The hon’ble Delhi High Court, hearing a batch of 1346 writ petitions, (leading case being ‘Mon Mohan Kohli vs. ACIT & ANR. in W.P.(C) 6176/2021), challenging the initiation of re-assessment proceedings, on or after 1.4.2021, pursuant to issue of notices under the old section 148, in its landmark judgement dated 15.12.2021, have quashed the respective old 148 notices and have allowed all the 1346 petitions.
For ready reference of our Readers, the Copy of the said Judgement is enclosed as a PDF File attachment below:
The Key Findings & Observations of the hon'ble Delhi High Court are being summarised below:
(1) THE LEGISLATURE HAS PERMITTED RE-ASSESSMENT TO BE MADE ONLY IN ACCORDANCE WITH THE SUBSTITUTED PROVISIONS, IT CAN ONLY BE DONE IN THIS MANNER, OR NOT AT ALL.
(2) SECTION 3(1) OF RELAXATION ACT EMPOWERS THE GOVERNMENT/EXECUTIVE TO EXTEND ONLY THE TIME LINES. CONSEQUENTLY, THE GOVERNMENT/EXECUTIVE CAN NEITHER MAKE OR CHANGE LAW OF THE LAND NOR CAN IT IMPEDE THE IMPLEMENTATION OFLAWMADE BY THE PARLIAMENT.
(3) THE IMPUGNED EXPLANATIONS IN THE NOTIFICATIONS DATED 31ST MARCH, 2021 AND 27TH APRIL, 2021 ARE ULTRA VIRES THE PARENT STATUTE I.E. THE RELAXATION ACT. THIS COURT IS RESPECTFULLY NOT IN AGREEMENT WITH THE VIEW OF THE CHHATTISGARH HIGH COURT IN PALAK KHATUJA (SUPRA), BUT WITH THE VIEWS EXPRESSED BY THE ALLAHABAD HIGH COURT IN ASHOK KUMAR AGARWAL (SUPRA) AND RAJASTHAN HIGH COURT IN BPIP INFRA PRIVATE LIMITED VS. INCOME TAX OFFICER, WARD 4(1), S.B. CIVIL WRITPETITION13297/2021
(4) FINANCE ACT, 2021 HAS MERELY CHANGED THE PROCEDURE OF ISSUING NOTICE. CONSEQUENTLY, THE “POWER” OF REASSESSMENT THAT EXISTED PRIOR TO 31ST MARCH, 2021 CONTINUES TO EXIST EVEN THEREAFTER.
(5) TO IGNORE THE LEGISLATIVE INTENT OF FINANCE ACT, 2021 WOULD NOT BE IN ACCORDANCE WITH PAST PRACTICE.
(6) IT IS A PRINCIPLE OF LEGAL POLICY THAT CHANGES IN THE SUBSTANTIVE LAW SHOULD NORMALLY NOT TAKE EFFECT RETROSPECTIVELY EXCEPT IN RELATION TO PROCEDURAL MATTERS.
(7) FOR DETERMINING WHETHER THE AMENDMENT IS A PROCEDURAL OR A SUBSTANTIVE LAW ONE WILL HAVE TO EXAMINE THE INTENT, PURPOSE AND SCOPE OF THE AMENDMENTS.
(8) THE INTENT, PURPOSE AND SCOPE OF THE AMENDMENTS INTRODUCED BY THE FINANCE ACT, 2021 WAS TO PROTECT THE RIGHTS AND INTERESTS OF ASSESSEES AS WELL AS PROMOTE PUBLIC INTEREST. IT IS SETTLED LAW THAT IF LEGISLATION IS INTRODUCED TO REMEDY THE DEFECTIVE RULE AND NO ONE SUFFERS THEREBY, IT IS SENSIBLE TO APPLY IT TO PENDING PROCEEDINGS.
(9) NEITHER THE CONCEPT OF VESTED RIGHT IN FAVOUR OF THE REVENUE NOR THE JUDGMENT OF THE SUPREME COURT IN M.P. STEEL CORPORATION V. CCE (2015) 7 SCC 58 HAS ANY APPLICATION.
