Bombay High Court
Hexaware Technologies Limited vs Assistant Commissioner Of Income Tax ... on 3 May, 2024
Author: K.R. Shriram
Bench: K. R. Shriram, Neela Gokhale
Digitally
signed by
2024:BHC-OS:7104-DB
GAURI
GAURI AMIT
AMIT GAEKWAD
1/87 904.WP-1778-2023.doc
GAEKWAD Date:
2024.05.03
13:09:50
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.1778 OF 2023
Hexaware Technologies Limited, )
Building No.152, Millennium Business Park, )
Sector - 3, A Block, Mhape, Navi Mumbai, )
Thane - 400 710 ) ....Petitioner
V/s.
1. Assistant Commissioner of Income Tax, )
Circle 15(1)(2), Mumbai, Room No.483A, )
4th Floor, Aayakar Bhavan, Maharshi Karve )
Road, Mumbai - 400 020 )
2. Principal Commissioner of Income Tax, )
Mumbai - 6, Mumbai, Room No.501, )
5th Floor, Aayakar Bhavan, Maharshi Karve )
Road, Mumbai - 400 020 )
3. Principal Chief Commissioner of Income )
Tax, Room No.321, 3rd Floor, Aayakar Bhavan, )
Maharshi Karve Road, Mumbai - 400 020 )
4. Central Board of Direct Taxes, Department )
of Revenue, Ministry of Finance, North Block, )
Secretariat Building, New Delhi - 110 001 )
5. Union of India, Through Joint Secretary & )
Legal Adviser, Branch Secretariat, Department )
of Legal Affairs, Ministry of Law and Justice, )
2nd Floor, Aayakar Bhavan, M.K. Road, New )
Marine Lines, Mumbai - 400 020 ) ....Respondents
----
Mr. J.D. Mistri, Senior Advocate a/w. Mr. Madhur Agrawal i/b. Mr. Atul K.
Jasani for petitioner.
Ms. Swapna Gokhale a/w. Mr. Suresh Kumar, Mr. Akhileshwar Sharma,
Ms. Samiksha Kanani and Ms. Dhanalaxmi Iyer for respondents - Revenue.
----
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
RESERVED ON : 16th APRIL 2024
PRONOUNCED ON : 3rd MAY 2024
JUDGMENT (PER K.R. SHRIRAM, J.) :
1 Since the pleadings are completed, by consent of the parties,
we decided to dispose the petition at the admission stage itself.
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2 Therefore, Rule. Rule made returnable forthwith.
3 Petitioner is engaged in information technology consulting,
software development and business process services. Respondent no.1 is
the Assistant Commissioner of Income Tax and Jurisdictional Assessing
Officer (JAO) of petitioner, respondent no.2 is the Principal Commissioner
of Income Tax, respondent no.3 is the Principal Chief Commissioner of
Income Tax, respondent no.4 is the Central Board of Direct Taxes and
respondent no.5 is the Union of India.
4 Petitioner filed return of income for Assessment Year 2015-
2016 on 28th November 2015 declaring total income of Rs.204,54,44,990/-.
In the return of income, petitioner claimed deduction under Section 10AA
of the Act of Rs.195,94,62,306/- and also claimed deduction under Section
80JJAA of the Act of Rs.6,54,04,038/-. For claiming such deductions,
petitioner filed an audit report in Form No.56F and Form No.10DA. Further,
the details of deduction claimed under Section 10AA and 80JJAA of the Act
was also reported in the Tax Audit report in Form 3CB read with Form 3CD
which was submitted to respondent no.1 also during the course of
assessment proceedings.
5 Petitioner's case was selected for scrutiny and notice dated
17th June 2016 under Section 143(2) of the Act came to be issued.
Respondent no.1 also issued a notice dated 22 nd August 2017 under Section
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142(1) of the Act. This was followed by another notice dated 5 th October
2017 calling upon petitioner to file details of deduction claimed under
Chapter VIA alongwith all supporting documents. By its letter dated
13th November 2017 petitioner submitted details of deduction claimed
under Chapter VIA of the Act alongwith all supporting documents.
Petitioner further filed computation of income and provided reference to
disclosures in Form 3CD with respect to the deductions claimed by
petitioner. Further submissions were filed during the assessment
proceedings. Respondent no.1, thereafter passed an assessment order dated
30th November 2017 under Section 143(3) of the Act accepting the return
of income filed by petitioner.
6 Almost 3 ½ years later, respondent no.1 issued a notice dated
8th April 2021 under Section 148 of the Act stating that he had reason to
believe that income chargeable to tax for Assessment Year 2015-2016 has
escaped assessment within the meaning of Section 147 of the Act. Petitioner
was also provided a copy of the reasons recorded.
Petitioner, thereafter filed a writ petition being Writ Petition
No.3179 of 2021 challenging the notice issued under Section 148 of the Act
on the ground that the said notice has been issued on the basis of the
provisions which have ceased to exist and are no longer in the statute. The
petition was allowed on 29th March 2022 and the Court held that the notice
dated 8th April 2021 was invalid.
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7 On a Special Leave Petition that the Revenue had filed in the
case of Union of India & Ors. vs. Ashish Agarwal ,1 the Hon'ble Apex Court,
in exercise of jurisdiction under Article 142 of the Constitution of India,
passed orders with respect to the notices and inter alia held that the notices
issued under Section 148 of the Act after 1st April 2021 be treated as notice
issued under Section 148A(b) of the Act and provided for time lines to be
followed by the Assessing Officers for providing assessees the information
and material relied upon by the Revenue for initiating reassessment
proceedings. The Hon'ble Apex Court also clarified that all the defences
available to assessees under the provisions of the Act would be available to
assessee.
8 Thereafter, respondent no.1 issued the notice dated 25 th May
2022 stating that the said notice is issued in view of the decision of the
Hon'ble Apex Court in Ashish Agarwal (Supra). It was also stated that the
information relied on by respondent no.1 was embedded in the reasons
recorded which is being provided as an attachment to the imputed initial
notice. In the reasons, it was alleged as under :
(i) Petitioner has claimed deduction under Section 80JJAA of
the Act, which allows deduction of an amount equal to 30% of the
additional wages paid to the new regular workmen employed by assessee.
The basic condition to avail this deduction is to derive profit from
1 (2022) 444 ITR 1 (SC)
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manufacture of goods in the factory. This condition has not been fulfilled by
petitioner and hence, petitioner is not eligible for deduction under Section
80JJAA of the Act;
(ii) The percentage of profit derived by assessee from its
undertaking eligible for deduction under Section 10AA of the Act is more
than the profit derived from the non-eligible undertaking and, hence, it
appears that petitioner has reported higher profits in the units eligible for
100% deduction;
(iii) In the computation of income, petitioner has added
Rs.79.49 Crores on account of realized foreign exchange loss (Forex), which
was reduced in computation of income in the last year. However, in the last
year, the total amount reduced was Rs.86.40 Crores and, therefore, the
difference of Rs.6.90 Crores has escaped assessment and is required to be
added to the total income of petitioner; and
(iv) Certain transactions have been undertaken in the name of
Calibre Point Business Solutions Ltd. However, as per AIMS Module of
ITBA, Caliber Point Business Solutions Ltd. has not filed its return of income
for the subject year. Further, as Calibre Point Business Solutions Ltd. is
amalgamated with petitioner, the income from the said transactions has
also escaped assessment and is required to be brought to tax.
9 Petitioner, by its letter dated 10 th June 2022, filed its objections
challenging the validity of the notice. Petitioner, inter alia, submitted that :
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(a) The present reopening is contrary to Section 149(1)(b) of
the Act, as no income, which is represented in the form of an 'asset', has
escaped assessment and there is no such allegation by respondent no.1 in
this regard;
(b) Approval under Section 151 of the Act for issuing the
impugned initial notice has not been obtained from the appropriate
authority and, hence, the reassessment proceedings are invalid and bad in
law;
(c) For all the issues raised in the reasons, complete details and
documents were available with respondent no.1 during the course of the
original assessment proceedings and, therefore, the present reopening is
clearly a case of change of opinion and hence, invalid and bad in law;
(d) Relying on various provisions of the Act, it was submitted
that petitioner being engaged in the business of software development and
information technology enable services will qualify as an industrial
undertaking for the purpose of Section 80JJAA of the Act and, hence, will
be eligible for deduction under the said Section;
(e) In fact, the claim of deduction under Section 80JJAA of the
Act has been consistently allowed by respondent no.1 or the Appellate
Authorities since the Assessment Year 2010-2011;
(f) Petitioner had originally credited Rs.86.40 Crores being the
loss on forward contract to hedging reserve account in the balance sheet as
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on 31st March 2014. This amount was not routed through the profit and loss
account of petitioner and was separately claimed as a deduction in the
computation of income for Assessment Year 2014-2015, i.e., the earlier
assessment year. During the relevant financial year, on materialization of
the part of Forex contract, the amount of Rs.79.49 Crores being the actual
loss was transferred from hedging reserve account to profit and loss
account. However, as the deduction had already been claimed in the earlier
year, there was no deduction claimed in this year in the computation of
income. The difference of Rs.6.90 Crores pertains to transactions which did
not materialize till 31st March 2015 and hence, the same was not
transferred from the hedging reserve to profit and loss account. Further the
said amount has been charged to the profit and loss account of subsequent
year and has been adjusted in the computation of income of the subsequent
years, and therefore, does not reflect in the income chargeable to tax of the
current year. Thus, there is no income which has escaped assessment;
(g) Calibre Point Business Solutions Ltd., which was a wholly
owned subsidiary of petitioner, had merged with petitioner on the
appointed date of 1st April 2013 as per order dated 10th October 2014 of the
Bombay High Court. Subsequent to the merger, all the transactions of
Calibre Point Business Solutions Ltd. were considered in the return and
assessment of petitioner and hence, all the transactions of Calibre Point
Business Solutions Ltd. are already accounted for in the books of petitioner
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and considered while filing the income tax return. Therefore, there is no
escapement of income on this count as well.
10 Notwithstanding the detailed reply filed by petitioner,
respondent no.1 issued a notice dated 29 th June 2022 stating that petitioner
is requested to submit any further explanation/documentary evidence in
support of petitioner's case before 4th July 2022. It is further stated in the
notice that the information is called for due to change in incumbency as per
the provision of Section 129 of the Act.
Petitioner informed respondent no.1 that the submissions dated
10th June 2022 should be considered as a response to the notice dated
29th June 2022. Further, at the request of respondent no.1, online response
was also filed on 22nd July 2022.
11 Respondent no.1 thereafter passed the impugned order dated
26th August 2022, inter alia, holding as under :
(i) The revenue audit has raised objection on the issue of claim
of deduction under Section 80JJAA of the Act and hence, the objection of
petitioner that there is no information which suggests that escapement of
income is not tenable;
(ii) The objection of reassessment proceedings being barred by
limitation does not have any merit in view of CBDT Instruction No.1 of
2022;
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(iii) The approval has rightly been obtained for issuing the
original notice under Section 148 of the Act as per the then existing
provisions and hence, the allegation that the approval has not been
obtained from the appropriate authority is rejected;
(iv) Business of software development does not come within
the ambit of an industrial undertaking being engaged in manufacture of
production of articles or things. Hence, petitioner is not eligible for
deduction under Section 80JJAA of the Act;
(v) With respect to the issue of Forex loss of Rs.6.90 Crores,
prima facie the contention of petitioner appears to be acceptable but in the
absence of supporting details and documentary evidence in respect of
foreign exchange gain/loss, the issue remains unverifiable. Therefore, the
issue of claim of deduction on account of Forex loss is not found to be
genuine;
(vi) Transaction of Calibre Point Business Solutions Ltd. has
been reported in the income tax return of petitioner and this issue has not
resulted in any escapement of income;
Respondent no.1 further did not make any adverse comment
with respect to claim of deduction under Section 10AA of the Act and,
therefore, in our view, it must be presumed that the said issue has already
been dropped by respondent no.1 while passing the impugned order.
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12 Respondent no.1, thereafter, issued the notice dated 27 th
August 2022 manually, stating that respondent no.1 has information in the
case of petitioner, which requires action in consequence of the judgment of
the Hon'ble Apex Court, which suggests that income chargeable to tax for
Assessment Year 2015-2016 has escaped assessment. It is further stated in
the notice that it has been issued after taking approval of respondent no.3.
13 Separately, a communication dated 27th August 2022 was
issued where respondent no.1 stated that DIN No.ITBA/AST/M/148_1/
2022-23/1044985555(1) has been generated for the issuance of notice
dated 26th August, 2022 under Section 148 of the Act. In response,
petitioner filed on 23rd September 2022 its return of income to the notice
dated 27th August 2022 and also sought a copy of the approval for passing
the impugned order and for issuing the notice, which was provided on
30th September 2022.
It is necessary to note that respondent no.4, which is the
Central Board of Direct Taxes (CBDT), has issued Circular No.19 of 2019
inter alia providing that any communication issued by respondent without a
DIN (Document Identification Number) shall be treated as invalid and shall
be deemed to have never been issued.
14 Being aggrieved by the assumption of jurisdiction by
respondent no.1, which petitioner says was unlawful, in (i) issuing the
notice dated 25th May 2022 purporting to treat notice dated 8 th April 2021
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as notice issued under Section 148A(b) of the Act for Assessment Year
2015-2016; (ii) passing the order dated 26 th August 2022 under Section
148A(d) of the Act for Assessment Year 2015-2016; and (iii) issuing the
notice dated 27th August 2022 by respondent no.1 under Section 148 of the
Act for Assessment Year 2015-2016, petitioner has approached this Court
under Articles 226 of the Constitution of India.
