Allahabad High Court has quashed income tax notices issued after March 31, 2021, under the old regime of re-assessment. However, the Department can issue notices again but under new mechanism as prescribed by the Finance Act 2021.
The whole issue behind this litigation is the substitution of provisions related with Sections 147 (income escaping assessment), 148 (issue of notice where income has escaped assessment), 149 (time limit for notice) and 151 (sanction for issue of notice) through Finance Act 2021.
The act also inserted new Section 148 A, which prescribes for conducting inquiry, providing opportunity before issue of notice under Section 148. The Court clubbed 74 writ petitions which challenged validity of the re-assessment proceedings initiated against the individual petitioners after April 1, 2021, under Section 148 of the Income Tax Act.
After going through all the arguments and facts, the Court noted that provisions of various Section in question stood substituted, along with a new provision.
“In absence of any saving clause, to save the pre-existing (and now substituted) provisions, the revenue authorities could only initiate reassessment proceeding on or after April 1, 2021, in accordance with the substituted law and not the pre-existing laws,” the Court said, while highlighting the fact neither in the Finance Act 2021 nor in taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (to be referred as Enabling Act) has any express provision/delegation of function to save applicability of provisions existed up to March 31, 2021.
“Consequently, it flows from the above – April 1, 2021, onwards, all references to issuance of notice contained in the Enabling Act must be read as reference to the substituted provisions only. Equally, there is no difficulty in applying the pre-existing provisions to pending proceedings,” the Court said.
It also dismissed argument by the government’s law officer that taxation law has an overriding effect which save provisions of unamended law. The Court made it clear that Enabling Act only provides a general relaxation of limitation granted on account of general hardship existing upon the spread of pandemic Covid-19.
After enforcement of the Finance Act, 2021, it applies to the substituted provisions and not the pre-existing provisions. The Court did not accept submission by the government’s lawyer saying, practicality dictates that the re-assessment proceedings be protected.
“Practicality, if any, may lead to legislation. Once the matter reaches Court, it is the legislation and its language, and the interpretation offered to that language as may primarily be decisive to govern the outcome of the proceeding. To read practicality into enacted law is dangerous. Also, it would involve legislation by the Court, an idea and exercise we carefully tread away from,” the Court said.
It declared that there is no conflict in Ordinance (Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020), Enabling Act and the Finance Act 2021. It mentioned that explanation as prescribed in various notification must be read, as applicable to reassessment proceedings as may have been in existence on March 31 and before substitution of sections.
“Consequently, the reassessment notices in all the writ petitions are quashed. It is left open to the respective assessing authorities to initiate reassessment proceedings in accordance with the provisions of the Act as amended by Finance Act, 2021, after making all compliances, as required by law,” the Court said.