(10) THE ARGUMENT OF THE RESPONDENT THAT THE SUBSTITUTIONS MADE BY THE FINANCE ACT, 2021 IS NOT APPLICABLE TO PAST ASSESSMENT YEARS, AS IT IS SUBSTANTIAL IN NATURE IS CONTRADICTED BY ITS OWN CIRCULAR 549 OF 1989 AND ITS OWN SUBMISSION THAT FROM 1ST JULY, 2021, THE SUBSTITUTIONS MADE BY THE FINANCE ACT, 2021 WILL BE APPLICABLE.
(11) IF THE ARGUMENT OF THE RESPONDENTS THAT THE EXPLANATION IN NOTIFICATION NO. 20 DATED 31ST MARCH, 2021 EXTENDED THE APPLICABILITY OF OLD PROCEDURE OF REASSESSMENT BEYOND 31ST MARCH, 2021 IS ACCEPTED, THE SAME SHALL LEAD TO MANIFESTARBITRARINESS AND CONFLICT.
(12) REVENUE CANNOT RELY ON COVID-19 FOR CONTENDING THAT THE NEW PROVISIONS SHOULD NOT OPERATE DURING THE PERIOD 1st APRIL, 2021 TO 30th JUNE, 2021.
(13) NON-OBSTANTE CLAUSE HAS TO BE CONSTRUED STRICTLY. SECTION 3(1) OF RELAXATION ACT IS EXPRESSLY CONFINED TO AND ONLY SUPERSEDES THE TIME LIMITS. IT DOES NOT EXCLUDE THE APPLICABILITY OF PROVISIONS SUBSTITUTED BY FINANCE ACT, 2021.
(14) THE REVENUE’S CHOOSING AND PICKING OF TWO TERMS VIZ. “SUCH ACTION” & “EXTENSION/EXTENDED” IS CONTRARY TO BASIC PRINCIPLES OF INTERPRETATIONS WHICH PROHIBITS SELECTIVELY CHOOSING/IGNORING WORDS FROM THE STATUTORY LANGUAGE AS WELL AS THE FACT THAT THE RELAXATION ACT, 2020 WAS ENACTED LONG BEFORE FINANCE ACT, 2021.
(15) THE “LEGAL FICTION” ARGUMENT IS WITHOUT ANY FOUNDATION. THERE IS NO PROVISION IN RELAXATION ACT STATING THAT IF THE “ACTION” IS TAKEN WITHIN THE EXTENDED TIME LIMIT, IT WOULD BE DEEMED TO HAVE BEEN TAKEN BEFORE THE EXPIRY OF THE ORIGINAL (UN-EXTENDED) TIME LIMIT.
(16) THE ESSENTIAL CONDITION FOR A PROVISION TO BE TERMED AS STOP THE CLOCK PROVISION IS ABSENT INASMUCH AS THE TIME DURING WHICH SUCH CLOCK IS STOPPED HAS NOT BEEN STIPULATED TO BE EXCLUDED.
(17) IT CANNOT BE THAT A FICTION IS CREATED OR CLOCK STOPPED ONLY FOR REASSESSMENT AND NOT FOR ASSESSMENT AND/OR FACELESS PENALTY SCHEME.
(18) THE PRINCIPLE THAT A SPECIAL ACT OVERRIDES A GENERAL ACT HAS NO APPLICATION TO THE PRESENT CASE BECAUSE RELAXATION ACT AND THE FINANCE ACT OPERATE IN DISTINCT AND SEPARATE SPHERES.
(19) THE ARGUMENT OF THE RESPONDENTS THAT RELAXATION ACT PROMOTES THE EQUALITY PRINCIPLES UNDER ARTICLE 14 OF THE CONSTITUTION IS UNTENABLE IN LA W.
(20) THE SUBMISSION OF THE REVENUE THAT SECTION 6 OF THE GENERAL CLAUSES ACT SAVES NOTICES ISSUED UNDER SECTION 148 POST 1ST APRIL, 2021 IS UNTENABLE IN LAW, AS IN THE PRESENT CASE, THE REPEAL IS FOLLOWED BY A FRESH LEGISLATION ON THE SAME SUBJECT AND THE NEW ACT MANIFESTS AN INTENTION TO DESTROY THE OLD PROCEDURE.