15 Mr. Mistri submitted as under :
(a) Taxation and Other Laws (Relaxation and Amendment of
certain provisions) Act, 2020 [TOLA] was not applicable for Assessment
Year 2015-2016 and, therefore, there is no question of Revenue relying on
TOLA to justify the impugned notice under Section 148 of the Act as being
within the period of limitation. This view has been held by this Court in
Tata Communications Transformation Services Ltd. vs. Assistant
Commissioner of Income Tax and Ors. 2 as well as Siemens Financial
Services (P.) Ltd. vs. Deputy Commissioner of Income Tax3;
(b) Notice dated 27th August 2022 issued under Section 148 of
the Act is barred by limitation as per the first proviso to Section 149 of the
Act. The first proviso to Section 149 of the Act provides that no notice
under Section 148 shall be issued at any point of time in a case for a
relevant assessment year beginning on or before the 1 st day of April 2021, if
a notice under Section 148 could not have been issued 'at that time' on
2 (2022) 443 ITR 49 (Bom)
3 (2023) 154 taxmann.com 159 (Bombay)
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account of being beyond the time limit specified under the provision of
clause (b) of sub-section (1) of Section 149, as it stood immediately before
the commencement of the Finance Act, 2021;
(c) The term 'at that time' in the first proviso refers to the date
on which notice under Section 148 of the Act is issued by the Assessing
Officer. On the said date, if a notice could not have been issued under the
erstwhile provision of Section 149(1)(b) of the Act, for any assessment year
beginning on or before the 1st day of April 2021, the notice cannot be issued
even under the new provisions. Section 149(1)(b) of the erstwhile
provisions provided a time limit of six years from the end of the relevant
assessment year for issuing notice under Section 148 of the Act. For the
relevant assessment year, being Assessment Year 2015-2016, sixth year
expired on 31st March 2022. The notice under Section 148 of the Act, in the
present case, is issued on 27 th August 2022, i.e., clearly beyond the period
of limitation prescribed in Section 149 read with the first proviso to the said
Section. The stand of the Revenue to interpret the first proviso to Section
149 of the Act to be applicable only for Assessment Years 2013-2014 and
2014-2015, i.e., for assessment years where the period of limitation had
already expired on 1st April 2021 is not correct because that would render
the first proviso to Section 149 of the Act redundant and otiose. The time
limit to issue notice under Section 148 of the Act had already expired on
1st April 2021 for Assessment Year 2013-2014 and Assessment Year 2014-
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2015 when Section 149 of the Act was amended. Therefore, reopening for
Assessment Year 2013-2014 and Assessment Year 2014-2015 had already
been barred by limitation on 1st April 2021. Moreover, that would render
the parts 'at any time' or 'beginning on or before 1 st day of April 2021' or
the words 'at that time' used in the proviso redundant. If we accept the
interpretation given by the Revenue, then it would amount to rewriting the
proviso to Section 149(1)(b) of the Act;
(d) The fifth and sixth provisos to Section 149 of the Act are
not applicable. The fifth proviso is not applicable for extension of limitation
for issuing the notice under Section 148 of the Act. The fifth and sixth
provisos to Section 149 of the Act are only applicable with respect to the
period of limitation prescribed in Section 149(1) of the Act, i.e., three years
or ten years, as the case may be. The fifth proviso or sixth proviso extend
limitation for issuing notice under Section 149 of the Act, however, the first
proviso is an exception to the period of limitation and provides for a
restriction on the notices under Section 148 of the Act being issued for
Assessment Years upto 2021-2022 beyond a certain date. Whether Section
149 of the Act would operate, the Court has to first decide whether a notice
issued under Section 148 of the Act is within the period of limitation in
terms of Section 149(1)(a) or (b) of the Act. To decide whether the notice is
within the period of limitation under Section 149(1)(a) or (b) of the Act,
the extension of time as per the fifth and/or sixth proviso would be
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considered. Once the notice is otherwise within the period of limitation,
thereafter one has to see whether the said time limit is within the restriction
provided in the first proviso or not. If the notice is beyond the restriction
period, the notice is invalid. The fifth and/or the sixth proviso cannot apply
at this stage to extend the period of restriction as per the first proviso and
this has been confirmed in Godrej Industries Ltd. vs. The Assistant
Commissioner of Income Tax and Ors.4
In the alternative, even if the fifth and sixth provisos are
applicable, under the fifth proviso the period to be excluded would be
counted from 25th May 2022, i.e., the date on which the show cause notice
was issued under Section 148A(b) of the Act by respondent no.1
subsequent to the decision of the Hon'ble Apex Court in the case of Ashish
Agarwal (Supra) and upto 10th June 2022, which is a period of 16 days. The
period from 29th June 2022 upto 4th July 2022 cannot be excluded as the
same was not based on any extension sought by petitioner but at the behest
of respondent no.1. Even if the same was to be excluded, still that would
mean further exclusion of 5 days. Even then the impugned notice dated
27th August 2022 is still beyond limitation;
(e) The impugned notice dated 27 th August 2022 is invalid and
bad in law as the same has been issued without DIN. In the impugned
notice dated 27th August 2022 no DIN is mentioned and, hence, in view of
4 2024 SCC OnLine Bom 681
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the Circular No.19 of 2019 dated 14 th August 2019 issued by CBDT, the
notice is invalid. A separate intimation letter dated 27th August 2022 cannot
validate the notice because (i) the intimation letter refers to a DIN with
respect to notice dated 26th August 2022 under section 148 of the Act
whereas, the impugned notice issued to petitioner is dated 27 th August
2022; and (ii) the procedure prescribed in Circular No.19 of 2019 for non
mention of DIN has not been complied with. In the case of non compliance
of those procedure prescribed in the notice for non mention of DIN, the
notice would be invalid and bad in law as held in Ashok Commercial
Enterprises vs. Assistant Commissioner of Income Tax 5 and Principal
Commissioner of Income Tax vs. Tata Medical Center Trust6;
(f) The impugned notice dated 27 th August, 2022 is invalid and
bad in law being issued by the JAO which is not in accordance with Section
151A of the Act which gives power to CBDT to notify the Scheme for the
purpose of assessment, reassessment or recomputation under Section 147
for issuance of notice under Section 148 of the Act or for conducting of
inquiry or issuance of show cause notice or passing of order under Section
148A of the Act or sanction for issuance of notice under Section 151 of the
Act. In exercise of the powers conferred under Section 151A of the Act,
CBDT issued a notification dated 29th March, 2022 after laying the same
before each House of Parliament and formulated a Scheme called "the
5 (2023) 459 ITR 100
6 (2023) 459 ITR 155 (Cal)
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e-Assessment of Income Escaping Assessment Scheme, 2022" (the Scheme).
The Scheme provides that (a) the assessment, reassessment or
recomputation under Section 147 of the Act and (b) the issuance of notice
under Section 148 of the Act shall be through automated allocation, in
accordance with risk management strategy formulated by the Board as
referred to in Section 148 of the Act for issuance of notice and in a faceless
manner, to the extent provided in Section 144B of the Act with reference to
making assessment or reassessment of total income or loss of assessee. The
impugned notice dated 27th August, 2022 has been issued by respondent
no.1 (JAO) and not by the NFAC, which is not in accordance with the
aforesaid Scheme;
(g) No income chargeable to tax which is represented in the
form of 'an asset' has escaped assessment and, hence, the extended period
of time limit specified in Section 149(1)(b) of the Act cannot apply. The
only issue which remains for issuing the impugned notice is the claim of
deduction under section 80JJAA of the Act. An issue of correctness of claim
of deduction can never represent escapement of income in the form of an
asset. This is because the term 'asset' is defined in Explanation to Section
149 of the Act to include immovable property being land or building or
both, shares and securities, loans and advances, deposit in bank account.
The present case does not fall in any of the types of the assets as mentioned
above. The alleged claim of disallowance of deduction also cannot fall
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under the category of either expenditure in respect of transaction in relation
to an event or an entry in the books of account because it is neither a case
of expenditure in respect of transaction in relation to an event nor a case of
entry in the books of account as no entries are passed in the books of
account for claiming a deduction under the provisions of the Act;
(h) Respondent no.1 has no power to review his own
assessment when the same information was provided and considered by
him during the original assessment proceedings. There cannot be a
reopening based on a change of opinion. The claim of deduction under
Section 80JJAA of the Act was made by petitioner in the return of income
and petitioner had filed Form 10DA being the report of the Chartered
Accountant. In the Form, a note has been filed alongwith Form 10DA and it
has specifically been submitted by petitioner that software development
activity constitutes 'manufacture/production of article or thing'. The claim
of deduction under Section 80JJAA of the Act was also disclosed in the Tax
Audit Report filed alongwith the return of income. Moreover, during the
assessment proceedings, the Assessing Officer had issued a notice dated
5th October, 2017 asking for details of deduction claimed under Chapter VI
of the Act. Petitioner, by its letter dated 13 th November 2017, gave the
details of deduction claimed alongwith supporting documents. Thereafter,
the Assessing Officer passed the assessment order dated 30 th November
2017 allowing the claim of deduction under Section 80JJAA of the Act.
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Therefore, the present case is clearly a case of change of opinion which is
not permissible even under the new provisions as held in Siemens Financial
Services (P.) Ltd. (Supra). The claim of deduction under Section 80JJAA has
been allowed to petitioner consistently since Assessment Year 2010-2011
and hence, respondent no.1 cannot allege escapement of income on
account of claim being wrongly allowed in Assessment Year 2015-2016
when such claim stands allowed for earlier years on identical facts, i.e.,
with respect to the same business activity.
16 Ms. Gokhale submitted as under :
(a) The original notice dated 8 th April 2021 issued under
Section 148 of the Act was within limitation because six years under the old
provisions for Assessment Year 2015-2016 would expire only on 31 st March
2022.
We have to note that to the query raised by the Court that how
after 1st April 2021 respondent could have issued the notice under the old
provisions and the fact that it has been quashed, Ms. Gokhale had no
answer;
(b) The notice issued on 25th May 2022 was within 30 days of
pronouncement of judgment in Ashish Agarwal (Supra) and reply to the
notice was received on 10th June 2022. This period from 25 th May 2022 and
10th June 2022 was to be excluded. Later, on 29 th June 2022 notice was
issued and petitioner replied on 22nd July 2022. This period from 29th June
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2022 and 22nd July 2022 also has to be excluded;
(c) The time limit for issuing notice under un-amended Section
149 which was falling from 20th March 2020 till 31st March 2021 was
extended by Section 3 of the Taxation and Other Laws (Relaxation and
Amendment of certain provisions Act), 2020 (TOLA) read with Notification
No.20 of 2021 dated 31st March 2021 and Notification No.38 of 2021 dated
27th April 2021, until 30th June 2021. The power of reassessment that
existed prior to 31st March 2021 continued to exist till the extended period,
i.e., till 30th June 2021. The Finance Act, 2021, however, has merely
changed the procedure to be followed prior to issuance of notice with effect
from 1st April 2021. Subsequently, the Hon'ble Apex Court in Ashish
Agarwal (Supra) held that the Section 148 notices issued between 1 st April
2021 and 30th June 2021 will be deemed to have been issued under Section
148A of the Act. Any notice issued under Section 148 from 1 st April 2021
would be governed only by the timelines specified under the new Section
149 even though it may relate to the past assessment years. Consequently,
applying the new Section 149, should any proceedings be initiated by the
end of 31st March 2020, the same would get extended because of TOLA
upto 30th June 2021. If this is not done then some of the assessment years
for the past periods cannot be proceeded at all in the absence of TOLA. The
Hon'ble Apex Court's expression that 'revenue should not be left remediless'
cannot be overlooked and the decision rendered inoperative. CBDT with a
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view to implement the judgment of the Hon'ble Apex Court in the case of
Ashish Agarwal (Supra) in a uniform manner, in exercise of power under
Section 119 of the Act, has interpreted the judgment and issued guidelines
for implementation of the same by explaining the scope of judgment,
operation of new Section 149 of the Act to identify cases where fresh
notices under Section 148 of the Act can be issued, cases where Assessing
Officer is required to provide the information in material relied upon within
30 days and procedure to be followed by the Assessing Officers to comply
with the Hon'ble Apex Court's judgment. The contention by petitioner that
CBDT has misconstrued the observations of the Hon'ble Apex Court with
regards to the reopening of cases is also not tenable. CBDT, vide Instruction
No.1 of 2022 dated 11 th May 2022 had issued guidelines for interpretation
of judgment and the concerning assessment years for which the decision of
the Hon'ble Apex Court will be applicable. The validity of CBDT Instruction
No.1 of 2022 was challenged in the case of Touchstone Holdings Pvt. Ltd.
vs. Income Tax Officer, Ward 25(3), Delhi 7 before the Hon'ble Delhi High
Court. The Hon'ble Delhi High Court in its order dated 9 th September 2022
dismissed the writ petition alongwith the challenge to paragraph 6.2(i) of
CBDT Instruction No.1 of 2022 dated 11 th May 2022, wherein the challenge
to Instruction No.1 of 2022 issued by CBDT was held as not maintainable.
This submission was raised by Revenue in New India Assurance Company
7 (2022) 142 taxmann.com 336 (Delhi)
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Ltd. vs. Assistant Commissioner of Income Tax 8 and has not been accepted
by this court;
(d) It is open to CBDT to clarify that the law laid down by the
Hon'ble Apex Court in Ashish Agarwal (Supra) means that the extended
reassessment notices will travel back in time from the original date when
such notices were to be issued;
(e) As regards the submission that the notice was issued by the
JAO and not Faceless Assessing Officer (FAO) and hence, invaild, they both
have concurrent jurisdiction;
(f) In any event, petitioner has alternate remedy by way of an
appeal if reassessment order is passed not to the liking of petitioner.
17 Mr. Suresh Kumar and Mr. Sharma, who were present in Court
because there were similar petitions where they are concerned on behalf of
the Revenue, sought leave of the Court to make submissions in this petition
as well to supplement the arguments of Ms Gokhale. They were permitted.
18 Mr. Suresh Kumar submitted as under :
(a) In view of the Finance Act, 2021, which came into force
from 1st April 2021, for Assessment Year 2015-2016, the Revenue will have
upto ten years to issue notice under Section 148 of the Act subject to it
complying with the preconditions mentioned in Section 149(1)(b) of the
Act;
8 (2024) 158 taxmann.com 367 (Bombay)
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(b) The six years limitation prescribed as it stood immediately
before the commencement of the Finance Act, 2021 will not be applicable.
19 Mr. Sharma submitted as under :
(a) The expression "at that time" used in the first proviso to
Section 149(1) of the Act would mean 1st April 2021 and not the date of the
notice under Section 148 of the Act.
(b) Mr. Sharma, relying on the notification dated 29 th March
2022 [Notification No.18/2022/F. No.370142/16/2022-TPL], submitted as
under :
(i) The guideline dated 1st August 2022 issued by the CBDT
includes a suggested format for issuing notice under Section 148 of the Act,
as an Annexure to the said guideline and it requires the designation of the
Assessing Officer alongwith the office address to be mentioned and,
therefore, it is clear that the JAO is required to issue the said notice and not
the FAO.
(ii) ITBA step-by-step Document No.2 dated 24 th June 2022, an
internal document, regarding issuing notice under Section 148 for the cases
impacted by Hon'ble Supreme Court's decision dated 4 th May 2022 in the
case of Ashish Agarwal (Supra), requires the notice issued under Section
148 of the Act to be physically signed by the Assessing Officers and,
therefore, the JAO has jurisdiction to issue notice under Section 148 of the
Act and it need not be issued by FAO.
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(iii) FAO and JAO have concurrent jurisdiction and merely
because the Scheme has been framed under Section 151A of the Act, it does
not mean that the jurisdiction of the JAO is ousted or that the JAO cannot
issue the notice under Section 148 of the Act.
(iv) The notification dated 29th March 2022 provides that the
Scheme so framed, is applicable only 'to the extent' provided in Section
144B of the Act and Section 144B of the Act does not refer to issuance of
notice under Section 148 of the Act. Hence, the notice cannot be issued by
the FAO as per the said Scheme.
(v) No prejudice is caused to petitioner when the notice is
issued by the JAO and, therefore, it is not open to petitioner to contend that
the said notice is invalid merely because the same is not issued by the FAO.
(vi) Office Memorandum dated 20th February 2023 issued by
Central Board of Direct Taxes (TPL division) with the subject - " seeking
inputs/comments on the issue of challenge of jurisdiction of JAO - reg. " the
Office Memorandum contains the arguments of the Revenue in the context
of the Scheme to submit that the notice under Section 148 of the Act is
required to be issued by the JAO and not FAO.
(c) No prejudice has been caused to assessee by the JAO
issuing the notice because the reassessment will be done by the FAO and as
held by the Calcutta High Court in Triton Overseas Private Limited vs.
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Union of India and Ors.9; this objection of petitioner has to be rejected.
FINDINGS :
20 After hearing all the counsels, the following issues came up for
consideration :
(1) Whether TOLA is applicable for Assessment Year
2015-2016 and whether any notice issued under
Section 148 of the Act after 31 st March 2021 will
travel back to the original date?
(2) Whether the notice dated 27th August 2022
issued under Section 148 of the Act is barred by
limitation as per the first proviso to Section 149 of
the Act?
(3) Whether the impugned notice dated 27 th August
2022 is invalid and bad in law as the same has been
issued without a DIN?
(4) Whether the impugned notice dated 27 th August
2022 is invalid and bad in law being issued by the
JAO as the same was not in accordance with
Section 151A of the Act?
(5) Whether the issues raised in the impugned
order show an alleged escapement of income
represented in the form of an asset or expenditure
in respect of transaction in relation to an event or
an entry in the books of account as required in
Section 149(1)(b) of the Act?
(6) Whether respondent no.1 has proposed to
reopen on the basis of change of opinion and if it is
permissible?
(7) When the claim of deduction under Section
80JJAA of the Act has been consistently allowed in
favour of petitioner by the Assessing Officers/
Appellate Authorities in the earlier years, can the
Assessing Officer have a belief that there is
9 2023 (156) taxmann.com 318 (Calcutta)
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escapement of income?
(8) Whether the approval granted by the
Sanctioning Authority was valid?
21 As regards issue no.1, for Assessment Year 2015-2016 the
provisions of TOLA are not applicable. This is a categorical finding in Tata
Communications Transformation Services Ltd. (Supra) and has been
followed by the Siemens Financial Services (P.) Ltd. (Supra)
Paragraph 27 of Siemens Financial Services (P.) Ltd. (Supra)
reads as under :
27. This Court, in a series of judgments, has held that TOLA
cannot apply in respect of reassessment proceedings for AY
2015-16 and subsequent years:-
(a) Tata Communications Transformation Services Ltd
(supra), paragraph 49(c) reads as under :
"49. Some more reasons why the reopening notices
must go are :
(a) .................
(b) .................
(c) In any case, Relaxation Act is not applicable for
Assessment Years 2015-2016 or any subsequent year
and, hence, the question of applicability of the
Notification Nos.20 and 38 of 2021 does not arise. The
time limit to issue notice under section 148 of the Act
for the Assessment Years 2015- 2016 onwards was not
expiring within the period for which section 3(1) of
Relaxation Act was applicable and, hence, Relaxation
Act could never apply for these assessment years. As a
consequence, there can be no question of extending the
period of limitation for such assessment years."
(b) Judgment in Tata Communications (Supra) has been
affirmed by the Supreme Court in Ashish Agarwal (supra) in
paragraph 7, where, the Supreme Court states that it is in
complete agreement with the view of the High Courts. It
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reads as under :
"7. Thus, the new provisions substituted by the Finance
Act, 2021 being remedial and benevolent in nature and
substituted with a specific aim and object to protect the
rights and interest of the assessee as well as and the
same being in public interest, the respective 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 has been issued on or after 1 st April,
2021. We are in complete agreement with the view
taken by the various High Courts in holding so."
