Notices issued u/s 148 during 01.04.2021 to 30.06.2021: Conundrum still continues

A. Introduction

The Noble Laureate Economist Dr Milton Friedman stated that,

The government solution to a problem is usually as bad as the problem.¹

The issue of validity of re-assessment notices issued during the period from April 1, 2021 to June 30, 2021, is still hovering around the judicial circle where more than 90,000 such notices have been issued during this period, and more than 10,000 writ petitions have been filed against them. The landmark decision of the Apex Court ('SC') in the case of Union of India v. Ashish Agarwal² had not only given a life line to the quashed notices (ibid), but also provided relief to the taxpayer by deciding that all these notices will be dealt as per procedure issued under the new provisions enacted by the Finance Act, 2021.

The CBDT vide instruction³ dated May 11, 2022, while explaining its understanding of the SC ruling (supra), showed the way forward in how the Revenue should apply to the SC ruling. However, interpretation of the SC order by CBDT and its reading with the law has again opened a Pandora box where thousands of writ petitions have got filed or are in pipeline to oppose the notices issued on the basis of such interpretation.

The Delhi High Court ('HC'), Gujarat HC, Rajasthan HC and many others have interpreted this matter differently. Where the Allahabad HC has considered the CBDT instructions as a "surreptitious" attempt to overturn directive of the Supreme Court's ruling in the case of Rajeev Bansal v. Union of India⁴, the Delhi HC has passed the order in the favour of the Revenue considering these instructions in line with the SC ruling in the case of Touchstone Holdings (P.) Ltd. v. ITO⁵. Recently, the SC has dealt with the matter in the case of Salil Gulati v. Asstt. CIT⁶ and dismissed the SLP filed by the taxpayer against the order of Delhi HC which was in the favour of the Revenue. However, the order of SC was a totally non-speaking order and does not provide any path to move further.

As per the understanding of the author, the major issue at hand is whether the impugned notices have gotten revived only to follow the procedure as applicable after the amendment of the provision, or due date to issue such notices will also get extended up to June 30, 2021 which has already been time barred as per unamended law? Whether the time limit as per the old provisions should be followed, or the time limit under the new provision will be applicable? In this article, the author has attempted to answer these questions and made an attempt to analyse the issue in the light of various HCs' orders, SC's decision and CBDT's instruction and their interplay.

B. Background

The issue of validity of re-assessment notices came into picture when the due date of issue of re-assessment notices was extended by the Central Government due to COVID-19 pandemic and meanwhile the Govt. passed the Finance Act, 2021 (FA, 2021) which had replaced the old provision under section 147 to 151 related to reassessment. To understand and analyse the issue, we can go through all the events in detail which are described as follows:

B.1 Extension of the due dates related to issue of reassessment notices

The Government had extended the due dates of various compliances on multiple occasions due to COVID-19 Pandemic. In these compliances, one of the compliance was due dates related to issue of reassessment notices u/s 148 of the Act. The chronology of such extensions is described in the below table and pictorial presentation:

Due dates-between Mar 20, 2020 to)	Extensions	Reference
June 29, 2020	June 29, 2020	Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [TOLA]
Dec 31, 2020	March 31, 2021	Notification S.O. 2033(E) [No.35/2020], June 24, 2020
Mar 30, 2021	March 31, 2021	Notification S.O. 4805(E) [No.93/2020], Dec 31, 2020
Mar 31, 2021	April 30, 2021	Notification S.O. 1432(E) [No.20/2021], Mar 31, 2021
Mar 31, 2021	June 30, 2021	Notification S.O. 1703 (E) [No.38/2021], Apr 27, 2021

B.2 Introduction of new procedure of reassessment by Finance Act, 2021

When the CBDT was extending the due date of issuing the notices u/s 148, the Central Government also made a drastic change in the scheme of reassessment. The FA, 2021 replaced the sections 147 to 151 with new provision and procedure which is effective from April 1, 2021.

