings. The A.O. will get the opportunity to conduct inquiry and the taxpayer can submit information and object to the reopening at the pre-notice stage as per section 148A. The Courts can ensure these rights to taxpayers by special direction to Income Tax Department. Such a stance has been taken by various Courts of Law in the Faceless Assessment matters where opportunity of being heard have not been provided. Similar are ratios of Home Finders Housing Ltd. v. I.T.O., [2018] 93 taxmann.com 371 (Madras) case and the taxpayer’s SLP dismissal vide [2018] 94 taxmann.com 84 (SC), as also case of MGM Exports v. DCIT [2010] 323 ITR 331 (Gujarat) where a second round has been allowed to both the parties to litigation.

6. The Doctrine of Parity of rights has been envisaged for the first time in favour of Revenue.

7. It is hoped that the controversy would be led to rest by the High Courts and Hon’ble Supreme Court at the earliest so that there is no uncertainty in the matter and justice will be attained.

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Author: Byomkesh Panda, IRS | Addl. Director of Income-tax | Foreign Assets Investigation Unit | SURAT, Gujarat.

[Views expressed by the Author in this Article are purely and completely personal. The academic views of the Author have no impact or bearing on the position and views of the Government.]

Author Bio

Qualification: LL.B / Advocate
Company: Government of India
Location: Surat, Gujarat, India
Member Since: 05 Sep 2021 | Total Posts: 1
I am an Indian Revenue Service Officer of the 2004 Batch. My interests include research in Sanskrit language, study and practice of Ornithology and Marathon running. View Full Profile

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3 Comments

  1. NEM SINGH says:

    Good views but it would be better that the Gov. issue any clarification or notification in regards to application of section 148A or issue any direction for inquiry before proceeding and calling for ITR u/s 148. If the Courts take a difference view in their jurisdiction as it has made by Chhattisgarh HC, then both the tax payer as well the revenue will face unnecessary litigation and cost to. So the Gov. should take early action on the matter in the interest of taxpayers and revenue both.

  2. Dr. Akshar Godhani says:

    Excellent article, Sir.
    Point 5 of Your conclusion , seems to be the best way forward. Though it would be tough time for AO, Direction to AO for completing the investigation as per new section 148A will ensure that rights of Taxpayer as well as Dept. Both will be protected.

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