(c) J.M. Financial (supra) - paragraphs 5 to 7 read as under :
"5. Respondents have relied upon a letter dated
18th March 2021 issued by one Income Tax Officer, who
has given an opinion to the Additional Commissioner of
Income Tax that in view of the Taxation and other Laws
(Relaxation of Certain Provisions) Act, 2020
(Relaxation Act), limitation, inter alia, under provisions
of Section 151(1) and Section 151(2), which were
originally expiring on 31st March 2020 stand extended
to 31st March 2021. According to the Income Tax
Officer, in view of the above, Assessment Year 2015-
2016 which falls under the category within four years
as on 31st March 2020, the statutory approval for
issuance of notice under Section 148 of the Act for the
Assessment Year 2015-2016 may be given by the Range
Head as per the said provisions. Mr. Sharma clarifies
that the Income Tax Officer is only conveying the view
of the Principal Commissioner of Income Tax because
this letter has been issued on the letterhead of Principal
Commissioner of Income Tax.
6. Even for a moment we agree with the view
expressed by the Principal Commissioner of Income
Tax, still it applies to only cases where the limitation
was expiring on 31st March 2020. In the case at hand,
the assessment year is 2015-2016 and, therefore, the
six years limitation will expire only on 31 st March 2022.
Certainly, therefore, the Relaxation Act provisions may
not be applicable. In any event, the time to issue notice
may have been extended but that would not amount to
amending the provisions of Section 151 of the Act.
7. In our view, since four years had expired from the
end of the relevant assessment year, as provided under
Section 151(1) of the Act, it is only the Principal Chief
Commissioner or Chief Commissioner or Principal
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Commissioner or Commissioner who could have
accorded the approval and not the Additional
Commissioner of Income Tax. On this ground alone, we
will have to set aside the notice dated 31 st March 2021
issued under Section 148 of the Act, which is impugned
in this petition. In view thereof, the consequent orders
and notices will also have to go."
(d) MA Multi-Infra Development Pvt Ltd v. ACIT - paragraph
7 reads as under :
"7. Be that as it may, in our view, the present case is
squarely covered by the view taken by this Court in J.M.
Financial & Investment Consultancy Services (P) Ltd.
(Supra). We accordingly hold that the approval for
issuance of notice u/s. 148 ought not have been
obtained from the Additional Commissioner of Income
Tax but from the authority specifically mentioned u/s.
151(ii) of the Act."
(e) DCW Limited v. ACIT - paragraphs 5,6, 7 & 8 read as
under :
"5. In the aforementioned case, which also pertained to
assessment year 2015-16 and in which approval was
granted on 26th March 2021 by the 'Additional
Commissioner of Income Tax', was held to be bad
inasmuch as it was held that having been issued
beyond the period of four years from the relevant
assessment year, the approval ought to have been
accorded by the Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or
Commissioner of Income Tax and not by the Additional
Commissioner of Income Tax. The Court also held that
the provisions of the Taxation and Other Laws
(Relaxation and Amendment of Certain Provisions) Act,
2020 ('Relaxation Act') may have extended the time to
issue a notice under section 148 of the Act but did not
have the effect of amending the provisions of section1
151 of the Act. This Court held :
"5. Respondents have relied upon a letter dated
18th March 2021 issued by one Income Tax
Officer, who has given an opinion to the
Additional Commissioner of Income Tax that in
view of the Taxation and other Laws
(Relaxation of Certain Provisions) Act, 2020
(Relaxation Act), limitation, inter alia, under
provisions of Section 151(1) and Section
151(2), which were originally expiring on
31st March 2020 stand extended to 31 st March
2021. According to the Income Tax Officer, in
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view of the above, Assessment Year 2015-2016
which falls under the category within four
years as on 31st March 2020, the statutory
approval for issuance of notice under Section
148 of the Act for the Assessment Year 2015-
2016 may be given by the Range Head as per
the said provisions. Mr. Sharma clarifies that
the Income Tax Officer is only conveying the
view of the Principal Commissioner of Income
Tax because this letter has been issued on the
letterhead of Principal Commissioner of
Income Tax.
6. Even for a moment we agree with the view
expressed by the Principal Commissioner of
Income Tax, still it applies to only cases where
the limitation was expiring on 31st March 2020.
In the case at hand, the assessment year is
2015-2016 and, therefore, the six years
limitation will expire only on 31st March 2022.
Certainly, therefore, the Relaxation Act
provisions may not be applicable. In any event,
the time to issue notice may have been
extended but that would not amount to
amending the provisions of Section 151 of the
Act."
6. In the present case, counsel for the respondents
reiterated the stand of the revenue as was taken before
the Court in the aforementioned case. However, we do
not find any reason to take a view different from the
one which has already been taken by this Court in the
aforementioned judgment.
7. Without going into any other issues, since the issue
of grant of approval by an authority, as prescribed
under section 151 of the Act goes to the root of the
matter, we wish to deal only with the said issue and
hold that even in the present case, the approval ought
to have been granted by either the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner and not by the Additional Commissioner
of Income tax.
8. Since the notice was being issued beyond the four
years period prescribed under the un-amended
provisions of section 151(1) of the Act, it ought to have
the satisfaction accorded by the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner of Income Tax which is
not so in the present case."
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(f) Soumya Girdhari Agarwal v. ITO - paragraph 4 read as
under :
"4. On a reading of Section 151 it is clear that a notice
under Section 148 of the Act, 1961 cannot be issued
after the expiry of period of four years from the end of
the relevant assessment year, unless the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner was satisfied, on the
reasons recorded by the A.O., that it was a ft case for
the issue of such a notice.
In the present case, it is clear that assessment year
under consideration was 2015-16 and, therefore, the
notice impugned dated 29th March, 2021 was
admittedly beyond the four years period for which the
approval ought to have been granted by any one of the
aforementioned four authorities and not by the Joint
Commissioner. It is clear that, the A.O. fell in error in
holding that the case at hand fell within the four years
period, from the end of the assessment year under
consideration, which on the face of it appears to be
erroneous."
(g) Voltas Limited v. ACIT - paragraphs 6, 19 to 24 read as
under :
"(6) In the petition, petitioner has also raised an
objection that the sanction obtained under section 151
of the Act was not a valid sanction since the proposed
reopening is more than 4 years after expiry of relevant
assessment year. As provided under sub-section (1) of
section 151 of the Act only a Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner could grant the
sanction. Since in this case, admittedly, sanction has
been granted by an Additional Commissioner of Income
Tax, it is not a valid sanction and therefore, notice
issued based on an invalid sanction is also not valid
and has to be quashed.
**************************
(19) It is also petitioner's case that the approval
obtained for issuing notice under section 148 of the Act
is not in accordance with the mandate of Section 151
as the said approval is of Additional Commissioner of
Income Tax instead of Principal Commissioner of
Income Tax. It is petitioner's case that the reasons put
up for approval on 26.03.2021, which is after the
expiry of four years from the end of the relevant
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assessment year 2015-2016 and approval was granted
on 30.03.2021. Therefore, Mr. Joshi submitted that as
per Section 151 of the Act, as four years have elapsed
at the time of reopening, the sanction is required to be
obtained from the Principal Chief Commissioner or
Chief Commissioner or Principal Commissioner or
Commissioner of Income Tax and since the sanction has
not been obtained from any of these four
Commissioners of Income Tax, the notice issued is bad
in law.
(20) Sub-Section 1 of Section 151 of the Act provides
that no notice shall be issued under Section 148 by an
Assessing Officer, after the expiry of a period of four
years from the end of the relevant assessment year,
unless the Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or
Commissioner is satisfied, on the reasons recorded by
the Assessing Officer, that it is a ft case for the issue of
such notice.
(21) Admittedly in this case, four years from the end of
the relevant assessment year A.Y. 2015-16 has expired
before the issuance of notice and the approval also has
been obtained from the Additional Commissioner of
Income Tax and not Principal Commissioner of Income
Tax. In the affidavit-in-reply fled through Yashraj Nain,
affirmed on 25.03.2022, these facts have not been
disputed but according to respondents, the approval
granted by the Additional Commissioner of Income Tax
was a valid approval.
(22) Respondents have relied upon Taxation and other
Laws (Relaxation of Certain Provisions) Act, 2020
(Relaxation Act), limitation to submit, inter alia, under
provisions of Section 151(1) and Section 151(2), which
were originally expiring on 31 st March 2020 stand
extended to 31st March 2021. According to the Income
Tax Officer, the statutory approval for issuance of
notice under Section 148 of the Act for the Assessment
Year 2015-2016 may be given by the Range Head as
per the said provisions.
(23) Even for a moment, we agree with the view
expressed by respondents, still it applies to only cases
where the limitation was expiring on 31 st March 2020.
In the case at hand, the assessment year is 2015-16
and, therefore, the six years limitation will expire only
on 31st March 2022. Certainly, therefore, the Relaxation
Act provisions will not be applicable. In any event, the
time to issue notice may have been extended but that
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would not amount to amending the provisions of
Section 151 of the Act.
(24) In our view, since four years had expired from the
end of the relevant assessment year, as provided under
Section 151(1) of the Act, it is only the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner who could have
accorded the approval and not the Additional
Commissioner of Income Tax. On this ground alone, we
will have to set aside the notice dated 31.03.2021
issued under Section 148 of the Act, which is impugned
in this petition."
Similarly in Johnson and Johnson v. DCIT, Equitable Financial
Consultancy Services Pvt Ltd v. ITO and Asian Paints Ltd. v.
ACIT.
Therefore, there is no question of Revenue relying on TOLA to
justify the impugned notice under Section 148 of the Act as being within
the period of limitation.
22 This Court in Tata Communications Transformation Services
Ltd. (Supra) as well as in Siemens Financial Services (P.) Ltd. (Supra) has
also rejected the argument of Revenue on the issue of travel back.
Paragraphs 28, 29 and 30 of Siemens Financial Services (P.) Ltd. (Supra)
read as under :
28. The interpretation placed by the CBDT in paragraph 6.1
of Instruction No.1/2022 dated 11 th May 2022 cannot be
countenanced as it is not open to them to clarify that the law
laid down by the Apex Court means that the extended
reassessment notices will travel back in time to their original
date when such notices were to be issued and, then, the new
section 149 of the Act is to be applied as this is contrary to
the judgment of this court in Tata Communications (supra)
wherein it is held that TOLA does not envisage traveling back
of any notice. However, even assuming that it is held that
these notices travel back to the date of the original notice
issued on 25th June 2021, even then the approval of the
Principal Chief Commissioner of Income Tax should be
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obtained in terms of section 151(ii) of the Act as a period of
three years from the end of the relevant assessment year
ended on 31st March 2020 for AY 2016-17.
29. Further, the CBDT in Instruction no.1/2022 at paragraph
6.2(ii) has wrongly stated that the notices issued under
section 148 of the Act for AY 2016-17 are to be considered as
having been issued within a period of three years from the
end of the relevant assessment year and, on that basis, has
wrongly mentioned that the approval of the specified
authority under section 151(i) should be taken. This
conclusion is premised on the basis that these notices travel
back to 31 March 2020 which premise is completely
erroneous as explained hereinbefore. The notice under
section 148 of the Act is issued on 31 July 2022 and, hence,
is issued beyond period of three years from the end of the
relevant assessment year and, accordingly, the approval of
the specified authority under section 151(ii) of the Act
should be taken.
30. This court in Tata Communications (Supra), has rejected
that argument of the Revenue on the issue of travel back.
This court in paragraph 37 of Tata Communications (Supra)
has held that Section 3(1) of TOLA does not provide that any
notice issued under Section 148 of the Act, after 31 st March
2021 will relate back to the original date or that the clock is
stopped on 31st March, 2021 such that the provision as
existing on such date will be applicable to notices issued
relying on the provision of TOLA. The court held that Section
3(1) of TOLA merely extends the limitation provided in the
specified Acts including Income-tax Act for doing certain Acts
but such Acts must be performed in accordance with the
provisions of the specified Acts. The court had also recorded
that the Delhi High Court had considered and rejected the
contention of the Revenue that the notice issued after 1st
April 2021 relates back to an earlier period. The Delhi High
Court had considered and rejected the argument of the
Revenue that TOLA creates a legal fiction such that the
notices issued under Section 148 of the Act are deemed to be
issued on 31st March, 2021. TOLA only granted power to the
Central Government to notify the period during which
actions are required to be taken that can fall within the ambit
of TOLA, and the power to extend the time limit within
which those actions are to be taken. There was no
amendment to the provisions of Sections 147 to 151 of the
Act. The court also observed that amendments to the
substantive provisions of the Act were envisaged under
Section 3 of TOLA, which was only a relaxation provision
dealing with time limits under various enactments. The
Assessing Officer could have assumed jurisdiction while
issuing the impugned notices only after complying with the
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amended Section 147 which has not been done. In Tata
Communications (Supra), this court also held that TOLA was
not applicable for A.Y.-2015-2016 or any subsequent years.
Hence question of applicability of notification issued under
TOLA also would not arise. Paragraphs 34 to 49 of Tata
Communications (Supra) read as under :
34. It is well settled that the validity of a notice issued
under Section 148 of the Act must be judged on the
basis of the law existing on the date on which such
notice is issued. Even the Revenue accepts this well
settled position. Further, the provisions of Sections 147
to 151 are procedural laws and accordingly, the
provisions as existing on the date of the notice would
be applicable. Even the revenue accepts this legal
position and the CBDT Circular No.549 of 1989, that
Mr. Mistri relied upon, explaining the provisions of the
Finance Act, 1989 specifically sets out that any notices
issued by Revenue after the amendment made by the
Finance Act, 1989 must comply with the amended
provision of the law. Therefore, any notice issued after
1st April, 2021 must comply with the amended
provisions of the Act which was amended with effect
from 1st April, 2021. This contention has also been
considered and upheld by the Delhi High Court and the
Allahabad High Court.
35. We have to also note the well settled proposition
that when the Act specifies that something is to be
done in a particular manner, then, that thing must be
done in that specified manner alone, and any other
method/(s) of performance cannot be upheld. Hence,
notices issued under Section 148 of the Act after 1 st
April, 2021 must comply with the amended provisions
of law and cannot be sustained on the basis of the
erstwhile provision.
36. In order to uphold the arguments of the Revenue in
this regard, either a savings clause, or a specific
legislative enactment deferring applicability of the
amended provisions and the repeal of the old
provisions of the Act, would be required. Plainly no
such savings clause or enactment is available.
37. Section 3(1) of Relaxation Act does not provide
that any notice issued under Section 148 of the Act,
after 31st March 2021 will relate back to the original
date or that the clock is stopped on 31st March, 2021
such that the provision as existing on such date will be
applicable to notices issued relying on the provision of
Relaxation Act. A plain reading of Relaxation Act, as
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Mr. Mistri rightly submitted, makes it clear that Section
3(1) of Relaxation Act merely extends the limitation
provided in the specified Acts (including Income-tax
Act) for doing certain Acts but such Acts must be
performed in accordance with the provisions of the
specified Acts. Therefore, if there is an amendment in
the specified Act, the amended provision of the
specified Act would apply to such actions of the
Revenue. The Delhi High Court has considered and
rejected the contention of the Revenue that the notice
issued after 1st April 2021 relates back to an earlier
period.
38. The Delhi High Court has considered and rejected
this argument of the Revenue that Relaxation Act
creates a legal fiction such that the notices issued under
Section 148 of the Act are deemed to be issued on 31st
March, 2021. The so-called legal fiction is directly
contrary to the Revenue's own Circular No.549 of 1989,
which is binding on them as well as the well settled
principle that the validity of a notice is to be judged on
the basis of the law that prevails at the time of its issue.
39. Even though Relaxation Act was in existence when
the Finance Act, 2021 was passed, the parliament has
specifically made the amended provisions of Sections
147 to 151 of the Act as being applicable with effect
from 1st April, 2021. Therefore, the intention of the
legislature is clear that substituted provisions must
apply to notices issued with effect from 1st April, 2021.
No savings clause has been provided in the Act for
saving the erstwhile provisions of Sections 147 to 151
of the Act, like in Section 297 of the Act where, the
Parliament when it intended, has specifically provided
the savings clause.
40. On a plain reading of Relaxation Act it is clear that
the only powers granted to the Central Government by
Relaxation Act is the power to notify the period during
which actions are required to be taken that can fall
within the ambit of Relaxation Act, and the power to
extend the time limit within which those actions are to
be taken. A plain reading of the impugned Explanations
in Notification Nos.20 of 2021 and 38 of 2021 shows
that it purports to "clarify" that the unamended
provisions of Sections 147 to 151 of the Act will apply
for the purposes of issue of notices under Section 148
of the Act, which is clearly ultra vires Relaxation Act.
