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“First time it is a Mistake, Second time, it is a Deliberate Take.”
In response to the ‘Income Tax Gazetted Officers’ Association’s Query Letter, seeking clarification on the implementation aspects of the Hon’ble Supreme Court Judgement on validity of old reassessment notices u/s 148, in the case of ‘Union of India vs Ashish Agarwal (2022 SCC Online SC 543), dated 4.5.2022, the Apex Body, CBDT, on 11.5.2022, has issued Instruction No. 01/2022, dated 11.5.2022, containing Guidelines for Implementation of SC Judgement in this case.
What is there in the CBDT Instruction?
The said CBDT Instruction contains detailed guidelines in respect of the scope of the SC Judgement, operation of the new section 149, to identify cases, where fresh notice u/s 148 can be issued, cases where the AO is required to provide the information and material relied upon in 30 days to the assessees and procedure required to be followed by the AOs to comply with the directions contained in the SC judgement.
In para number 3 of the said CBDT Instruction, CBDT has acknowledged that,
“Hon’ble Supreme Court has held that these extended reassessment notices issued under the old law shall be deemed to be the show cause notices issued under clause (b) of section 148A of the new law and has directed Assessing Officers to follow the procedure with respect to such notices. It has also held that all the defences available to assessees under section 149 of the new law and whatever rights are available to the Assessing Officer under the new law continue to be available. Hon’ble Supreme Court has passed this order in exercise of its power under Article 142 of the Constitution of India.”
Further, in paras number 4 and 5 of the Instruction, CBDT has stated that the implementation of the judgement of the Hon’ble Supreme Court is required to be done in a uniform manner, and accordingly, in exercise of its power under section 119 of the Income Tax Act, CBDT has prescribed a detailed uniform procedure to be adopted for implementation of the SC judgement, in all such cases, where reassessment notices under unamended section 148, have been issued, on or after 1.4.2021 and uptill 30.6.2021, irrespective of the fact, whether such notices have been challenged or not, in Writ Petitions, by the assessees.
Thus, till para number 5 of the Instruction, the CBDT’s interpretation and the consequential direction, appears to be in consonance and agreement with the hon’ble Supreme Court judgement. However, what follows afterwards, especially in para numbers 6.1 and 6.2, is definitely something, which can’t be found anywhere in the SC judgement, either directly or even indirectly.
In last segment of para 6.1 of the said Instruction, CBDT has somehow interpreted that, “Decision of the Hon’ble Supreme Court read with the time extension provided by TOLA will allow extended reassessment notices to travel back in time to their original date when such notices were to be issued and then new section 149 of the Act is to be applied at that point.”
So, based on this premise of the reassessment notices, travelling back to their original dates, and the simultaneous applicability of TOLA extensions and the amended limitation period in section 149, as per the Finance Act, 2021, it has been directed in Para 6.2 of the Instruction, that the impugned reassessment notices are to be dealt with as under:
“(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.”
Underlying Presumptions in CBDT Instruction
To have better understanding of the treatment prescribed in the said CBDT Instruction, in respect of the manner of dealing with the impugned reassessment authorities, for five different assessment years, viz. AY 2013-14 and up to AY 2017-18, by the respective assessing authorities, it is essential, to first understand the underlying assumptions being made in the said instruction, which are explained as under:
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Time Travel: In the CBDT Instruction, firstly, it has been presumed that the impugned reassessment notices will travel back in time, to their original dates, when they were supposed to be issued, and such original dates, will be deemed to be the issuance dates of such notices. As a natural corollary, the actual dates of issuance of such notices, on or after 1.4.2021, will not be considered as the dates of issuance of such notices.
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TOLA Extensions: Secondly, it has been assumed that, the TOLA extended time period relaxations, will also be available to the assessing authorities, for determining the revised limitation periods of such notices.