Till March 31, 2021, if the amount of income that has escaped assessment (i) is less than Rs.1 lakh, the notice under section 148 for revenue escaping assessments could be issued within 4 years after the end of the relevant AY and, (ii) the notice could be issued within 6 years wherever the amount of escaped income surpasses Rs.1 lakh.

From April 1, 2021 under the new provision, the re-assessment notice can be issued (i) within 3 years from the end of the relevant AY and, (ii) if the amount of escaped income exceeds Rs. 50 lakh, the notice can be issued within 10 years. Further, the process of issuing the notice has also been described in details by inserting new provision under section 148A of the Act.

B.3 Disputed Matter

The Assessing Officers (AOs) were allowed an extended period to issue a notice under section 148 till June 30, 2021 vide notifications as discussed in the previous paragraph. The additional time was allowed if the original due dates for issuing such notices fell between March 20, 2020 to March 31, 2021.

The new provisions (section 147 to section 151) came into force w.e.f. April 1, 2021, which explicitly stated that any notice under section 148 on or after April 1, 2021 shall be issued as per the new provisions only. However, the notification as highlighted in the pictorial presentation also provided authority to the AOs to issue notices under section 148 as per the old law up to extended time line of June 30, 2021 which was in contravention to the amended provisions. A dispute arose in respect of the validity of those notices which were issued during the common period between April 1, 2021 and June 30, 2021, where more than 90,000 of such notices issued by the Revenue. The assesses challenged the validity of such notices on the ground that the old provisions were not in existence at that time and the new provisions were in force with effect from April 1, 2021, hence, the notices should have been issued in compliance with the new provisions and timelines provided therein. The taxpayers filed writ petitions to quash these notices which were in thousands.

B.4 Decision of Supreme Court in the case of Ashish Agarwal (supra), dated May 4, 2021

The Supreme Court tried to settle the controversy in the case of Ashish Agarwal (supra). The SC exercised its power under article 142 of the Constitution of India so as to avoid any further appeals by the revenue or taxpayers on the very issue by challenging similar judgments and orders. It was held that this order will be applicable PAN INDIA on all judgments and orders passed by different High Courts on the issue under which similar notices issued after 1-4-2021 under section 148 are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent.

The Court provided relief to both the parties. The Revenue got relief as the re-assessment notice issued under the old provision during the said period was held valid on the grounds that the Assessing Officer was under a bona fide belief that the old provisions also got an extension by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and notifications issued thereunder. The assessee got the relief as the Court held that all the defences available under section 149 shall continue to be available to the assessee.

The gist of the order passed can be defined in the following points, i.e.:

(a)		The respective impugned section 148 notices issued to the respective assesses shall be deemed to have been issued under section 148A as substituted by the FA, 2021 (the new regime) and treated to be show-cause notices in terms of section 148A (b).
(b)		The Revenue has been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 as per the FA, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 and which may be available under the FA, 2021 and in law. However, the requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a one-time measure.
(c)		It was held that a bonafide mistake has been made by the Revenue by issuing the impugned notices under section 148 after the amendment was enforced with effect from 1-4-2021, under the unamended section 148. However, the Revenue can't be made remediless and the object and purpose of reassessment proceedings cannot be frustrated.

In other words, the Supreme Court revived the notices quashed by High Courts by converting the notices issued under section 148 (old) to notice under section 148A of the new provision with a direction to continue the proceedings after following the procedure laid down under the new provisions.

B.5 Instruction by CBDT, dated May 11, 2022

The CBDT issued Instruction No. 01/2022, dated 11.5.2022, containing guidelines for the implementation of the SC judgment. The guidelines for the years under dispute are as follows:

(i) AY 2013-14, AY 2014-15 and AY 2015-16:

Fresh Notice u/s 148 can be issued in these cases, with the approval of the specified authority, only if the assessing officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of an asset, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more, for that year.

(ii) AY 2016-17, AY 2017-18:

Fresh Notice u/s 148 can be issued in these cases, with the approval of the specified authority, since they are within a period of three years from the end of the relevant assessment years.