41. In our view, the reopening notices issued after
1st April, 2021 are unsustainable and bad in law even if
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one was to apply the Explanations to the Notification
Nos.20 of 2021 and 38 of 2021. The Explanation seeks
to extend the applicability of erstwhile Sections 148,
149 and 151. The impugned Explanation does not
cover Section 147, which (as amended) empowers the
revenue to reopen an assessment subject to Sections
148 to 153, which includes Section 148A. Thus, even if
Explanations are valid, the mandatory procedure laid
down by Section 148A has not been followed and
hence, without anything further, the notices under
Section 148 of the Act are invalid and must be struck
down for this reason as well. This proposition has also
been upheld by the Delhi High Court.
42. As regards Revenue's arguments that Relaxation Act
being a beneficial legislation must be given purposive
interpretation', the purpose of Section 3(1) of
Relaxation Act is to extend limitation periods as
provided in a specified Act (including the Income-tax
Act). The purpose of Section 3(1) of Relaxation Act is
not to postpone the applicability of amended provisions
of a Specified Act. Though Relaxation Act was in
existence when the Finance Act, 2021 was passed, the
Parliament has specifically enacted the new, (amended)
provisions of Section 147 to 151 of the Act and made
them applicable with effect form 1st April, 2021.
Therefore, it is clear that amendment is to be applied
from 1st April, 2021. Further, when there is no
ambiguity on the applicability of the provision, there is
no question of resorting to purpose test.
43. As regards liberty granted by the Allahabad High
Court, certainly, if the law permits issuance of notices
under Section 148 of the Act (as amended), afresh,
then no liberty is required to be granted by the Court,
and it would be within the Assessing Officer's powers to
initiate proceedings as per the amended law. The
Madras High Court has considered this very plea and
granted liberty to initiate reassessment proceedings in
accordance with the provisions of the amended Act, "if
limitation for it survives".
44. As submitted by Mr. Mistri, with whom we agree,
Chapter II of Relaxation Act provide for - "Relaxation
of Certain Provisions of Specified Act"and Section 3
forms part of this Chapter. Further Chapter III provides
for amendment to Income Tax Act, 1961 and various
Sections of the Act have been amended in Chapter III.
From this the following propositions emerge :
(a) Wherever the Parliament thought fit, the Parliament
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has itself amended the provision of the Income Tax Act,
1961 and not left it for the CBDT to make the
amendment. Therefore, it is clear that no power is
given under Relaxation Act to postpone the
applicability of provisions of the Income Tax Act.
(b) Chapter II of Relaxation Act is only for 'Relaxation
of Certain Provisions of Specified Act' and, therefore,
there is no question of the Revenue relying on this
Chapter and Section 3 to justify the postponement of
applicability of certain provisions of the Income Tax
Act. If the Parliament wanted to give some right to the
CBDT, it would have formed part of Chapter III,
however, there is no such provision in Chapter III of the
Act.
45. As submitted by Mr. Pardiwalla there are other
Sections in the Finance Act, 2021 which have amended
other provisions of the Income Tax Act from dates other
than 1st April, 2021. Like for example Section 12 of the
Finance Act inserted a proviso in Section 43CA. Had
the intention of the legislature, while amending
Sections 147 to 153, been to give it effect from 1 stJuly,
2021, a similar savings clause could have been
inserted, which has not been done. We agree with
Mr. Pardiwalla because as per Section 1(2)(a) of the
Finance Act, 2021, the amendments to Sections 147 to
153 of the Act shall come into force on 1 st April, 2021.
Similarly, the Memorandum explaining the provisions
of the Finance Bill, 2021 clarifies that these
amendments will take effect from 1st April, 2021.
Section 12 of the Finance Act inserted a proviso in
Section 43CA which inter alia provides that the words
'one hundred and ten percent' in the first proviso will
be substituted by the words 'one hundred and twenty
percent' if the transfer of residential units takes place
during the period beginning from 12th day of
November, 2020 and ending on the 30th day of June,
2021. Therefore, had the intention of the legislature,
while amending Sections 147 to 153, was to give it
effect from 1stJuly, 2021, a similar savings clause could
have been inserted, which has not been done.
46. Mr. Pardiwalla submitted that only Section 4 of
Relaxation Act which amended the Act and no such
amendments to the substantive provisions of the Act
were envisaged under Section 3 of Relaxation Act,
which was only a relaxation provision dealing with
time limits under various enactments.
47. As noted earlier, it is Revenue's case that Section 3
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of Relaxation Act enabled the Central Government to
issue notifications which would permit the Assessing
Officers to issue notices under Section 148 of the Act
after 1st April, 2021 in terms of the erstwhile provisions
of Sections 147 to section 151, even though the said
provisions were repealed with effect from 1 st April,
2021 by the Finance Act, 2021. It is, however, pertinent
to note that Section 3 of Relaxation Act falls in Chapter
II of the said Act, which is titled 'Relaxation of Certain
Provisions of Specified Act'. In contradistinction,
Section 4 of Relaxation Act which does amend several
provisions of the Act falls in Chapter III, which is titled
'Amendments to the Income Tax Act, 1961'. It will be
apposite to notice that the amendments provided for in
Section 4 were made by the Legislature itself in terms
of the said Section and no such power to amend the
Act was delegated to the Central Government.
Therefore, we would agree with Mr. Pardiwalla that it
is only Section 4 of Relaxation Act which amended the
Act and no such amendments to the substantive
provisions of the Act were envisaged under Section 3 of
Relaxation Act, which was only a relaxation provision
dealing with time limits under various enactments.
48. Mr. Pardiwalla submitted that even assuming for a
moment that the primary contention of petitioners that
the Explanations in the notifications are invalid is not
accepted, still the impugned notices will be bad in law
as the Explanation only seeks to effectuate the
provisions of the erstwhile Sections 148, 149 and 151
of the Act. It does not cover the erstwhile Section 147
of the Act. As rightly submitted by Mr. Pardiwalla, the
Assessing Officer could have assumed jurisdiction while
issuing the impugned notices only after complying with
the amended Section 147. The same has not been done
by the Assessing Officers as (a) his assumption of
jurisdiction is on the basis of his 'reason to believe' that
income chargeable to tax has escaped assessment, a
concept, which is no longer recognised in the amended
Section 147; and (b) the amended Section 147 is in
any event subject to Sections 148 to 153, which would
also include the procedure contained in Section 148A,
which has not been followed. Therefore, the impugned
notices do not even comply with the relevant statutory
provisions, even if we do not find fault with the
Explanations in the two notifications. Infact the Delhi
High Court in paragraph 84 of Mon Mohan Kohli
(Supra) has also considered and accepted this aspect of
the matter.
49. Some more reasons why the reopening notices
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must go are :
(a) Section 297 of the Act provides a saving clause for
applicability of various provisions of the 1922 Act, even
though the Act itself had been repealed. In the absence
of such a saving clause for applicability of erstwhile
Sections 147 to 151 of the Act, the amended provision
of the Act would apply from 1st April, 2021.
(b) Moreover, the reopening notices issued after
1st April, 2021 are bad in law even if one was to apply
the Explanations to the Notification Nos.20 and 38. The
Explanations seek to extend the applicability of
erstwhile Sections 148, 149 and 151. They do not cover
Section 147, which empowers revenue to reopen
subject to Section 148 to 153, which includes Section
148A. Thus, even if Explanation are valid, procedure of
Section 148A is not followed and hence, notices are
invalid.
(c) In any case, Relaxation Act is not applicable for
Assessment Years 2015-2016 or any subsequent year
and, hence, the question of applicability of the
Notification Nos.20 and 38 of 2021 does not arise. The
time limit to issue notice under Section 148 of the Act
for the Assessment Years 2015-2016 onwards was not
expiring within the period for which Section 3(1) of
Relaxation Act was applicable and, hence, Relaxation
Act could never apply for these assessment years. As a
consequence, there can be no question of extending the
period of limitation for such assessment years.
These findings of the Bombay High Court have not been
disturbed by the Apex Court in Ashish Agarwal (Supra). The
Apex Court only modified the orders passed by the respective
High Courts to the effect that the notices issued under
Section 148 of the Act which were subject matter of writ
petitions before various High Courts shall be deemed to have
been issued under Section 148A(b) of the Act and the
Assessing Officer was directed to provide within 30 days to
the respective assessee the information and material relied
upon by the Revenue so that the assessee could reply to the
show cause notices within two weeks thereafter. The Apex
Court held that the Assessing Officer shall thereafter pass
orders in terms of Section 148A(d) in respect of each of the
concerned assessees. Thereafter, after following the
procedure as required under Section 148A may issue notice
under Section 148 (as substituted). The Apex Court also
expressly kept open all contentions which may be available to
the assessee including those available under Section 149 of
the Act and all rights and contentions which may be available
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to the concerned assessee and revenue under the Finance Act
2021 and in law, shall be continued to be available.
23 Even in New India Assurance (Supra), the Court held that
reliance by Revenue on Instruction No.1 of 2022 issued by CBDT is grossly
misplaced and neither the provisions of TOLA nor the judgment in Ashish
Agarwal (Supra) provide that any notice issued under Section 148 of the
Act after 31st March 2021 will travel back to the original date. Paragraphs
36, 37 and 38 of New India Assurance (Supra) read as under :
36. Therefore, in the present case, as the foundation of the
entire reassessment proceeding, viz., the notice issued in June
2021 itself was barred by limitation in view of non-
applicability of Notification No.20/2021, the superstructure
sitting thereon, viz., the reassessment proceedings initiated
pursuant to judgment in Ashish Agarwal will also be regarded
as beyond time limit. Therefore, on this ground as well, the
impugned reopening notice dated 28 th July 2022 issued for AY
2013-14 in petitioner's case is barred by limitation and
deserves to be quashed and set aside. Alternatively, it is well
settled that a notice under Section 148 of the Act cannot be
issued in order to reopen the assessment of an assessee in a
case where the right to reopen the assessment was already
barred under the pre-amended Act on the date when the new
legislation came into force. In CIT V/s. Onkarmal Meghraj
(HUF) the Hon'ble Apex Court held :
"That raises the question whether that proviso could be
applied without reference to any period of limitation. It is
a well-settled principle that no action can be commenced
has expired. It is unnecessary to cite authorities in support
of this position. Does the fact that the second proviso says
that there is no period of limitation make a difference?
xxxxxxxxxx.
xxxxxxxxxx In J.P. Jani, Income-tax Officer v. Induprasad
Devshanker Bhatt (1969) 72 I.T.R. 595; (1969) 1 S.C.R.
714 (S.C.) this court held that the Income-tax Officer
cannot issue a notice under section 148 of the Income Tax
Act, 1961, in order to reopen the assessment of an assessee
in a case where the right ti reopen the assessment was
barred under the 1922 Act at the date when the new Act
camne into force. It was held that section 297(2)(d)(ii) of
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the 1961 Act was applicable only to this cases where the
right of the Income-tax Officer to reopen an assessment
was not barred under the repealed Act. This decision is
broadly in line with the opinion of Das and Kapur JJ. in
Prashar's case (1963) 49 I.T.R. (S.C.) 1; (1964) 1 S.C.R. 29
(S.C.) xxxxxxxxxx.
For AY 2013-14, the time limit to issue a notice under Section
148 of the Act had already expired on 1st April 2021. On the said
date, the assessee had a vested right, which de hors the 1 st
proviso to the amended Section 149 of the Act, could not be
taken away and thus, based on the well settled principles of law,
the reopening of the AY 2013-14 after 31 st March 2021 is
invalid, without jurisdiction and barred by limitation.
37. We shall deal with Mr. Sharma's submissions as under :
(a) As regards reliance on the provisions of the Limitation
Act, 1963, the provisions of the Limitation Act, 1963 do not
apply to the provisions of the Income Tax Act, 1961 and
especially, not in the present case in view of the specific
period provided for in the provisions of the Act as well as
TOLA. In any case, this defence of respondents cannot be
sustained as they have not taken any such contention in
either the order passed under Section 148A(d) or in the
affidavit in reply;
(b) As regards applicability of Section 3 of TOLA - exclusion
of Covid period, this argument is, in effect, nothing but the
theory of travel back in time which was urged by the
Revenue to support the reopening notices issued between
1st April 2021 to 30th June 2021 before this Court, as well as
other High Courts [and which eventually led to the judgment
in Ashish Agarwal (Supra)]. As noted earlier, this Court and
other Courts have already snubbed the relate back/travel
back in time theory and also the Instruction No.1 of 2022;
(c) As regards applicability of Notifications No.20 of 2021
dated 31st March 2021 and No.38 of 2021 dated 27th April
2021 extending the time limit even for AY 2014-15 and it is
extended till 30th June 2021, respondent, in other words,
argues that the Notification No.20 of 2021 seeks to extend
the time limit inter alia for issuing notice under Section 148
which was expiring on 31st March 2021 not only under the
provisions of the Act, but would also include the time
extension in the Act by virtue of TOLA. To put in another
way, the time limit expiring on 31 st March 2021 specified in
Notification No.20 of 2021, according to respondents, would
have to be read to include limitation under the Act read with
TOLA. As noted earlier, this contention is flawed inasmuch as
it expands the scope of the Notification and violates its plain
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language, viz., the time limit, specified in, or prescribed or
notified under the Income Tax Act falls for completion. The
limitation under the Act (erstwhile Section 149) for
reopening the assessment for the AY 2013-14 expired on
31st March 2020. Hence, Notification No.20 of 2021 did not
apply to the facts of the present case. Notification No.38 of
2021 dated 27th April 2021 categorically uses the expression
the time limit for completion of such action expires on the
30th day of April 2021 due to its extension by the said
notifications, such time limit shall further stand extended to
the 30th day of June 2021. Hence, it is incorrect to say that
31st March 2021 under the Act would mean under the Act,
plus, extension by TOLA;
(d) The submission that the Hon'ble Supreme Court, while
deciding Ashish Agarwal (Supra), was conscious of the
limitation of 6 years expiring on 31 st March 2021 under the
pre-amendment provisions in respect of AY 2013-14 if the
Covid period was not excluded, despite which the Apex Court
has stated that all notices issued should be read to be issued
under Section 148A to prevent the Revenue getting
remediless, is unacceptable. This argument clearly fails to
appreciate that the effect of Revenue's contention is that
despite the substantive defence available to the assessee in
Section 149 of the amended Act, as well as the express
directions of the Hon'ble Supreme Court allowing the
assessee to take all defences available under the Act, the
judgment of Ashish Agarwal (Supra) would permit them to
reopen the assessment of AY 2013-14 would not only make
the defence expressly available to the assessees useless and
unusable, but would be contrary to well established
principles of law. In Supreme Court Bar Association (Supra),
the Hon'ble Supreme Court espoused that its powers
conferred under Article 142 of the Constitution of India,
being curative in nature and even with the width of its
amplitude, cannot be construed as powers which authorise
the Court to ignore the substantive rights of a litigant while
dealing with a cause pending before it. Article 142 would not
be used to supplant substantive law applicable to a case or
cause and it will not be used to build a new edifice where
none existed earlier by ignoring express statutory provisions
dealing with a subject and thereby to achieve something
indirectly which cannot be achieved directly. In the present
case, Revenue's argument, if accepted, would be in conflict
with the above law as despite the express language of 1 st
proviso to Section 149, reopening notice for the AY 2013-14
would be permitted to be issued beyond 6 years on the
pretext that the Hon'ble Supreme Court in exercise of its
powers under Article 142 permitted them to do so and
otherwise, they would be remediless. On the contrary, while
permitting the Revenue to re-initiate the reassessment
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proceedings, the Apex Court also granted liberty to assessees
to raise all defences available to the assessee including the
defences under Section 149 of the Act. The Apex Court
observed that its order will strike a balance between the
rights of the Revenue as well as the respective assessees.
Moreover, in Siemens Financial (Supra), this Court has
already considered a similar contention of the Revenue and
held that equity has no place in taxation or while interpreting
taxing statute such intendment would have any place and
that taxation statute has to be interpreted strictly. The
Revenue also fails to appreciate that no particular case was
considered by the Hon'ble Supreme Court while deciding
Ashish Agarwal (Supra).
