The CBDT has issued Instruction No. 01/2022, dated 11.5.2022, containing guidelines for implementation of the Supreme Court’s Judgement in the case of Union of India vs Ashish Agarwal (2022 SCC Online SC 543). It may be recalled that by this judgement the hon’ble Supreme Court has revived nearly 90000 notices issued under section 148 of the Income Tax Act. These notices were earlier quashed by different High Courts of India. Ever since the aforementioned CBDT instruction came in public domain, opinions have been circulating in the social media as well as other open forums expressing the view that the said CBDT instruction is not in accordance with the provisions of law. This article examines this issue.
The provisions relating to re-opening of assessment under the Income Tax Act, 1961 contained in section 147, 148, 149 & 151 of the Act have been substituted by a new provision by the Finance Act, 2021. The new provisions, effective from 1-4-2021, are contained in the same sections (147, 148, 149 & 151). Besides, a new section 148A which prescribes the procedure to be followed has been incorporated. As per the old provision as it existed till 31-3-2021 an assessment could be reopened only if six years from the end of the AY to be reopened had not elapsed. In other words six years should not have elapsed from the end of the AY to be reopened to the date of issue of notice under section 148 of the I T Act. Thus on 31-3-2020 under the old provision, the AO could only re-open up to AY 2013-14 ( income escaping asstt. being more that 1 lakhs) and not beyond. The old provisions however, got extinguished / obliterated on 31-3-2021. From 1-4-2021 the new provisions became operational under which assessments up to 10 years ( income escaping asstt. being more that 50 lakhs) could be re-opened. All notices under section 148 from 1-4-2021 were to be issued under the new provisions after following the procedure laid down.
Due to Covid pandemic and ensuing lockdown in a large number of cases despite having information indicating escapement of income, notices could not be issued under the old provisions to re-open AY 2013-14 and subsequent years by 31-3-2020. The Govt. therefore, passed Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) whereby the date of limitation for completion of any proceeding or issue of notice falling between 20-3-2020 to 31-3-2021 was extended to 30-6-2021. Thereafter, some 90000 notices were issued between 1-4-2021 to 30-6-2021, reopening assessments for AY 2013-14 and subsequent years. These notices, though issued after 31-3-2021, were issued under the old provisions of reopening without following the procedure laid down in the newly inserted section 148A. As the new provision of reopening an assessment had already come into operation on 1-4-2021, the notices under section 148 ought to have been issued under the new provision and not under old provision which no longer existed after 31-3-2021.
Many assessees challenged these notices under section 148 on this ground in writ petitions before different High Courts. All High Courts except Chattisgarh, quashed the notices as unlawful on the ground that by substituting the provisions of the Act by means of the Finance Act, 2021 with effect from 1-4-2021, the old provisions were omitted from the statute book and replaced by fresh provisions with effect from 1-4-2021. In absence of any saving clause in either the Ordinance or the Enabling Act (TOLA) or the Finance Act 2021, there existed no presumption in favour of the old provision continuing to operate for any purpose, beyond 31-3-2021. Accordingly, any notice under old section 148 issued after 31-3-2021 was unlawful and void. The Calcutta High Court in the case of Bagaria Properties and Investment (P.) Ltd. v. Union of India, W.P.O. NOS. 244, 253 TO 256 OF 2021 & OTHS JANUARY 17, 2022 also declared the Explanation A(a) to the Notification No. 20 [S.O. 1432 (E) dated 31st March, 2021 issued under section 3(1) of the TOLA as ultra vires to the parent legislation. The said explanation which provided for issue of notice under the old provision of 148 beyond 31-3-2021, is reproduced below for ready reference.
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.
The High Court decisions were challenged by the Govt. by SLPs before the Supreme Court of India. The Supreme Court of India decided all cases pending in courts or where this issue was involved, by a combined order using special powers under article 142 of the constitution of India. In this order in the case of Union of India vs Ashish Agarwal (2022 SCC Online SC 543), dated 4.5.2022 the hon’ble Supreme Court of India decided as under :
Therefore, we propose to modify the judgments and orders passed by the respective High Courts as under:
(i) The respective impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be showcause notices in terms of section 148A(b). The respective assessing officers shall within thirty days from today 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;
(ii) The requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a onetime measure visàvis those notices which have been issued under Section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts;
(iii) The assessing officers shall thereafter pass an order in terms of section 148A(d) after following the due procedure as required under section 148A(b) in respect of each of the concerned assessees;
(iv) 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 and;
(v) The present order shall substitute/modify respective judgments and orders passed by the respective High Courts quashing the similar notices issued under unamended section 148 of the IT Act irrespective of whether they have been assailed before this Court or not.