In other words, the benefit of extended time limit as provided under TOLA will be available to all the notices issued under the disputed period.

C. Analysis of the dispute in the light of the SC order and CBDT Instruction

The instruction mentioned above has given rise to conflicting opinions. The Revenue again issued thousands of notices u/s 148 following the CBDT instruction which were challenged by considering the instructions as erroneous and illegal.

C.1 Argument by Taxpayers

It is being argued that the instruction is not in accordance with the provisions of the Income Tax Act, 1961 on the following grounds i.e.:

(a)		AY 2013-14 & 2014-15 can't be reopened under the new provision in view of the first proviso to section 149(1) which stipulates that no notice can be issued under the new law if they could have not been issued under the time limit as prescribed under the old law which is 6 years, hence, the time limit have already elapsed on 31-3-2021.
(b)		As regards AY 2016-17 & 2017-18, it is being argued that they are barred by limitation as three years have already elapsed on 31-3-2021 & therefore, no notice under section 148 can be issued under the new provision on or after 1-4-2021. (In respect of the cases, where the amount of escaped income is less than Rs.50 lakhs.)

The first proviso to section 149(1) of the Act is reproduced here as below for ready reference.

"Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021".

C.2 Argument by Revenue

The Revenue argued that as per their view the new provisions of reopening read with the provisions of TOLA shows that the above interpretation by taxpayers is wholly erroneous and misleading. The basis of such interpretation is as follows:

(i)		TOLA still subsists and has not been struck down was one of the prominent defence taken by the Revenue. It was argued that The Calcutta High Court in the case of Bagaria Properties and Investment (P.) Ltd. v. Union of India7, has only declared the Explanation A(a) of the Notification No. 20 [S.O. 1432 (E) dated 31st March, 2021 issued under sec 3(1) of the TOLA as ultra vires to the parent legislation. The parent Act, TOLA is still valid and is very much in operation. It is applicable to the provisions of old section 148 till 30-3-2021, and from 1-4-2021 it is applicable to the new provisions. Accordingly, the time barring dates for AY 2013-14 & 2014-15 under the old provision falling on 31-3-2020 & 31-3-3021 got extended to 30-6-2021.
(ii)		The Revenue further argued that prima facie it appears that in terms of restriction placed by the first proviso to section 149(1), these two AYs can't be reopened now (between 1-4-2021 to 30-6-2021). This is the basis of calling the CBDT instruction on these two AYs wrong. The fallacy in this argument is that it ignores the TOLA which is a subsisting Act duly passed by the parliament. As per TOLA all time barring dates for issue of notice under section 148 (whether old or new) got shifted to 30-6-2021. As such, AY 2013-14 & 2014-15 are not hit by the restriction imposed by the first proviso to section 149(1) and accordingly, very well be reopened under the new provision till 30-6-2021. Therefore, there is no so called legal infirmity in the instruction of the CBDT relating to direction to issue notice to reopen the assessments for AYs 2013-14 & 2014-15 if income escaping assessment is 50 lakhs or more. The CBDT instruction duly deals with this aspect.
(iii)		As regards AY 2016-17 & 2017-18, again TOLA extends the three years' time limit from 31- 3-2020 & 31-3-2021 to 30-6 2021 and therefore, these two AYs are also within the time limit prescribed.

It is therefore argued that there is no legal infirmity in the CBDT instruction which is perfectly in accordance with the provisions of law.

D. Interpretation of the disputed matter by various High Courts

D.1 In favour of the Revenue

The Hon'ble Delhi High Court in the case of Touchstone Holdings (P.) Ltd. (supra) has passed the order in favour of the Revenue and held that

"The Supreme Court has declared that the said reassessment notice be deemed as a notice issued under section 148A of the Act and permitted Revenue to complete the said proceedings. In this case, the income alleged to have escaped assessment is more than 50 lakhs and therefore, the rigour of Section 149(1)(b) of the Act (as amended by the Finance Act, 2021) has been satisfied."⁸ (Emphasis Applied)