It is apposite to cite here an extract of the judgment of the
Hon'ble Supreme Court in Parashuram Pottery Works Co. Ltd
V/s. Income Tax Officer, which reads as under :
........... It has been said that the taxes are the price
that we pay for civilization. If so, it is essential that
those who are entrusted with the task of calculating
and realising that price should familiarise themselves
with the relevant provisions and become well-versed
with the law on the subject. Any remissness on their
part can only be at the cost of the national exchequer
and must necessarily result in loss of revenue. At the
same time, we have to bear in mind that the policy of
law is that there must be a point of finality in all legal
proceedings, that stale issues should not be reactivated
beyond a particular stage and that lapse of time must
induce repose in and set at rest judicial and quasi-
judicial controversies as it must in other spheres of
human activity...".
(e) The contentions that (i) the true meaning of Apex Court
order in Ashish Agrawal (Supra) is that the notices issued
under Section 148, irrespective of the Assessment Year of the
unamended Act, between 1st April 2021 to 30th June 2021 are
to be treated as show cause notices without being hit by
limitation, if issued on or before 30 th March 2021 and (ii) the
defence under Section 149 available to the assessee would
mean that if the Revenue had issued any notice under
Section 148 under the unamended Act during the period
1st April 2021 to 30th June 2021 pertaining to AY 2013-14,
the same would be barred by limitation under Section 149 in
effect means the Civil Appeal of the Revenue in Ashish
Agrawal (Supra) was dismissed, are completely flawed. It
completely fails to appreciate that the limitation period to
issuance of reopening notices under Section 148 for all
Assessment Years prior to AY 2013-14 had already expired on
31st March 2019 or earlier. The provisions of TOLA obviously
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could not save such a time limit and the Revenue could not
have validly issued reopening notices for years prior to AY
2013-14 on or after 1st April 2019. Therefore, the defence so
expressly allowed to be taken by the Hon'ble Supreme Court
would otherwise be unnecessary;
(f) The submission that the Apex Court, in exercise of power
under Article 142 of the Constitution, has deemed the notices
issued between 1st April 2021 to 30th June 2021 under
Section 148A(b) of the Act issued within limitation and by
following the manner of computation of limitation provided
in TOLA, the days from 1st April 2021 to 30th June 2021
would stand excluded and, therefore, the notices could be
deemed to be issued on 31st March 2021, we find it to be
rather fallacious. The fallacy of this contention of Revenue is
conspicuous inasmuch as if the notices issued under Section
148 between 1st April 2021 and 30th June 2021, which
according to them, are deemed to be issued on 31 st March
2021, then it is obvious that the provisions of the new
reassessment law introduced by the Finance Act, 2021 cannot
apply as they came into force w.e.f. 1 st April 2021 and
onwards. Ashish Agarwal (Supra) in no uncertain words
stated that the new provisions have to apply to all such
notices. Therefore, the argument urged is completely
contrary to law as well as the binding directions of the
Hon'ble Supreme Court;
(g) As regards reliance on Touchstone Holdings (Supra), the
Hon'ble Delhi High Court held that the initial notice dated
29th June, 2021 issued under Section 148 is within limitation.
No findings on the validity or otherwise of the notice issued
after May 2022 pursuant to the judgment in Ashish Agarwal
(Supra) is given. Moreover, in that case, petitioner did not
argue that for AY 2013-14 the time limit would have expired
even under TOLA on 31st March 2021;
(h) As regards Salil Gulati (Supra), the Delhi High Court, to
reach its conclusion, has merely relied upon its earlier
decision in Touchstone Holdings (Supra). It will be relevant
to note that following Salil Gulati (Supra), a similar view was
taken by the Delhi High Court in Yogita Mohan V/s. Income
Tax Officer. Against the judgment, in an SLP preferred by the
assessee, the Apex Court has issued notice vide its order
dated 20th February 2023. It should also be noted that the
Hon'ble Gujarat High Court in Keenara Industries (P.) Ltd.
V/s. Income Tax Officer and the Allahabad High Court in
Rajeev Bansal V/s. Union of India have taken a view that
notices issued for AY 2013-14 were barred by limitation in
view of the amended Section 149 of the Act. Subsequently,
the Apex Court, in SLPs preferred by the Revenue, has issued
notice and stayed both the orders/judgments;
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(i) We are unable to comprehend the contention raised that if
the notice dated 30th May 2022 under Section 148A(b) of the
Act is valid in terms of Apex Court order in Ashish Agrawal
(Supra), then the notice under Section 148 of the Act cannot
be issued on 31st March 2021 and respondent cannot be
expected to do impossible. It has nowhere been urged by
petitioner that assessing officer ought to complete the
proceedings before the show cause notice under Section
148A(b) of the Act was issued. It is the case of petitioner that
the reopening notice under Section 148 ought to have been
issued within 6 years from the end of the AY 2013-14. This
limitation period, as extended by TOLA, expired on
31st March 2021. However, in the present case, the reopening
notice has been issued in July 2022 and, therefore, beyond
the statutory time limit. In any case, as stated above, the
Hon'ble Supreme Court, while invoking powers under Article
142, consciously and categorically granted liberty to
assessees to raise all defences available to the assessee,
including the defences under Section 149 of the Act. This
specific and express directions cannot be set at naught.
Accepting this contention of the Revenue would be a travesty
of justice.
38. In the circumstances, in our view, the notice issued under
Section 148 of the Act, impugned in this petition, for AY
2013-14 is issued beyond the period of limitation.
24 As regards issue no.2, Section 149 of the Act reads as under :
Time limit for notice.
149. (1) No notice under section 148 shall be issued for the
relevant assessment year,--
(a) if three years have elapsed from the end of the relevant
assessment year, unless the case falls under clause (b);
[(b) if three years, but not more than ten years, have elapsed
from the end of the relevant assessment year unless the
Assessing Officer has in his possession books of account or
other documents or evidence which reveal that the income
chargeable to tax, represented in the form of--
(i) an asset;
ii) expenditure in respect of a transaction or in relation to an
event or occasion; or
(iii) an entry or entries in the books of account,
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which has escaped assessment amounts to or is likely to
amount to fifty lakh rupees or more:]
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 28[a notice under
section 148 or section 153A or section 153C 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 or section 153A or section 153C, as
the case may be], as they stood immediately before the
commencement of the Finance Act, 2021:
Provided further that the provisions of this sub-section shall
not apply in a case, where a notice under section 153A, or
section 153C read with section 153A, is required to be issued
in relation to a search initiated under section 132 or books of
account, other documents or any assets requisitioned under
section 132A, on or before the 31st day of March, 2021:
[Provided also that for cases referred to in clauses (i), (iii)
and (iv) of Explanation 2 to section 148, where,--
(a) a search is initiated under section 132; or
b) a search under section 132 for which the last of
authorisations is executed; or
(c) requisition is made under section 132A,
after the 15th day of March of any financial year and the
period for issue of notice under section 148 expires on the
31st day of March of such financial year, a period of fifteen
days shall be excluded for the purpose of computing the
period of limitation as per this section and the notice issued
under section 148 in such case shall be deemed to have been
issued on the 31st day of March of such financial year:
Provided also that where the information as referred to in
Explanation 1 to section 148 emanates from a statement
recorded or documents impounded under section 131 or
section 133A, as the case may be, on or before the 31st day of
March of a financial year, in consequence of,--
(a) a search under section 132 which is initiated; or
(b) a search under section 132 for which the last of
authorisations is executed; or
(c) a requisition made under section 132A,
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after the 15th day of March of such financial year, a period of
fifteen days shall be excluded for the purpose of computing
the period of limitation as per this section and the notice
issued under clause (b) of section 148A in such case shall be
deemed to have been issued on the 31st day of March of such
financial year:]
Provided also that for the purposes of computing the period of
limitation as per this section, the time or extended time
allowed to the assessee, as per show-cause notice issued
under clause (b) of section 148A or the period during which
the proceeding under section 148A is stayed by an order or
injunction of any court, shall be excluded:
Provided also that where immediately after the exclusion of
the period referred to in the immediately preceding proviso,
the period of limitation available to the Assessing Officer for
passing an order under clause (d) of section 148A 30[does
not exceed seven days], such remaining period shall be
extended to seven days and the period of limitation under this
sub-section shall be deemed to be extended accordingly.
Explanation.--For the purposes of clause (b) of this sub-
section, "asset" shall include immovable property, being land
or building or both, shares and securities, loans and advances,
deposits in bank account.
[(1A) Notwithstanding anything contained in sub-section (1),
where the income chargeable to tax represented in the form
of an asset or expenditure in relation to an event or occasion
of the value referred to in clause (b) of sub-section (1), has
escaped the assessment and the investment in such asset or
expenditure in relation to such event or occasion has been
made or incurred, in more than one previous years relevant to
the assessment years within the period referred to in clause
(b) of sub-section (1), a notice under section 148 shall be
issued for every such assessment year for assessment,
reassessment or recomputation, as the case may be.]
(2) The provisions of sub-section (1) as to the issue of notice
shall be subject to the provisions of section 151.]
The first proviso to Section 149 of the Act provides that no
notice under Section 148 shall be issued at any point of time in a case for a
relevant assessment year beginning on or before the 1 st day of April 2021, if
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a notice under Section 148 could not have been issued at that time on
account of being beyond the time limit specified under the provision of
clause (b) of sub-section (1) of this Section, as it stood immediately before
the commencement of the Finance Act, 2021. The term 'at that time' in the
first proviso refers to the date on which notice under Section 148 is to be
issued by the Assessing Officer. The term 'at that time' has to refer to the
term 'at any time' used earlier in the said proviso. The reference to 'at any
time' is to the date of the notice to be issued by the Assessing Officer and,
therefore, the term 'at that time' would also refer to the said date. On the
said date, if a notice could not have been issued under the erstwhile
provision of Section 149(1)(b) of the Act, for any assessment year
beginning on or before the 1st day of April 2021, the notice cannot be issued
even under the new provisions.
25 Section 149(1)(b) of the erstwhile provisions provided a time
limit of six years from the end of the relevant assessment year for issuing
notice under Section 148 of the Act. For the relevant assessment year, being
Assessment Year 2015-2016, 6th year expired on 31st March 2022. The
notice under Section 148 of the Act, in the present case, is issued on
27th August 2022, i.e., clearly beyond the period of limitation prescribed in
Section 149 read with the first proviso to the said section. This is squarely
covered by paragraphs 36 and 37 of New India Assurance (Supra) which
has been reproduced above in paragraph 23.
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26 The purpose of the first proviso to Section 149 of the Act is
consistent with the stated object of the government to make prospective
amendments in the Act. Accordingly, the proviso provides that up to
Assessment Year 2021-2022 (period before the amendment), the period of
limitation as prescribed in the erstwhile provisions of Section 149(1)(b) of
the Act would be applicable and only from Assessment Year 2022-2023, the
period of ten years as provided in Section 149(1)(b) of the Act, would be
applicable. The submission of the Revenue to interpret the first proviso to
Section 149 of the Act to be applicable only for Assessment Years 2013-
2014 and 2014-2015, i.e., for assessment years where the period of
limitation had already expired on 1st April 2021 is not sustainable. The
interpretation canvassed by the Revenue is clearly contrary to the plain
language of the proviso. When the language in the statute is clear, it has to
be so interpreted and there is no scope for interpreting the provision on any
other basis. The taxing statue should be strictly construed. [ Godrej & Boyce
Manufacturing Company Ltd. vs. DCIT] 10
27 The interpretation as canvassed by the Revenue would render
the first proviso to Section 149 of the Act redundant and otiose. The time
limit to issue notice under Section 148 of the Act had already expired on
1st April 2021 for Assessment Year 2013-2014 and 2014-2015, when
Section 149 of the Act was amended. Therefore, reopening for Assessment
10 (2017) 394 ITR 449 (SC)
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Years 2013-2014 and 2014-2015 had already been barred by limitation on
1st April 2021. Accordingly, the extended period of ten years as provided in
Section 149(1)(b) of the Act would not have been applicable to Assessment
Years 2013-2014 and 2014-2015, de hors the proviso. It is a settled
principle of law that when limitation has already expired, it cannot be
revived by way of a subsequent amendment and, hence, for Assessment
Years 2013-2014 and 2014-2015 proviso to Section 149 of the Act was not
required. Hence, to give meaning to the proviso it has to be interpreted to
be applicable for Assessment Years upto 2021-2022. In Commissioner of
Income Tax vs. Onkarmal Meghraj (HUF) 11, the Hon'ble Apex Court was
dealing with the question whether a proviso could be applied without
reference to any period of limitation. It held that " it is a well-settled
principle that no action can be commenced where the period within which
it can be commenced has expired. It is unnecessary to cite authorities in
support of this position. Does the fact that the second proviso says that
there is no period of limitation make a difference?"
The interpretation canvassed by the Revenue would render the
following parts of the proviso redundant -
(i) 'at any time' in the first line of the proviso.
(ii) 'beginning on or before 1 st day of April, 2021,' in the
second line of the proviso.
11 (1974) 93 ITR 233 (SC)
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(iii) 'at that time' in the fourth line of the proviso.
If we have to give effect to the interpretation suggested by the
Revenue, then the proviso would have read as under :
"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 a notice under Section 148 or Section 153A or
Section 153C could not have been issued at that time [on 1st day of April,
2021] on account of being beyond the time limit specified under the
provisions of clause (b) of sub-section (1) of this Section or Section 153A or
Section 153C, as the case may be, as they stood immediately before the
commencement of the Finance Act, 2021; OR
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 a notice under Section 148 or Section 153A or
Section 153C could not have been issued at that time [on 1st day of April,
2021] on account of being beyond the time limit specified under the
provisions of clause (b) of sub-section (1) of this Section or Section 153A or
Section 153C, as the case may be, as they stood immediately before the
commencement of the Finance Act, 2021".
28 Section has to be interpreted so as to give meaning to all the
words/phrases used in the Section and it should not be interpreted in such
a way so as to render any part or phrase in the Section otiose. As stated
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aforesaid, if the interpretation canvassed by the Revenue is to be accepted
then, not only various parts of the Section would be rendered otiose, one
would have to also substitute one phrase with another phrase in the said
Section, which is clearly not permissible in law. Reliance in this regard is
placed on the decision of the Hon'ble Apex Court in the case of
Commissioner of Income Tax vs. Sham L. Chellaram12.
29 It was submitted on behalf of Revenue that the period of
limitation for the purposes of Section 149 of the Act has to be seen with
respect to the original notice under Section 148 of the Act, which was
issued to petitioner on 8th April 2021 and as the said notice was issued
within the period of six years from the end of the relevant assessment year,
which was expiring on 31st March 2022, the reassessment proceedings are
within the period of limitation prescribed in Section 149 of the Act. It is
not acceptable.
Section 149 of the Act sets out, inter alia, the time limit for
issuing notice under Section 148 of the Act. Apart from the period of
limitation set out in the said Section, the first proviso lays down a further
restriction on the issue of a notice under section 148 of the Act. The period
of limitation as well as the said further restriction is framed/provided in
respect of a notice under 148 of the Act, and not for a notice under section
148A of the Act. The notice dated 8th April 2021, which though originally
12 373 ITR 292 (Bom)
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issued as a notice under section 148 of the Act, (under the provisions of the
Act prior to the amendments made by the Finance Act, 2021), has now
been treated as a notice issued under section 148A(b) of the Act in
accordance with the decision of the Hon'ble Apex Court in Ashish Agarwal
(Supra). Once the notice dated 8th April 2021 has been treated as having
been issued under Section 148A(b) of the Act, the said notice is no longer
relevant for the purpose of determining the period of limitation prescribed
under Section 149 or the restriction as per the first proviso below Section
149 of the Act. Therefore, for considering the restriction on issue of a notice
under section 148 of the Act prescribed in the first proviso to Section 149 of
the Act, the fresh/presently impugned notice dated 27 th August 2022 issued
under Section 148 of the Act is required to be considered. The said notice is
admittedly beyond the erstwhile period of limitation of six years prescribed
by the Act prior to its amendment by the Finance Act, 2021. For the
Assessment Year 2015-2016, the erstwhile time limit of six years expired on
31st March 2022 and, the impugned notice under Section 148 of the Act has
been issued on 27th August 2022 and, therefore, the impugned notice dated
27th August 2022 is barred by the restriction of the first proviso to Section
149 of the Act.
30 With respect to applicability of the fifth proviso and the sixth
proviso to Section 149(1)(b) of the Act for extension of limitation for
issuing the notice under Section 148 of the Act, fifth and sixth provisos are
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only applicable with respect to the period of limitation prescribed in Section
149(1) of the Act, i.e., three years or ten years, as the case may be. Fifth
proviso or sixth proviso extend limitation for issuing notice under Section
149 of the Act, however, the first proviso is an exception to the period of
limitation and provides for a restriction on the notices under Section 148
being issued for Assessment Years upto 2021-22 beyond a certain date.
