Instructions issued by CBDT pursuant to the judgement ofSupreme Court in case of Ashish Agrawal are ultra viresthe provisions of Section 149(1) of the Act

Facts of the Case:

• Multiple writ petitions were filed before the Hon’ble High Court of Delhi for AY 2016-17 & 2017-18, wherein notices of re-assessment were issued during the timelines extended by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereafter referred to as ‘TOLA’) i.e., between the period of 01.04.2021 to 30.06.2021 under the unamended provisions of Section 148 of the Income Tax Act, 1961 (‘the Act’) to reassess the escaped income not exceeding Rs. 50 lakhs.
• Vide Finance Act 2021, the provisions of Section 148 of the Act were replaced by the new provisions of Section 148A of the Act with effect from 01.04.2021. In parallel, CBDT extended the time lines to issue the re-assessment notices u/s 148 of the Act from 31.03.2021 to 30.06.2021 and accordingly, the impugned notices were issued under the old law. Various High Courts have set aside the notices issued by the department between period of 01.04.2021 to 30.06.2021 under the unamended provision of the Act.
• However, the Hon’ble Supreme Court of India in case of Ashish Agrawal held that the notices issued under the unamended Section 148 of the Act would be treated as having been issued under Section 148A(b) of the Act (i.e., under the amended provision) and accordingly the Supreme Court restored all the re-assessment notices which were set aside by the various High Courts.
• Followed by the judgement of apex court, the CBDT issued instructions dated 11.05.2022 wherein CBDT mentioned that the directions issued by the Supreme Court in Ashish Agrawal’s case, when read along with TOLA, will allow the extended reassessment notices to travel back in time to their original date when such notices were to be issued. And accordingly, department contended that the notices which were issued to the Assessee for AY 2016-17 & 2017-18 during the extended time lines under the unamended provisions of Section 148 of the Income Tax Act, 1961 (the Act) for income escaping assessment lower than Rs. 50 lakhs were valid in the eyes of law.
• The small question that has been put forth for consideration before Hon’ble High Court was whether department was right in its contention and the notices issued for re-assessment proceedings concerning AY 2016-17 & 2017-18 were not time barred as per the amended provision of Section 149(1)(a) of the Act.

Observation And Conclusion:

Hon’ble High Court held that:

• As per the amended provision of Section 149(1)(a) of the Act, no notice for re-assessment can be issued for the relevant assessment year under section 148 of the Act where 3 years have been elapsed from the end of the relevant assessment year and income which has escaped assessment amounts to or is likely to amount to Rs. 50 lakhs or more.
• Accordingly, the notice of re-assessment concerning AY 2016-17 & 2017-18 can be issued till 31.03.2020 & 31.03.2021 respectively as per the amended provisions of the Act where income which has escaped assessment amounts to or is likely to amount to less than Rs. 50 lakhs.
• Further as per the judgement of Supreme Court in case Ashish Agrawal, it was held that the various High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided Section 148 notice that has been issued on or after 1-4-2021. But the judgments of the various High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021. Accordingly, notices that were issued under unamended provisions of Section 148 of the Act
  shall be deemed to have been issued under Section 148A of the Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of Section 148A(b) of the Act. Further, it has been also held that all defenses which may be available to the assessees including those available under Section 149 of the amended Act and all rights and contentions which may be available to the assessees concerned under the Finance Act, 2021 and in law shall continue to be available.
• Therefore, the ratio enunciated in Ashish Agrawal’s case, Section 149(1)(a) would also apply to AY 2016-17 and AY 2017-18. Further, the reference made in paragraphs 6.1 and 6.2(ii) of the Instruction dated 11.05.2022, to the extent it propounds the “travel back in time” theory, is bad in law as the judgment of the Supreme Court rendered in Ashish Agrawal’s case nowhere mentioned that reassessment notice would “travel back in time” to their original date when such notices were to be issued and thereupon the provisions of amended Section 149 would apply. And accordingly, the paragraphs 6.1 and 6.2(ii) of the Instruction dated 11.05.2022 clearly ultra vires the provisions of Section 149(1) of the amended Act.

[2023] 156 taxmann.com 417 (Delhi)
HIGH COURT OF DELHI
Ganesh Dass Khanna
v.
Income Tax Officer

Lakshay Prakash Jonwal, Direct Tax Associate, SW India