It has also been held by the Delhi High Court in the favour of the revenue in the case of Salil Gulati⁹, that

"7. The time limit for issuing notice under unamended Section 149 which was falling between 20th March, 2020 and 31st March 2021 was extended by section 3 of TOLA read with Notification No. 20/2021 dated 31^st March, 2021, and Notification No. 38/2021 dated 27th April, 2021, until 30th June, 2021. The initial notice in the present proceedings was issued on 23rd June, 2021 i.e. extended time limit. The said notice was quashed by this Court in petitioner's earlier writ petition being W.P.(C) 7582/2021 vide judgment as Mon Mohan Kohli v. Asstt. CIT [2021] 133 /166/[2022] 441 ITR 207 (Delhi) as the mandatory procedure of section 148A of the Act was not followed before issuing the said notice. In the said judgment though this Court struck down the Explanations A(a)(ii) and A(b) to the said notifications, yet it clarified that the power of reassessment that existed prior to 31st March, 2021 continued to exist till the extended period i.e. till 30th June, 2021; as the Finance Act, 2021 had merely changed the procedure to be followed prior to issuance of notice with effect from 1st April, 2021.

8. ………..

9. Consequently, since the time period for issuance of reassessment notice for assessment year 2013-14 stood extended until 30th June, 2021 and the income alleged to have escaped assessment is beyond Rs.50 lakhs, the first proviso of section 149 (as amended by the Finance Act, 2021) is not attracted in the facts of this case and even without the benefit of Instruction No. 01/2022 the impugned notice is within limitation." (Emphasis Applied)

D.2 In favour of the taxpayers

The Gujarat HC has held in the case of Keenara Industries (P.) Ltd v. ITO¹⁰, that

" 54. We also cannot be oblivious of the fact that the Apex Court had in no uncertain terms expressed that it is in complete agreement with the view taken by various High Courts and thus had affirmed the views of the High Courts which held that after enactment of Finance Act, 2021, no notice under section 148 of the Act can be issued on the basis of provisions contained in TOLA Act. Therefore, the CBDT's interpretation for issuance of directions to the Assessing Officers by relying on the TOLA Act is contrary to the ratio of the Apex Court. ……….. it is to be appreciated that the TOLA Act has extended the last date under unamended section for initiating the actions under sections 147/148 of the Act which is prescribed under unamended section 149. TLA Act is a subsidiary legislation, whereas the unamended sections 147 to 151 being the principal legislation, substitution of sections 147 to 151 by Finance Act with the entire new set of provision having different conditions and procedures on which the existence of subsidiary legislation TOLA Act depends itself and ceased to excess, the provision contained in TOLA cannot have any effect after the enactment of Finance Act, 2021. The CBDT failed to appreciate such legal effect of enactment of Finance Act, 2021 before relying on provisions contained in TLA Act.

55. ……. It is apposite to take notice of the language used by the legislature while drafting first proviso to section 149 which contains reference to the time limit specified under clause (b) of the unamended section 149 of the Act being six years from the end of relevant assessment years. This time limit is since not being altered by TOLA therefore, extension of time limit for taking the action cannot be said to have been altered.

56. ……. Circular of CBDT extending time limit for the issuance of notice under section 148 of the IT Act upto 30.06.2021 met with a serious challenge. In wake of coming into effect the new Act of 2021 w.e.f. 01.04.2021 to give an overriding effect over legislation by issuance of notification for issuance of notice under the old provisions was not sustained by various High Courts and eventually the Apex Court intervened to give a balanced solution. It permitted the procedure under the new Act for those proceedings initiated before 01.04.2021 to 30.06.2021 and at the same time all contentions were kept open for the litigating parties to raise. Again, it is an unquestionable proposition that notifications which are the creation of the executives, issued under section 3 of TOLA Act, 2020 cannot override the legislation no matter how grave the situation may be and pandemic due to COVID-19 virus would also not be potent enough to dilute this principle. (Emphasis Applied)