Therefore, the way the Section would operate, is first to decide whether a
notice issued under Section 148 of the Act is within the period of limitation
in terms of Section 149(1)(a) or (b) of the Act. To decide whether the
notice is within the period of limitation under Section 149(1)(a) or (b) of
the Act, the extension of time as per the fifth and/or sixth proviso would be
considered. Once, the notice is otherwise within the period of limitation,
thereafter one has to see whether the said time limit is within the
restriction provided in the first proviso or not. If the notice is beyond the
restriction period, the notice is invalid. The fifth and/or the sixth proviso
cannot apply at this stage to extend the period of restriction as per the first
proviso. Hence, if a notice is not within the time prescribed under the first
proviso to Section 149(1) of the Act, then such period cannot be extended
by fifth proviso and sixth proviso. In Godrej Industries Ltd. (Supra)
paragraph 15 reads as under :
15. Based on petitioner's facts, the show cause notice under
Section 148A(b) of the Act was issued on 24 th May 2022
asking petitioner to furnish a reply by 8 th June 2022.
Petitioner filed a detailed reply in response to the show cause
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notice on 8th June 2022 and, therefore, only the period from
24th May 2022 to 8th June 2022 could be excluded by virtue
of the first limb of the fifth proviso to Section 149 of the Act.
Subsequently, petitioner received another letter dated 28 th
June 2022 which annexed certain details and provided
further time for making detailed submissions upto 8 th July
2022. Petitioner replied to the letter and made detailed
submissions on 2nd July 2022. Therefore, even assuming this
period is to be excluded, the period which could be excluded
is only from 24th May 2022 to 8th June 2022. Even after
considering the letter dated 28th June 2022 and the reply
dated 2nd July 2022, at the highest a further period from
28th June 2022 to 8th July 2022 could be excluded but the
period of time from 8th June 2022 to 28th June 2022 cannot
be excluded as per the fifth proviso. This is because petitioner
on 8th June 2022 did not request for any further time and
furnished its response to the show cause notice under Section
148A(b) of the Act. It is the Assessing Officer who has suo
moto issued another letter on 28 th June 2022 asking
petitioner to furnish further details by 8 th July 2022.
Therefore, even assuming a period of 27 days (i.e.,
16 days from 24th May to 8th June and 11 days from 28th June
to 8th July) are excluded from the date of the impugned
notice under Section 148 of the Act issued on 31 st July 2022,
the impugned notice would yet be barred by limitation and
could not have been issued by virtue of the first proviso to
Section 149 of the Act.
Even if the fifth and sixth provisos are held to be applicable,
the impugned notice would still be beyond the period of limitation. The
fifth proviso extends limitation with respect to the time or extended time
allowed to an assessee as per the show cause notice issued under Section
148A(b) of the Act or the period, during which the proceeding under
Section 148A of the Act are stayed by an order of injunction by any Court.
Hence, in the present case, in view of the fifth proviso, the period to be
excluded would be counted from 25 th May 2022, i.e., the date on which the
show cause notice was issued under Section 148A(b) of the Act by
respondent no.1 subsequent to the decision of the Hon'ble Apex Court in
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the case of Ashish Agarwal (Supra) and upto 10th June 2022, which is a
period of 16 days. Further, the time period from 29 th June 2022 upto
4th July 2022 cannot be excluded as the same was not based on any
extension sought by petitioner, but at the behest of respondent no.1. Even if
the same was to be excluded, still it will mean further exclusion of 5 days.
Considering the said excluded period as well, the impugned notice dated
27th August 2022 is still beyond limitation. The fact that the original notice
dated 8th April, 2021 issued under Section 148 of the Act, was stayed by
this Court on 3rd August 2021, and its stay came to an end on 29 th March
2022 on account of the decision of this Court, will not be relevant for
providing extension as per the fifth proviso. The fifth proviso provides for
extension for the period during which the proceeding under Section 148A
of the Act is stayed. The original stay granted by this Court was not with
respect to the proceeding under Section 148A of the Act, but with respect to
the proceeding initiated as per the erstwhile provision of Section 148 of the
Act and, hence, such stay would not extend the period of limitation as per
the fifth proviso to Section 149 of the Act. The question of applicability of
the sixth proviso does not arise on the facts of the present case. We find
support for this in Godrej Industries Ltd. (Supra).
In view of the aforesaid, the impugned notice dated 27 th August
2022 is clearly barred by the law of limitation.
31 As regards issue no.3, in the notice dated 27 th August 2022
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impugned in the petition, admittedly there is no DIN mentioned. It is
petitioner's case that the notice is invalid and bad in law in view of the
Circular No.19 of 2019 dated 14 th August 2019 issued by CBDT. A separate
intimation letter also dated 27 th August 2022 was issued and the said letter
reads as under :
नि र्धा रण द.प.सं. एवं प्रपत्राक संख्या / DIN & Document निद ंक /
वर्ष / AY : No.: Dated :
2015-16 ITBA/AST/S/91/2022-23/1044985587(1) 27/08/2022
Intimation Letter for Notice u/s 148 of the Income-tax Act, 1961
महोदय/महोदय /मे सस,
Sir/Madam/M/s,
This is to inform you that Notice u/s 148 of the Income-tax Act,
1961 dated 26/08/2022 is having Document No.(DIN) ITBA/
AST/M/148_1/2022-23/1044985555(1).
This is a system generated document and does not require any
signature.
(emphasis supplied)
We agree with petitioner that this letter cannot validate the
notice issued under Section 148 of the Act on 27 th August 2022. The reason
is firstly, the intimation letter refers to a DIN with respect to some notice
under Section 148 of the Act dated 26 th August 2022. The impugned notice
issued to petitioner is dated 27 th August 2022 and not 26 th August 2022 for
which the DIN is generated. Secondly, the procedure prescribed in Circular
No.19 of 2019 dated 14th August 2019 for non-mention of DIN in case
letter/notice/order has not been complied with by respondent no.1. It is
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settled that if DIN is not mentioned in the letter/notice/order, the reason
for not mentioning the DIN and the approval from specified authority for
issuing such letter/notice/ order without DIN has to be obtained and
mentioned in such letter/notice/order. In the present case, in the impugned
notice dated 27th August 2022, no such reference is there. Therefore, as
held in Ashok Commercial Enterprises (Supra) and Tata Medical Center
Trust (Supra), the impugned notice is clearly invalid and bad in law. It will
be useful to reproduce paragraph 18 of Ashok Commercial Enterprises
(Supra) :
18. Whether the impugned assessment order dated 28 th
September 2021 is invalid on account of it being issued
without a DIN?
(a) The CBDT, in exercise of powers under Section 119(1) of
the Act, has issued a Circular No.19/2019 dated 14 th August
2019 providing that no communication shall be issued by any
Income Tax Authority inter alia relating to assessment orders,
statutory or otherwise, inquiries, approvals, etc. to an
assessee or any other person on or after 1 st October 2019
unless a computer generated DIN has been allotted and is
quoted in the body of such communication. The Circular
reads as under :
CIRCULAR NO.19/2019 (F. NO.225/95/2019-ITA.II],
DATED 14-8-2019
With the launch of various e-governance Initiatives,
Income tax Department is moving toward total
computerization of its work. This has led to a significant
improvement in delivery of services and has also
brought greater transparency in the functioning of the
tax-administration Presently, almost all notices and
orders are being generated electronically on the Income
Tax Business Application (ITBA) platform. However, it
has been brought to the notice of the Central Board of
Direct Taxes (the Board) that there have been some
instances in which the notice. order, summons, letter
and any correspondence (hereinafter referred to as
"communication" were found to have been issued
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manually, without maintaining a proper audit trail of
such communication.
2. In order to prevent such instances and to maintain
proper audit trail of all communication, the Board in
exercise of power under section 119 of the income-tax
Act, 1961 (hereinafter referred to as "the Act"), has
decided that no communication shall be issued by any
income-tax authority relating to assessment, appeals,
orders, statutory or otherwise, exemptions, enquiry.
investigation, verification of information, penalty,
prosecution, rectification, approval etc. to the assessee
or any other person, on or after the 1st day of October,
2019 unless a computer- generated Document
Identification Number (DIN) has been allotted and is
duly quoted in the body of such communication.
3. In exceptional circumstances such as,-
(i) when there are technical difficulties in generating/
allotting/quoting the DIN and issuance of
communication electronically;or
(ii) when communication regarding enquiry, verification
etc. is required to be issued by an income-tax authority,
who is outside the office, for discharging his official
duties: or
(iii) when due to delay in PAN migration. PAN is lying
with non-jurisdictional Assessing Officer; or
(iv) when PAN of assessee is not available and where a
proceeding under the Act (other than verification under
section 131 or section 133 of the Act) is sought to be
initiated; or
(v) when the functionality to issue communication is
not available in the system, the communication may be
issued manually but only after recording reasons in
writing in the file and with prior written approval of the
Chief Commissioner/ Director General of income-tax. In
cases where manual communication is required to be
issued due to delay in PAN migration, the proposal
seeking approval for issuance of manual communication
shall include the reason for delay in PAN migration. The
communication issued under aforesaid circumstances
shall state the fact that the communication is issued
manually without a DIN and the date of obtaining of the
written approval of the Chief Commissioner/ Director
General of Income-tax for issue of manual
communication in the following format-
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"....... This communication issues manually without a
DIN on account of reason/reasons given in
para3(i)/3(ii)/3(iii)/ 3(iv)/ 3(v) of the CBDT Circular
No .... dated (strike off those which are not applicable)
and with the approval of the Chief
Commissioner/Director General of Income Tax vide
number .... dated ....
4. Any communication which is not in conformity with
Para-2 and Para-3 above, shall be treated as invalid and
shall be deemed to have never been issued.
5. The communication issued manually in the three
situations specified in para 3- (i), (ii) or (iii) above shall
have to be regularised within 15 working days of its
issuance, by-
i. uploading the manual communication on the System.
ii. compulsorily generating the DIN on the System;
iii. communicating the DIN so generated to the
assessee/any other person as per electronically
generated proforma available on the System.
6. An intimation of issuance of manual communication
for the reasons mentioned in para 3(v) shall be sent to
the Principal Director General of Income-tax (Systems)
within seven days from the date of its issuance.
7. Further, in all pending assessment proceedings,
where notices were issued manually, prior to issuance of
this Circular, the Income-tax authorities shall identify
such cases and shall upload the notices in these cases on
the Systems by 31th October, 2019.
Paragraph 3 of the Circular sets out five exceptional
circumstances where the aforementioned mandatory
requirement may not be adhered to, but requires that if an
order/communication is to be issued without a DIN, it can be
done only after recording reasons in writing in the file and
with the prior written approval of the Chief
Commissioner/Director General of Income Tax. Further,
paragraph 3 requires that if such exceptional circumstances
are claimed, the orders/communication issued without a DIN
must state this fact in a specific format set out in paragraph 3
of the Circular.
Paragraph 4 of the Circular provides that any order/
communication which is not in conformity with paragraphs 2
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and 3 of the Circular shall be treated as invalid and shall be
deemed to have never been issued.
The contents of the Circular have been re-iterated in a Press
Release dated 14th August 2019;
(b) It is indisputable that the impugned assessment order
dated 28th September 2021 does not bear a DIN and further
that the said order issued without a DIN does not bear the
required format set out in paragraph 3 of the Circular and,
therefore, the impugned assessment orders for Assessment
Year 2011-2012 to 2019-2020 ought to be treated as invalid
and deemed never to have been issued. We find support for
this view in Brandix Mauritius Holdings Ltd. (Supra) where
the Hon'ble Delhi High Court has held that an order passed
in contravention of the said Circular is void, bad in law and
of no legal effect. Paragraphs 16 to 17.1, 18 and 19 read as
under :
16. The final assessment order was passed by the
Assessing Officer (AO) on 15.10.2019, under Section
147/144(C)(13/143(3) of the Act. Concededly, the final
assessment order does not bear a DIN. There is nothing
on record to show that the appellant/revenue took steps
to demonstrate before the Tribunal that there were
exceptional circumstances, as referred to in paragraph 3
of the 2019 Circular, which would sustain the
communication of the final assessment order manually,
albeit, without DIN.
16.1. Given this situation, clearly paragraph 4 of the
2019 Circular would apply.
17. Paragraph 4 of the 2019 Circular, as extracted
hereinabove, decidedly provides that any
communication which is not in conformity with
paragraph 2 and 3 shall be treated as invalid and shall
be deemed to have never been issued. The phraseology
of paragraph 4 of the 2019 Circular fairly puts such
communication, which includes communication of
assessment order, in the category of communication
which are non-est in law.
17.1. It is also well established that circulars issued by
the CBDT in exercise of its powers under Section 119 of
the Act are binding on the revenue.
xxxxxxxxxxx
18. The argument advanced on behalf the appellant/
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revenue, that recourse can be taken to Section 292B of
the Act, is untenable, having regard to the phraseology
used in paragraph 4 of the 2019 Circular.
19. The object and purpose of the issuance of the 2019
Circular, as indicated hereinabove, inter alia, was to
create an audit trail. Therefore, the communication
relating to assessments, appeals, orders, etcetera which
find mention in paragraph 2 of the 2019 Circular, albeit
without DIN, can have no standing in law, having
regard to the provisions of paragraph 4 of the 2019
Circular.
(c) During the course of hearing, Mr. Suresh Kumar produced
an intimation letter dated 13 th October 2021 stating that the
order dated 28th September 2021 under Section 153C of the
Act has a DIN, which is set out therein. Even if this is held to
be in compliance with paragraph 5 of the Circular, which
deals with regularization of communications without DIN,
this can only seek to regularize the failure to generate a DIN,
but yet the requirements of paragraph 3 of the Circular will
still remain contravened and consequently, the order dated
28th September 2021 ought to be treated as invalid and
never issued;
(d) The said Circular also applies to the satisfaction note
dated 13th July 2021 issued by respondent no.1. The
satisfaction note will fall within the scope of paragraph 2 of
the Circular as a communication of the specified type issued
to any person. In the case of the satisfaction note no
regularization dated 13th October 2021 has been issued;
(e) In view of the binding nature of Circular issued under
Section 119 of the Act, and the peculiar facts and
circumstances of the case, the consequences of contravention
of the Circular set out above, therefore, ought to be given full
effect to. The object of the said Circular is clear and
laudatory and intended to ensure that proper trail of all
assessment and other orders are maintained and further that
any deviation therefrom can only be undertaken after prior
written approval of the higher authorities under the Act.
Therefore, the satisfaction note dated 13 th July 2021 and the
impugned order of assessment dated 28th September 2021
ought to be treated as invalid and deemed never to have
been issued;
xxxxxxxxxxxxxxxx
(emphasis supplied)
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Therefore, the impugned notice dated 27 th August 2022 issued
under Section 148 of the Act is invalid and bad in law as the same has been
issued without a DIN.
32 As regards issue no.4, Section 151A reads as under :
Faceless assessment of income escaping assessment.
151A. (1) The Central Government may make a scheme, by
notification in the Official Gazette, for the purposes of
assessment, reassessment or recomputation under section
147 or issuance of notice under section 148 [or conducting of
enquiries or issuance of show-cause notice or passing of
order under section 148A] or sanction for issue of such notice
under section 151, so as to impart greater efficiency,
transparency and accountability by--
(a) eliminating the interface between the income-tax
authority and the assessee or any other person to the extent
technologically feasible;
(b) optimising utilisation of the resources through economies
of scale and functional specialisation;
(c) introducing a team-based assessment, reassessment,
recomputation or issuance or sanction of notice with dynamic
jurisdiction.
(2) The Central Government may, for the purpose of giving
effect to the scheme made under sub-section (1), by
notification in the Official Gazette, direct that any of the
provisions of this Act shall not apply or shall apply with such
exceptions, modifications and adaptations as may be
specified in the notification:
Provided that no direction shall be issued after the 31st day
of March, 2022.
(3) Every notification issued under sub-section (1) and sub-
section (2) shall, as soon as may be after the notification is
issued, be laid before each House of Parliament.
Section 151A of the Act gives the power to the Central Board of
Direct Taxes ("CBDT") to notify the Scheme for :
(i) the purpose of assessment, reassessment or recomputation
under Section 147; or
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(ii) issuance of notice under Section 148; or
(iii) conducting of inquiry or issuance of show cause notice or
passing of order under Section 148A; or
(iv) sanction for issuance of notice under Section 151;
so as to impart greater efficiency, transparency and
accountability by inter alia eliminating the interface between the Income
Tax Authorities and assessee. Sub-section 3 of Section 151A of the Act also
provides that every notification issued under sub-section (1) and (2) of
Section 151A of the Act shall be laid before each House of Parliament.