97. This Court is of the view that as the Legislature has introduced the new provisions, Sections 147 to 151 of the Income Tax Act, 1961 by way of the Finance Act, 2021 with effect from 1st April, 2021 and as the said Section 147 is not even mentioned in the impugned Explanations, the reassessment notices relating to any Assessment Year issued under Section 148 after 3 1st March, 2021 had to comply with the substituted Sections.
98. It is clarified that the power of reassessment that existed prior to 3 1st March, 2021 continued to exist till the extended period i.e. till 30th June, 2021; however, the Finance Act, 2021 has merely changed the procedure to be followed prior to issuance of notice with effect from 1st April, 2021. 99. This Court is of the opinion that Section 3(1) of Relaxation Act empowers the Government/Executive to extend only the time limits and it does not delegate the power to legislate on provisions to be followed for initiation of reassessment proceedings. In fact, the Relaxation Act does not give power to Government to extend the erstwhile Sections 147 to 151 beyond 31st March, 2021 and/or defer the operation of substituted provisions enacted by the Finance Act, 2021. Consequently, the impugned Explanations in the Notifications dated 3 1st March, 2021 and 27th April, 2021 are not conditional legislation and are beyond the power delegated to the Government as well as ultra vires the parent statute i.e. the Relaxation Act. Accordingly, this Court is respectfully not in agreement with the view of the Chhattisgarh High Court in Palak Khatuja (supra), but with the views of the Allahabad High Court and Rajasthan High Court in Ashok Kumar Agarwal (supra) and Bpip Infra Private Limited (supra) respectively.
99. This Court is of the opinion that Section 3(1) of Relaxation Act empowers the Government/ Executive to extend only the time limits and it does not delegate the power to legislate on provisions to be followed for initiation of reassessment proceedings. In fact, the Relaxation Act does not give power to Government to extend the erstwhile Sections 147 to 151 beyond 31st March, 2021 and/or defer the operation of substituted provisions enacted by the Finance Act, 2021. Consequently, the impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 are not conditional legislation and are beyond the power delegated to the Government as well as ultra vires the parent statute i.e. the Relaxation Act. Accordingly, this Court is respectfully not in agreement with the view of the Chhattisgarh High Court in Palak Khatuja (supra), but with the views
100. The submission of the Revenue that Section 6 of the General Clauses Act saves notices issued under Section 148 post 31st March, 2021 is untenable in law, as in the present case, the repeal is followed by a fresh legislation on the same subject and the new Act manifests an intention to destroy the old procedure. Consequently, if the Legislature has permitted reassessment to be made in a particular manner, it can only be in this manner, or not at all.
101. The argument of the respondents that the substitution made by the Finance Act, 2021 is not applicable to past Assessment Years, as it is substantial in nature is contradicted by Respondents’ own Circular 549 of 1989 and its own submission that from 1st July, 2021, the substitution made by the Finance Act, 2021 will be applicable.
102. Revenue cannot rely on Covid-19 for contending that the new provisions Sections 147 to 151 of the Income Tax Act, 1961 should not operate during the period 1st April, 2021 to 30th June, 2021 as Parliament was fully aware of Covid-19 Pandemic when it passed the Finance Act, 2021. Also, the arguments of the respondents qua non-obstante clause in Section 3(1) of the Relaxation Act, ‘legal fiction’ and ‘stop the clock provision’ are contrary to facts and untenable in law.
103. Consequently, this Court is of the view that the Executive/Respondents/Revenue cannot use the administrative power to issue Notifications under Section 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021. This Court is also of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of Income Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation.
104. Keeping in view the aforesaid conclusions, Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are declared to be ultra vires the Relaxation Act, 2020 and are therefore bad in law and null and void.
105. Consequently, the impugned reassessment notices issued under Section 148 of the Income Tax Act, 1961 are quashed and the present writ petitions are allowed. If the law permits the respondents/revenue to take further steps in the matter, they shall be at liberty to do so. Needless to state that if and when such steps are taken and if the petitioners have a grievance, they shall be at liberty to take their remedies in accordance with law.