In the case of Rajeev Bansal (supra), the Allahabad High Court has held that,

"105. Our answer to the two questions posed to us are, thus, as under:-

(i)		The reassessment proceedings initiated with the notice under Section 148 (deemed to be notice under Section 148-A), issued between 01.04.2021 and 30.06.2021, cannot be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation And Amendment of Certain Provisions) Act' (TOLA) 2020 upto 30.03.2021, and the time limit prescribed in Section 149 (1)(b) (as substituted w.e.f. 01.04.2021) cannot be counted by giving such relaxation from 30.03.2020 onwards to the revenue.
(ii)		In respect of the proceedings where the first proviso to Section 149(1)(b) is attracted, benefit of TOLA' 2020 will not be available to the revenue, or in other words, the relaxation law under TOLA' 2020 would not govern the time frame prescribed under the first proviso to Section 149 as inserted by the Finance Act' 2021, in such cases. (Emphasis Applied)

The Rajasthan High Court in the case of Geeta Agarwal Wife of Shri Navratan Agarwal v. ITO¹¹, has held that

"The argument that the Hon'ble Supreme Court has allowed that the reassessment proceedings should be continued by treating notices under Section 148 of the Act as notices under Section 148(A) of the Act, does not come to the aid of the respondents because even if the period of limitation has been extended from time to time by issuance of notifications extending time line as provided under Section 149 of the Act, in any case, present is a case where notice under Section 148 of the Act has been issued only on 26.07.2022, therefore, the source of authority would be Section 148 of the Act subject to the bar under Section 149 of the Act as is existed on the day when the notice was issued. Source of authority could not be traced to pre-existing provision which was no longer in force and available when notice under Section 148 of the Act was issued on 26.07.2022." (Emphasis Applied)

E. Recent Supreme Court decision in favour of the revenue Dated April 11, 2023

Recently the Hon'ble Apex Court has passed the order in the case of Salil Gulati¹² in the impugned issue in respect of the SLP filed by the assessee. The SLP had been filed by the assessee against the order of Delhi High Court which was in the favour of the Revenue. The Delhi High Court had considered the extension provided under the TOLA as applicable to the notices issued during the disputed period and the notice issued under section 148 as legitimate for the AY 2013-14.

It has been held by the Apex Court that no interference of this court is called for in the order passed by the High Court and SLP filed by the assessee is dismissed. The verbatim of the Apex court is reproduced here below for better understanding:

"2. Having heard Shri Percy Pardiwala, learned Senior Advocate, appearing on behalf of the petitioner and having gone through the impugned judgment and order passed by the High Court, no interference of this Court is called for.

3. The Special Leave Petition stands dismissed.

(Emphasis Applied)"

On the plain reading of the SC order, it is looks that it has accepted the order held by the Delhi High Court and has passed the order in the favour of the revenue, where the due date extended under the TOLA had been accepted. However, no further point has been discussed in the order that how SC has reached to this conclusion, where the order of the other HCs which were in favour of the Assessee (as discussed above) have discussed the matter elaborately, specifically the order of the Gujarat High Court which runs into more than 200 pages.

F. Validity of reassessment notice u/s 148 issued for different AYs interpreting various decisions by the SC, High Courts and CBDT instructions

In this section, the author has tried to analyse the different permutations and combinations which can be possible in case

(i)		Reassessment notices u/s 148 have been issued during the period from April 1, 2021 to June 30, 2021 (under the old regime which got revived as per the SC ruling in the case of Ashish Agarwal (supra)) and,
(ii)		Issued for the AY 2012-13 to AY 2020-21.