In exercise of the powers conferred by sub-sections (1) and (2)
of Section 151A of the Act, CBDT issued a notification dated 29 th March,
2022 [Notification No.18/2022/F. No.370142/16/2022-TPL and formulated
a Scheme. The Scheme provides that -
(a) the assessment, reassessment or recomputation under
Section 147 of the Act,
(b) and the issuance of notice under Section 148 of the Act,
shall be through automated allocation, in accordance with risk
management strategy formulated by the Board as referred to in Section 148
of the Act for issuance of notice and in a faceless manner, to the extent
provided in Section 144B of the Act with reference to making assessment or
reassessment of total income or loss of assessee. The impugned notice dated
27th August, 2022 has been issued by respondent no.1 (JAO) and not by the
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NFAC, which is not in accordance with the aforesaid Scheme.
33 The guideline dated 1st August 2022 relied upon by the
Revenue is not applicable because these guidelines are internal guidelines
as is clear from the endorsement on the first page of the guideline -
"Confidential For Departmental Circulation Only". The said guidelines are
not issued under Section 119 of the Act. Any such guideline issued by the
CBDT is not binding on petitioner. Further the said guideline is also not
binding on respondent no.1 as they are contrary to the provisions of the Act
and the Scheme framed under Section 151A of the Act. The effect of a
guideline came up for discussion in Sofitel Realty LLP vs. Income Tax
Officer (TDS)13 wherein this Court has held that the guidelines which are
contrary to the provisions of the Act cannot be relied upon by the Revenue
to reject an application for compounding filed by an assessee. The Court
held that guidelines are subordinate to the principal Act or Rules, it cannot
restrict or override the application of specific provisions enacted by
legislature. The guidelines cannot travel beyond the scope of the powers
conferred by the Act or the Rules.
The guidelines do not deal with or even refer to the Scheme
dated 29th March 2022 framed by the Government under Section 151A of
the Act. Section 151A(3) of the Act provides that the Scheme so framed is
required to be laid before each House of the Parliament. Therefore, the
13 (2023) 153 taxmann.com 496 (Bom)
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Scheme dated 29th March 2022 under Section 151A of the Act, which has
also been laid before the Parliament, would be binding on the Revenue and
the guideline dated 1st August 2022 cannot supersede the Scheme and if it
provides anything to the contrary to the said Scheme, then the same is
required to be treated as invalid and bad in law.
34 As regards ITBA step-by-step Document No.2 regarding
issuance of notice under Section 148 of the Act, relied upon by Revenue, an
internal document cannot depart from the explicit statutory provisions of,
or supersede the Scheme framed by the Government under Section 151A of
the Act which Scheme is also placed before both the Houses of Parliament
as per Section 151A(3) of the Act. This is specially the case when the
document does not even consider or even refer to the Scheme. Further the
said document is clearly intended to be a manual/guide as to how to use
the Income Tax Department's portal, and does not even claim to be a
statement of the Revenue's position/stand on the issue in question. Our
observations with respect to the guidelines dated 1 st August 2022 relied
upon by the Revenue will equally be applicable here.
35 Further, in our view, there is no question of concurrent
jurisdiction of the JAO and the FAO for issuance of notice under Section
148 of the Act or even for passing assessment or reassessment order. When
specific jurisdiction has been assigned to either the JAO or the FAO in the
Scheme dated 29th March, 2022, then it is to the exclusion of the other. To
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take any other view in the matter, would not only result in chaos but also
render the whole faceless proceedings redundant. If the argument of
Revenue is to be accepted, then even when notices are issued by the FAO, it
would be open to an assessee to make submission before the JAO and vice
versa, which is clearly not contemplated in the Act. Therefore, there is no
question of concurrent jurisdiction of both FAO or the JAO with respect to
the issuance of notice under Section 148 of the Act. The Scheme dated
29th March 2022 in paragraph 3 clearly provides that the issuance of notice
"shall be through automated allocation " which means that the same is
mandatory and is required to be followed by the Department and does not
give any discretion to the Department to choose whether to follow it or not.
That automated allocation is defined in paragraph 2(b) of the Scheme to
mean an algorithm for randomised allocation of cases by using suitable
technological tools including artificial intelligence and machine learning
with a view to optimise the use of resources. Therefore, it means that the
case can be allocated randomly to any officer who would then have
jurisdiction to issue the notice under Section 148 of the Act. It is not the
case of respondent no.1 that respondent no.1 was the random officer who
had been allocated jurisdiction.
36 With respect to the arguments of the Revenue, i.e., the
notification dated 29th March 2022 provides that the Scheme so framed is
applicable only 'to the extent' provided in Section 144B of the Act and
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Section 144B of the Act does not refer to issuance of notice under Section
148 of the Act and hence, the notice cannot be issued by the FAO as per the
said Scheme, we express our view as follows:-
Section 151A of the Act itself contemplates formulation of
Scheme for both assessment, reassessment or recomputation under Section
147 as well as for issuance of notice under Section 148 of the Act.
Therefore, the Scheme framed by the CBDT, which covers both the
aforesaid aspect of the provisions of Section 151A of the Act cannot be said
to be applicable only for one aspect, i.e., proceedings post the issue of
notice under Section 148 of the Act being assessment, reassessment or
recomputation under Section 147 of the Act and inapplicable to the
issuance of notice under Section 148 of the Act. The Scheme is clearly
applicable for issuance of notice under Section 148 of the Act and
accordingly, it is only the FAO which can issue the notice under Section 148
of the Act and not the JAO. The argument advanced by respondent would
render clause 3(b) of the Scheme otiose and to be ignored or contravened,
as according to respondent, even though the Scheme specifically provides
for issuance of notice under Section 148 of the Act in a faceless manner, no
notice is required to be issued under Section 148 of the Act in a faceless
manner. In such a situation, not only clause 3(b) but also the first two lines
below clause 3(b) would be otiose, as it deals with the aspect of issuance of
notice under Section 148 of the Act. Respondents, being an authority
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subordinate to the CBDT, cannot argue that the Scheme framed by the
CBDT, and which has been laid before both House of Parliament is partly
otiose and inapplicable. The argument advanced by respondent expressly
makes clause 3(b) otiose and impliedly makes the whole Scheme otiose. If
clause 3(b) of the Scheme is not applicable, then only clause 3(a) of the
Scheme remains. What is covered in clause 3(a) of the Scheme is already
provided in Section 144B(1) of the Act, which Section provides for faceless
assessment, and covers assessment, reassessment or recomputation under
Section 147 of the Act. Therefore, if Revenue's arguments are to be
accepted, there is no purpose of framing a Scheme only for clause 3(a)
which is in any event already covered under faceless assessment regime in
Section 144B of the Act. The argument of respondent, therefore, renders
the whole Scheme redundant. An argument which renders the whole
Scheme otiose cannot be accepted as correct interpretation of the Scheme.
The phrase "to the extent provided in Section 144B of the Act" in the
Scheme is with reference to only making assessment or reassessment or
total income or loss of assessee. Therefore, for the purposes of making
assessment or reassessment, the provisions of Section 144B of the Act
would be applicable as no such manner for reassessment is separately
provided in the Scheme. For issuing notice, the term "to the extent provided
in Section 144B of the Act" is not relevant. The Scheme provides that the
notice under Section 148 of the Act, shall be issued through automated
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allocation, in accordance with risk management strategy formulated by the
Board as referred to in Section 148 of the Act and in a faceless manner.
Therefore, "to the extent provided in Section 144B of the Act" does not go
with issuance of notice and is applicable only with reference to assessment
or reassessment. The phrase "to the extent provided in Section 144B of the
Act" would mean that the restriction provided in Section 144B of the Act,
such as keeping the International Tax Jurisdiction or Central Circle
Jurisdiction out of the ambit of Section 144B of the Act would also apply
under the Scheme. Further the exceptions provided in sub-section (7) and
(8) of Section 144B of the Act would also be applicable to the Scheme.
37 When an authority acts contrary to law, the said act of the
Authority is required to be quashed and set aside as invalid and bad in law
and the person seeking to quash such an action is not required to establish
prejudice from the said Act. An act which is done by an authority contrary
to the provisions of the statue, itself causes prejudice to assessee. All
assessees are entitled to be assessed as per law and by following the
procedure prescribed by law. Therefore, when the Income Tax Authority
proposes to take action against an assessee without following the due
process of law, the said action itself results in a prejudice to assessee.
Therefore, there is no question of petitioner having to prove further
prejudice before arguing the invalidity of the notice.
38 With respect to the Office Memorandum dated 20 th February
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2023, the said Office Memorandum merely contains the comments of the
Revenue issued with the approval of Member (L&S) CBDT and the said
Office Memorandum is not in the nature of a guideline or instruction issued
under Section 119 of the Act so as to have any binding effect on the
Revenue. Moreover, the arguments advanced by the Revenue on the said
Office Memorandum dated 20th February 2023 is clearly contrary to the
provisions of the Act as well as the Scheme dated 29 th March 2022 and the
same are dealt with as under -
(i) It is erroneously stated in paragraph 3 of the Office
Memorandum that "The scheme clearly lays down that the issuance of
notice under section 148 of the Act has to be through automation in
accordance with the risk management strategy referred to in section 148 of
the Act." The issuance of notice is not through automation but through
"automated allocation". The term "automated allocation" is defined in
clause 2(1)(b) of the said Scheme to mean random allocation of cases to
Assessing Officers. Therefore, it is clear that the Assessing Officer are
randomly selected to handle a case and it is not merely a case where notice
is sought to be issued through automation.
(ii) It is further erroneously stated in paragraph 3 of the Office
Memorandum that "To this end, as provided in the section 148 of the Act,
the Directorate of Systems randomly selects a number of cases based on the
criteria of Risk Management Strategy ." The term 'randomly' is further used
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at numerous other places in the Office Memorandum with respect to
selection of cases for consideration/issuance of notice under Section 148 of
the Act. Respondent is clearly incorrect in its understanding of the said
Scheme as the reference to random in the said Scheme is reference to
selection of Assessing Officer at random and not selection of Section 148
cases as random. If the cases for issuance of notice under Section 148 of the
Act are selected based on criteria of the risk management strategy, then,
obviously, the same are not randomly selected. The term 'randomly' by
definition mean something which is chosen by chance rather than according
to a plan. Therefore, if the cases are chosen based on risk management
strategy, they certainly cannot be said to be random. The Computer/System
cannot select cases on random but selection can be based on certain well-
defined criteria. Hence, the argument of respondents is clearly
unsustainable. If the case of respondent is that the applicability of Section
148 of the Act is on random basis, then the provision of Section 148 itself
would become contrary to Article 14 of the Constitution of India as being
arbitrary and unreasonable. Randomly selecting cases for reopening
without there being any basis or criteria would mean that the section is
applied by the Revenue in an arbitrary and unreasonable manner. The word
'random' is used in clause 2(1)(b) of the said Scheme in the definition of
"automated allocation". "Automated allocation" is defined in the said clause
to mean "an algorithm for randomised allocation of cases..... ". The term
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'random', in our view, has been used in the context of assigning the case to
a random Assessing Officer, i.e., an Assessing Officer would be randomly
chosen by the system to handle a particular case. The term 'random' is not
used for selection of case for issuance of notice under Section 148 as has
been alleged by the Revenue in the Office Memorandum. Further, in
paragraph 3.2 of the Office Memorandum, with respect to the reassessment
proceedings, the reference to 'random allocation' has correctly been made
as random allocation of cases to the Assessment Units by the National
Faceless Assessment Centre. When random allocation is with reference to
officer for reassessment then the same would equally apply for issuance of
notice under Section 148 of the Act.
(iii) The conclusion at the bottom of page 2 in paragraph 3 of
the Office Memorandum that "Therefore, as provided in the scheme the
notice under section 148 of the Act is issued on automated allocation of
cases to the Assessing Officer based on the risk management criteria " is also
factually incorrect and on the basis of incorrect interpretation of the
Scheme. Clause 2(1)(b) of the Scheme defined 'automated allocation' to
mean 'an algorithm for randomised allocation of cases by using suitable
technological tools, including artificial intelligence and machine learning,
with a view to optimise the use of resources '. The said definition does not
provide that the automated allocation of case to the Assessing Officer is
based on the risk management criteria. The reference to risk management
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criteria in clause 3 of the Scheme is to the effect that the notice under
Section 148 of the Act should be in accordance with the risk management
strategy formulated by the board which is in accordance with Explanation 1
to Section 148 of the Act. In our view, the Revenue is misinterpreting the
Scheme, perhaps to cover its deficiency of not following the Scheme for
issuing notice under Section 148 of the Act.
(iv) In paragraph 3.1 of the Office Memorandum, it is stated
that the case is selected prior to issuance of notice are decided on the basis
of an algorithm as per risk management strategy and are, therefore,
randomly selected. It is further stated that these cases are 'flagged' to the
JAO by the Directorate of Systems and the JAO does not have any control
over the process. It is further stated that the JAO has no way of predicting
or determining beforehand whether the case will be 'flagged' by the system.
The contention of the Revenue is that only cases which are 'flagged' by the
system as per the risk management strategy formulated by CBDT can be
considered by the Assessing Officer for reopening, however, in clause (i) in
the Explanation 1 to Section 148 of the Act, the term "flagged" has been
deleted by the Finance Act, 2022, with effect from 1 st April 2022. In any
case, whether only cases which are flagged can be reopened or not is not
relevant to decide the scope of the Scheme framed under Section 151A of
the Act, which required the notice under Section 148 of the Act to be issued
on the basis of random allocation and in a faceless manner.
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(v) The Revenue has wrongly contended in paragraph 3.1 of
the Office Memorandum that "Therefore, whether JAO or NFAC should
issue such notice is decided by administration keeping in mind the end
result of natural justice to the assessees as well as completion of required
procedure in a reasonable time. " In our opinion, there is no such power
given to the administration under either Section 151A of the Act or under
the said Scheme. The Scheme is clear and categorical that notice under
Section 148 of the Act shall be issued through automated allocation and in
a faceless manner. Therefore, the argument of the Revenue is clearly
contrary to the provisions of the Scheme.
(vi) In paragraph 3.3 of the Office Memorandum, it is again
erroneously stated that "Here it is pertinent to note that the said
notification does not state whether the notices to be issued by the NFAC or
the Jurisdictional Assessing Officer ("JAO")......It states that issuance of
notice under section 148 of the Act shall be through automated allocation
in accordance with the risk management strategy and that the assessment
shall be in faceless manner to the extent provided in section 144B of the
Act." The Scheme is categoric as stated aforesaid that the notice under
Section 148 of the Act shall be issued through automated allocation and in
a faceless manner. The Scheme clearly provides that the notice under
Section 148 of the Act is required to be issued by NFAC and not the JAO.
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Further, unlike as canvassed by Revenue that only the assessment shall be
in faceless manner, the Scheme is very clear that both the issuance of notice
and assessment shall be in faceless manner.
(vii) In paragraph 5 of the Office Memorandum, a completely
unsustainable and illogical submission has been made that Section 151A of
the Act takes into account that procedures may be modified under the Act
or laid out taking into account the technological feasibility at the time.
Reading the said Scheme along with Section 151A of the Act makes it clear
that neither the Section or the Scheme speak about the detailed specifics of
the procedure to be followed therein. This argument of the Revenue is
clearly contrary to the Scheme as the Scheme is very specific to provide,
inter alia, that the issuance of notice under Section 148 of the Act shall be
through automated location and in a faceless manner. Therefore, the
Scheme is mandatory and provides the specification as to how the notice
has to be issued. Further the argument of the Revenue that Section 151A of
the Act takes into account that the procedure may be modified under the
Act is without appreciating that if the procedure is required to be modified
then the same would require modification of the notified Scheme. It is not
open to the Revenue to refuse to follow the Scheme as the Scheme is clearly
mandatory and is required to be followed by all Assessing Officers.
(viii) The argument of the Revenue in paragraph 5.1 of the
Office Memorandum that the Section and Scheme have left it to the
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administration to device and modify procedures with time while remaining
confined to the principles laid down in the said Section and Scheme, is
without appreciating that one of the main principles laid down in the
Scheme is that the notice under Section 148 of the Act is required to be
issued through automated allocation and in a faceless manner. There is no
leeway given on the said aspect and, therefore, there is no question of the
administration to device and modify procedures with respect to the
issuance of notice.
39 With reference to the decision of the Hon'ble Calcutta High
Court in Triton Overseas Private Limited (Supra), the Hon'ble Calcutta High
Court has passed the order without considering the Scheme dated
29th March 2022 as the said Scheme is not referred to in the order.