In short, the Supreme Court revived the notices quashed by High Courts by converting the notices issued under section 148 (old) to notice under section 148A of the new provision with a direction to continue the proceedings after following the procedure laid down under the new provisions.
The CBDT has issued Instruction No. 01/2022, dated 11.5.2022, containing guidelines for implementation of the above mentioned Supreme Court judgment. The CBDT instruction gave under mentioned guideline.
- 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.
- 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.
The instructions mentioned above have given rise to conflicting opinions. Opinions are circulating in social media calling the instruction leagally incorrect. It is being argued that the instruction is not in accordance with the provisions of the Income Tax Act, 1961 as AY 2013-14 & 2014-15 can’t be reopened under the new provision in view of the first proviso to section 149(1). As regards AY 2016-17 & 2017-18, it is being argued that they are barred by limitation as three years have already elapsed on 31-3-2021 & therefore, no notice under section 148 can be issued under the new provision on or after 1-4-2021
A little analysis of the Supreme Court judgement, the new provisions of reopening read with the provisions of TOLA would show that the above interpretation is wholly erroneous and misleading. Here it is pertinent to keep in mind that TOLA still subsists and has not been struck down as some people are advocating. The Calcutta High Court in the case of Bagaria Properties and Investment (P.) Ltd. v. Union of India, W.P.O. NOS. 244, 253 TO 256 OF 2021 & OTHS JANUARY 17, 2022
has only declared the Explanation A(a) of theNotification No. 20 [S.O. 1432 (E) dated 31st March, 2021 issued under sec 3(1) of the TOLA as ultra vires to the parent legislation. The parent Act, TOLA is still valid and is very much in operation. It is applicable to the provisions of old section 148 till 30-3-2021 & from 1-4-2021 it is applicable to the new provisions. Accordingly, the time barring dates for AY 2013-14 & 2014-15 under the old provision falling on 31-3-2020 & 31-3-3021 got extended to 30-6-2021. As such, these two years are not hit by the first proviso to section 149(1) since by virtue of TOLA both the years could be reopened on 1-4-2021 under the old provision. The erroneous interpretation is emanating from not taking into account the operation of TOLA while examining the scope of reopening AY 2013-14 & 2014-15 as on 1-4-2021. It is to be kept in mind that after 31-3-2021, the old provisions ceased to exist and all notices issued on or after 1-4-2021 ought to be under the new provision. As per the new provision, the AO can go back as far as ten years if income escaping assessment is more than 50 lakhs. Thus for cases having income escaping assessment of 50 lakhs or more, AY 2013-14 & 2014-15 are well within the range of reopening. The only caveat to this is the first proviso to section 149(1) which is extracted below for ready reference.
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
From the above it is clear that if AY 2013-14 & 2014-15 could not be reopened under the old 149 (1) (b) on 31-3-2021; it can’t be opened even now under the new provision. As per old 149(1)(b) the time limit prescribed was 6 years and therefore, AY 2013-14 could be reopened only up to 31-3-2020 and AY 2014-15 up to 31-3-2021. Therefore, prima facia it appears that in terms of restriction placed by the first proviso to section 149(1) these two AYs can’t be reopened now (between 1-4-2021 to 30-6-2021). This is the basis of calling the CBDT instruction on these two AYs wrong. The fallacy in this argument is that it ignores the TOLA which is a subsisting Act duly passed by the parliament. As per TOLA all time barring dates for issue of notice under section 148 ( whether old or new ) got shifted to 30-6-2021. As such, AY 2013-14 & 2014-15 are not hit by the restriction imposed by the first proviso to section 149(1) and accordingly, very well be reopened under the new provision till 30-6-2021. Therefore, there is no so called legal infirmity in the instruction of the CBDT relating to direction to issue notice to reopen assessments for AYs 2013-14 & 2014-15 if income escaping assessment is 50 lakhs or more. The CBDT instruction duly deals with this aspect, unfortunately despite that, this erroneous view has gained ground and may lead to avoidable litigation. As regards AY 2016-17 & 2017-18 again TOLA extends the three years time limit from 31- 3-2020 & 31-3-2021 to 30-6 2021 and therefore, these two AYs are also within the time limit prescribed
It is therefore clear that there is no legal infirmity in the CBDT instruction which is perfectly in accordance with the provisions of law. The contrary view discussed above which is in circulation for sometime is erroneous and misleading.