The author has attempted to examine the validity of the notices in the light of the aforesaid SC rulings, CBDT's instructions and interpretation of various HCs decisions. As per the understanding of the author, the following scenarios are possible, i.e.:

Scenario I – The extension provided under TOLA up to June 30, 2021 is considered as legitimate

Assessment Year	Escaped Income
	Less than Rs.1 Lakh		Rs.1 Lakh or more but less than Rs.50 Lakhs		Rs.50 Lakhs or more
	Due Date	Validity	Due Date	Validity	Due Date	Validity
2012-13	31-03-2016	Time barred	31-03-2016	Time barred	31-03-2019	Time barred
2013-14	31-03-2017	Time barred	31-03-2017	Time barred	31-03-2024	Valid
2014-15	31-03-2018	Time barred	31-03-2018	Time barred	31-03-2025	Valid
2015-16	31-03-2019	Time barred	31-03-2019	Time barred	31-03-2026	Valid
2016-17	30-06-2021	Valid	30-06-2021	Valid	31-03-2027	Valid
2017-18	30-06-2021	Valid	30-06-2021	Valid	31-03-2028	Valid
2018-19	31-03-2022	Valid	31-03-2022	Valid	31-03-2029	Valid
2019-20	31-03-2023	Valid	31-03-2023	Valid	31-03- 2030	Valid
2020-21	31-03-2024	Valid	31-03-2024	Valid	31-03-2031	Valid

Scenario II – The extension provided under TOLA up to June 30, 2021 is not available

Assessment Year	Escaped Income
	Less than Rs.1 Lakh		Rs.1 Lakh or more but less than Rs.50 Lakhs		Rs.50 Lakhs or more
	Due Date	Validity	Due Date	Validity	Due Date	Validity
2012-13	31-03-2016	Time barred	31-03-2016	Time barred	31-03-2019	Time barred
2013-14	31-03-2017	Time barred	31-03-2017	Time barred	31-03-2020	Time barred
2014-15	31-03-2018	Time barred	31-03-2018	Time barred	31-03-2021	Time barred
2015-16	31-03-2019	Time barred	31-03-2019	Time barred	31-03-2026	Valid
2016-17	31-03-2020	Time barred	31-03-2020	Time barred	31-03-2027	Valid
2017-18	31-03-2021	Time barred	31-03-2021	Time barred	31-03-2028	Valid
2018-19	31-03-2022	Valid	31-03-2022	Valid	31-03-2029	Valid
2019-20	31-03-2023	Valid	31-03-2023	Valid	31-03- 2030	Valid
2020-21	31-03-2024	Valid	31-03-2024	Valid	31-03-2031	Valid

From the analysis of the above tables, it can be demonstrated that highlighted years are under dispute regarding the validity of notice u/s 148 issued during the impugned period.

G. Conclusion

In 1927, Eliot told the Shakespeare Association that,

About anyone so great as Shakespeare, it is probable that we can never be right; and if we can never be right, it is better that we should from time to time change our way of being wrong.¹³

After almost a hundred years of the above saying, one starts to wonder whether it's finally time for the taxpayers to change their way of being wrong, since they've never been understood as right.

In the judgment of Ashish Agarwal(supra), the Apex Court considered the wrongdoing of the Revenue as a bonafide mistake, and revived all of the quashed notices by providing the benefit of doubt. It was held that the non-application of the amendments seems to be genuine, as the tax officers may have been under the bonafide belief that they have not yet been enforced. Further, in the case of Salil Gulati(supra), the Apex Court also dismissed the SLP of the assessee without giving any justification in respect to the interpretation by the CBDT.

In such circumstances, all of the High Court rulings interpreting the CBDT instruction, either in favour of the revenue or the taxpayers, will be appealed before the SC. The Supreme Court's endeavour to put an end to thousands of writ petitions through its ruling in the Ashish Agarwal case will get defeated, and the door for numerous writs and petitions will once again open.

The author looks forward to a time when we, as a society, make progress towards the realising of our own unique utopia, and strive to improve ourselves, rather than being stuck in an endless loop of being (thought of as) wrong.

It was Oscar Wilde, who once famously wrote,

A map of the world that does not include Utopia is not worth even glancing at, for it leaves out the one country at which Humanity is always landing. And when Humanity lands there, it looks out, and seeing a better country, sets sail. Progress is the realisation of utopias.¹⁴

At a time when we would seem to be going backwards, and when the law of the wolf pack would seem to be in the ascendant, we need to think about utopia more than ever.