Therefore, the said judgment cannot be treated as a precedent or relied
upon to decide the jurisdiction of the Assessing Officer to issue notice under
Section 148 of the Act. The Hon'ble Calcutta High Court has referred to an
Office Memorandum dated 20th February 2023 being F No.370153/7/2023
TPL which has been dealt with above. Therefore, no reliance can be placed
on the said Office Memorandum to justify that the JAO has jurisdiction to
issue notice under Section 148 of the Act. Further the Hon'ble Telangana
High Court in the case of Kankanala Ravindra Reddy vs. Income Tax
Officer14 has held that in view of the provisions of Section 151A of the Act
14 (2023) 156 taxmann.com 178 (Telangana)
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read with the Scheme dated 29th March 2022 the notices issued by the JAOs
are invalid and bad in law. We are also of the same view.
40 As regards issue no.5, it is petitioner's case that the issues
raised in the impugned initial notice and the impugned order pertain to
correct claim of deduction/allowances or the expenditure incurred. There is
also no allegation regarding income escaping tax on account of any
undisclosed asset. In the impugned order, the Assessing Officer has
restricted the escapement of income only with regard to Rs.6,54,04,038/-
on the claim of deduction under Section 80JJAA of the Act and
disallowance of excess claim of Forex loss of Rs.6,90,80,180/-. On the Forex
loss, respondent has prima facie accepted the contentions of petitioner that
there was a Forex loss. Therefore, the same cannot be justified as an
escapement of income. Respondent no.1 has also accepted that the
transactions of Calibre Point Business Solutions Ltd. have been duly
incorporated in the accounts of petitioner and that no deduction is claimed
in respect of the deduction allowed under Section 10AA of the Act. None of
the issues raised in the impugned order show an alleged escapement of
income represented in the form of asset as required in Section 149(1)(b) of
the Act.
41 As regards the claim of deduction under Section 80JJAA of the
Act, an issue of correctness of claim of deduction under Chapter VI of the
Act, in our view, cannot be covered by Section 149(1)(b) of the Act. Section
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149(1)(b) of the Act prescribes that escaped income must be represented in
the form of (i) an asset; (ii) expenditure in respect of a transaction or in
relation to an event; (iii) an entry in the books of Account.
The question of a correctness of the claim of deduction under
Section 80JJAA of the Act cannot represent escapement of income in the
form of an asset. The term 'asset' is defined in Explanation to Section 149 of
the Act to include immovable property being land or building or both,
shares and securities, loans and advances, deposit in bank account. The
present case does not fall in any of the types of the assets as mentioned
above. Further, the alleged claim of disallowance of deduction also can
never fall under the category of either clause (b) or clause (c) as it is
neither a case of expenditure in relation to an event nor a case of an entry
in the books of account as no entries are passed in the books of account for
claiming a deduction under the provisions of the Act. On this ground also
the impugned notice will be invalid.
42 As regards issue no.6, respondent no.1 has no power to review
his own assessment when the same information was provided and
considered by him during the original assessment proceedings. We agree
with petitioner that there cannot be a reopening based on a change of
opinion. The claim of deduction under Section 80JJAA of the Act was made
by petitioner in the return of income and petitioner had filed Form 10DA
being the report of the Chartered Accountant. In the said Form, a note has
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been filed alongwith Form 10DA and it has specifically been submitted by
petitioner that software development activity constitutes 'manufacture/
production of article or thing'. The claim of deduction under Section
80JJAA of the Act was also disclosed in the Tax Audit Report filed by
petitioner alongwith the return of income. Further, during the assessment
proceedings, the Assessing Officer had issued a notice dated 5 th October
2017 asking for details of deduction claimed under Chapter VI of the Act.
Petitioner vide a letter dated 13th November 2017 gave the details of
deduction claimed under Chapter VI of the Act alongwith supporting
documents. The Assessing Officer has passed the assessment order dated
30th November, 2017 allowing the claim of deduction under Section 80JJAA
of the Act. The claim for deduction under Section 80JJAA of the Act was
allowed by the Assessing Officer in the previous years as well. Hence, the
present case is clearly a case of change of opinion or review of the original
assessment order which is not permissible even under the new provisions.
43 In Siemens Financial Services (P.) Ltd. (Supra) in paragraphs
35 to 39 the Court held as under :
35. During the course of assessment proceedings, notice had
been issued to petitioner. In reply to the notice under Section
143(2), petitioner had by its letter dated 6 th December 2018
recorded, "......... based upon our discussion during the
course of the hearing ..................". The transaction wise
summary of the software consumable was made available.
This was considered during the assessment proceedings and
the assessment order accepting revised return came to be
passed.
36. We would agree with the submissions of Mr. Pardiwalla
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that if change of opinion concept is given a go by, that would
result in giving arbitrary powers to the Assessing Officer to
reopen the assessments. It would in effect be giving power to
review which he does not possess. The Assessing Officer has
only power to reassess not to review. If the concept of change
of opinion is removed as contended on behalf of the
Revenue, then in the garb of re-opening the assessment,
review would take place. The concept of change of opinion is
an in-built test to check abuse of power by the Assessing
Officer. As held in Dr. Mathew Cherian (Supra), whether
under old or new regime of reassessment, it is settled
position that the issues decided categorically should not be
revisited in the guise of reassessment. That would include
issues where query have been raised during the assessment
and query have been answered and accepted by the Assessing
Officer while passing the assessment order. As held in Aroni
Commercials (supra) even if assessment order has not
specifically dealt with that issue, once the query is raised it is
deemed to have been considered and the explanation
accepted by the Assessing officer. It is not necessary that an
assessment order should contain reference and/or discussion
to disclose his satisfaction in respect of the query raised.
xxxxxxxxxxxxxxxxxx
37. The Assessing Officer does not have any power to review
his own assessment when during the original assessment
petitioner provided all the relevant information which was
considered by him before passing the assessment order under
section 143(3) of the Act dated 23 rd December 2018.
Petitioner had debited an amount of Rs.6,41,87,931/- on
account of software consumables in the profit and loss
account and a detailed break-up of the said expenses were
submitted before the Assessing Officer during the course of
assessment proceedings vide a letter dated 6 th December
2018. It is settled law that proceedings under section 148
cannot be initiated to review the earlier stand adopted by the
Assessing Officer. The Assessing Officer cannot initiate
reassessment proceedings to have a relook at the documents
that were filed and considered by him in the original
assessment proceedings as the power to reassess cannot be
exercised to review an assessment. In petitioner's case the
Assessing Officer having allowed the amount of software
consumables as a revenue expenditure now seeks to treat the
same as capital expenditure which is a clear change of
opinion. Various judicial precedents have held that
reassessment proceedings initiated on the basis of a mere
change of opinion are invalid and without jurisdiction.
38. The Apex Court in Kelvinator of India Ltd.(Supra)
emphasised on the difference between a power to review and
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the power to reassess. The Apex Court held that the Assessing
Officer has no power to review but has only the power to
reassess. The concept of 'change of opinion' must be treated
as an in-built test to check abuse of power by the Assessing
Officer. The relevant extract of the judgment is reproduced as
under :-
".......However, one needs to give a schematic
interpretation to the words "reason to believe" failing
which, we are afraid, section 147 would give arbitrary
powers to the Assessing Officer to re-open assessments
on the basis of "mere change of opinion", which cannot
be per se reason to reopen. We must also keep in mind
the conceptual difference between power to review and
power to re-assess. The Assessing Officer has no power
to review; he has the power to reassess. But
reassessment has to be based on fulfillment of certain
pre-condition and if the concept of "change of opinion"
is removed, as contended on behalf of the Department,
then, in the garb of re-opening the assessment, review
would take place. One must treat the concept of
"change of opinion" as an in-built test to check abuse of
power by the Assessing Officer. Hence, after 1-4-1989 ,
Assessing Officer has power to reopen, provided there
is "tangible material" to come to the conclusion that
there is escapement of income from assessment.
Reasons must have a live link with the formation of the
belief. Our view gets support from the changes made to
section 147 of the Act, as quoted hereinabove. Under
the Direct Tax Laws (Amendment) Act, 1987 ,
Parliament not only deleted the words "reason to
believe" but also inserted the word "opinion" in section
147 of the Act. However, on receipt of representations
from the Companies against omission of the words
"reason to believe", Parliament re-introduced the said
expression and deleted the word "opinion" on the
ground that it would vest arbitrary powers in the
Assessing Officer............."
39. The Delhi High Court in Seema Gupta v. ITO held that
the order under section 148A(d) and notice under section
148 of the Act should be set aside when the reassessment
was initiated on a change of opinion where the same was
discussed and verified by the Assessing Officer at the time of
original assessment proceedings.
Therefore, the concept of change of opinion being an in-built
test to check abuse of power by the Assessing Officer and the Assessing
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Officer having allowed the claim of deduction under Section 80JJAA of the
Act in the assessment order dated 13th November 2017, now to disallow the
same is based on a clear change of opinion. Reassessment proceedings
initiated on the basis of a mere change of opinion is invalid and without
jurisdiction. On this ground also the impugned notice issued under Section
148 of the Act has to be quashed and set aside.
44 As regards issue no.7, sub-section (1) of Section 80JJAA of the
Act reads as under:
"Deduction in respect of employment of new employees.
80JJAA. (1) Where the gross total income of an assessee to whom
section 44AB applies, includes any profits and gains derived from
business, there shall, subject to the conditions specified in sub-section
(2), be allowed a deduction of an amount equal to thirty per cent of
additional employee cost incurred in the course of such business in
the previous year, for three assessment years including the assessment
year relevant to the previous year in which such employment is
provided.
(2) No deduction under sub-section (1) shall be allowed,--
(a) if the business is formed by splitting up, or the reconstruction, of
an existing business:
Provided that nothing contained in this clause shall apply in respect of
a business which is formed as a result of re-establishment,
reconstruction or revival by the assessee of the business in the
circumstances and within the period specified in section 33B;
(b) if the business is acquired by the assessee by way of transfer from
any other person or as a result of any business reorganisation;
(c) unless the assessee furnishes the report of the accountant, as
defined in the Explanation below sub-section (2) of section 288,
before the specified date referred to in section 44AB giving such
particulars in the report as may be prescribed3.
Explanation.--For the purposes of this section,--
(i) "additional employee cost" means the total emoluments paid or
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payable to additional employees employed during the previous year:
Provided that in the case of an existing business, the additional
employee cost shall be nil, if--
(a) there is no increase in the number of employees from the total
number of employees employed as on the last day of the preceding
year;
(b) emoluments are paid otherwise than by an account payee cheque
or account payee bank draft or by use of electronic clearing system
through a bank account or through such other electronic mode as may
be prescribed4:
Provided further that in the first year of a new business, emoluments
paid or payable to employees employed during that previous year
shall be deemed to be the additional employee cost;
(ii) "additional employee" means an employee who has been
employed during the previous year and whose employment has the
effect of increasing the total number of employees employed by the
employer as on the last day of the preceding year, but does not
include--
(a) an employee whose total emoluments are more than twenty-five
thousand rupees per month; or
(b) an employee for whom the entire contribution is paid by the
Government under the Employees' Pension Scheme notified in
accordance with the provisions of the Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 (19 of 1952); or
(c) an employee employed for a period of less than two hundred and
forty days during the previous year; or
(d) an employee who does not participate in the recognised provident
fund:
Provided that in the case of an assessee who is engaged in the
business of manufacturing of apparel or footwear or leather products,
the provisions of sub-clause (c) shall have effect as if for the words
"two hundred and forty days", the words "one hundred and fifty days"
had been substituted:
Provided further that where an employee is employed during the
previous year for a period of less than two hundred and forty days or
one hundred and fifty days, as the case may be, but is employed for a
period of two hundred and forty days or one hundred and fifty days,
as the case may be, in the immediately succeeding year, he shall be
deemed to have been employed in the succeeding year and the
provisions of this section shall apply accordingly;
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(iii) "emoluments" means any sum paid or payable to an employee in
lieu of his employment by whatever name called, but does not include
--
(a) any contribution paid or payable by the employer to any pension
fund or provident fund or any other fund for the benefit of the
employee under any law for the time being in force; and
(b) any lump sum payment paid or payable to an employee at the
time of termination of his service or superannuation or voluntary
retirement, such as gratuity, severance pay, leave encashment,
voluntary retrenchment benefits, commutation of pension and the
like.
(3) The provisions of this section, as they stood immediately prior to
their amendment by the Finance Act, 2016, shall apply to an assessee
eligible to claim any deduction for any assessment year commencing
on or before the 1st day of April, 2016."
It provides that where the gross total income of an assessee to
whom Section 44AB applies, includes any profits and gains derived from
business, there shall, subject to the conditions specified in sub-section (2),
be allowed a deduction of an amount equal to thirty percent of additional
employee cost incurred in the course of such business in the previous year,
for three assessment years including the assessment year relevant to the
previous year in which such employment is provided. The fact that the
claim of deduction under Section 80JJAA of the Act has been allowed to
petitioner consistently since Assessment Year 2010-2011 is not disputed.
Therefore, respondent no.1 cannot allege that income chargeable to tax has
escaped assessment on account of such claim being allowed for Assessment
Year 2015-2016 when such claim stands allowed for earlier years on
identical facts, i.e., with respect to the same business activity.
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45 As regards Ms. Gokhale's submissions that the merits of the
claim of deduction under Section 80JJAA of the Act cannot be
urged/argued in the present writ petition and petitioner has an alternate
remedy to argue the merits of the case before the Assessing Officer, in our
view, petitioner is not arguing the merits of deduction under Section
80JJAA of the Act. It is the submission of petitioner that the jurisdictional
conditions prescribed under Sections 147, 148, 148A, 149, 151, and 151A
of the Act have not been fulfilled by respondent no.1 before issuing the
impugned notice under Section 148 of the Act. As jurisdictional conditions
are not fulfilled by respondent no.1, the impugned notice can be challenged
by petitioner before this Court. The counsel for respondent has failed to
appreciate that petitioner has not argued the case on the merits but merely
submitted that on merits deduction under Section 80JJAA of the Act has
already been allowed in the earlier assessment years, i.e., Assessment Year
2013-2014 and 2014-2015 and the deduction in the Assessment Year 2015-
2016 is only consequential as the eligibility to claim deduction was in the
Assessment Year 2013-2014 and, therefore, there is no question of
reopening the assessment for the relevant assessment to disallow the
deduction under Section 80JJAA of the Act.
46 As regards issue no.8, it is submitted by Mr. Mistri that on the
facts of the present case, no person properly instructed in law could have
granted approval for passing the order under Section 148A(d) of the Act. It
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is further submitted that the approval granted by respondent no.3 does not
show application of mind by respondent no.3. Hence, the approval is
invalid and bad in law. We are unable to agree with Mr. Mistri to hold, in
the facts and circumstances of the case, there was non application of mind
by the approving authority.
47 Therefore, the issues are answered as under:
Issue Issue Answered
no.
01 Whether TOLA is applicable for Assessment No
Year 2015-2016 and whether any notice
issued under Section 148 of the Act after 31 st
March 2021 will travel back to the original
date?
02 Whether the notice dated 27th August 2022 Yes
issued under Section 148 of the Act is barred
by limitation as per the first proviso to
Section 149 of the Act?
03 Whether the impugned notice dated 27 th Yes
August 2022 is invalid and bad in law as the
same has been issued without a DIN?
04 Whether the impugned notice dated 27 th Yes
August 2022 is invalid and bad in law being
issued by the JAO as the same was not in
accordance with Section 151A of the Act?
05 Whether the issues raised in the impugned No
order show an alleged escapement of income
represented in the form of an asset or
expenditure in respect of transaction in
relation to an event or an entry in the books
of account as required in Section 149(1)(b)
of the Act?
06 Whether respondent no.1 has proposed to
reopen
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a. on the basis of change of Yes
opinion and;
b. if it is permissible? No
07 When the claim of deduction under Section No
80JJAA of the Act has been consistently
allowed in favour of petitioner by the
Assessing Officers/ Appellate Authorities in
the earlier years, can the Assessing Officer
have a belief that there is escapement of
income?
08 Whether the approval granted by the Yes
Sanctioning Authority was valid?
48 Therefore, Rule made absolute in terms of prayer clause (a)
which reads as under:-
"(a) that this Hon'ble Court be pleased to issue a Writ of Cetiorari or
any other writ order or direction under Article 226 of the Constitution
of India calling for the records of the case leading to the issue of the
impugned initial notice (Exhibit H) dated 25th May, 2022, passing of
the impugned order (Exhibit L) dated 26th August 2022 and the issue
of the impugned notice (Exhibit M) dated 27th August, 2022 and after
going through the same and examining the question of legality thereof
quash, cancel and set aside the impugned initial notice (Exhibit H)
dated 25th May, 2022, passing of the impugned order (Exhibit L)
dated 26th August 2022 and the issue of the impugned notice
(Exhibit M) dated 27th August 2022."
(DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.)
Gauri Gaekwad