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Applicability of Substituted Section 149 from Backdate: Thirdly, it has been assumed that the amended limitation period, as stipulated in substituted section 149 of the Act, as per the Finance Act 2021, will be applicable on such notices, from the deeming dates (original dates when such notices were supposed to be issued), and not from the actual dates of issuance of such notices, on or after 1.4.2021.
Examining the Underlying Presumptions in CBDT Instruction in Light of the SC Judgement
The said CBDT Instruction has apparently been issued to bring in more certainty and uniformity, in the manner of implementation of the SC judgement. However, certain very significant and crucial interpretational aspects like the introduction of the ‘time travel’ concept in respect of the impugned reassessment notices and the parallel application of the TOLA extended timelines and the amended limitation period provisions in section 149 of the Act, as per the Finance Act, 2021, are definitely amenable to be considered as the ‘reignition of the settled controversy and the opening up of the pandora box of litigation again’, on several counts.
A bare perusal of the hon’ble Supreme Court judgement, makes it duly evident and clear, that the above stated, underlying basis for prescribing the specified treatment of notices, in para 6.2 of the Instruction, are nothing but a ‘self-serving’ interpretation of the SC judgement, guided by revenue collection targets, and is not supported by any factual and legal basis or merits. This empirical fact is duly evidenced as under:
i) Presumption of Time Travel: There is no whisper or mention, leave aside any direction, in the entire SC judgement, in respect of impugned reassessment notices, travelling back in time, to their original dates, when, they were supposed, to be issued.
In fact, to the contrary, in the SC judgement, it has been clearly stipulated that the actual issuing dates of such impugned reassessment notices, i.e., on or after 1.4.2021, shall be the dates of issuance of such notices and the only relaxation is that now such notices shall be considered as deemed show cause notices under newly inserted section 148A(b) of the Income Tax Act, as per the Finance Act, 2021.
In para numbers 7 and 8 of its judgement, the hon’ble Supreme Court, has clearly held that:
“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 1st April, 2021. We are in complete agreement with the view taken by the various High Courts in holding so.”
“However, at the same time, the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act. The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated.”
“…….Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defenses, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.”
Thus, it is duly evident and crystal clear from the above categorical observations, directions and the mandate of the hon’ble Supreme Court that the only relaxation which is now being provided is that such impugned re-assessment notices will be deemed to be issued as per the amended and substituted re-assessment provisions of sections 147-151 of the Act, as per the Finance Act, 2021, w.e.f. 1.4.2021, with the consideration of actual dates of issuance of such notices on or after 1.4.2021, as the determining criteria and not some notional or deeming time travelling back dates.
Surprisingly and interestingly, the characteristic fictional time travelling concept in various Hollywood Movies, including the likes of Avengers Endgame, has now been tried to be visualised, in the Income Tax Act, by this CBDT Instruction.
However, the fact remains, that such notional, theoretical and fictional concept of ‘time travel’ has no legally valid place in the Legislature, nor it has even been whispered or mentioned, leave aside directed in the hon’ble Supreme Court judgement.
ii) Presumption of Applicability of TOLA Extensions
The hon’ble Supreme Court in para no. 8 of its judgement has clearly held that,
“It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 1-4-2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021. There appears to be genuine nonapplication of the amendments as the officers of the Revenue may have been under a bonafide belief that the amendments may not yet have been enforced.
Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so. Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defenses, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.”
Thus, it is empirically evident, that the hon’ble Supreme Court, has considered the reliance of the respective revenue officers, on TOLA extended timelines, for issuance of such impugned reassessment notices, under unamended section 148 of the Act, even after the applicability of substituted re-assessment legislative provisions of sections 147-151 of the Income tax Act, as per the Finance Act, 2021, w.e.f. 1.4.2021, as a bonafide mistake, and it is only to provide some sort of leeway to this bonafide mistake of reliance of applicability of TOLA extensions, that the hon’ble Supreme Court has given a second opportunity to the revenue officers, to issue fresh re-assessment notices but subject to a very critical rider and condition that all such fresh notices have to be strictly and compulsorily in compliance and adherence to the substituted re-assessment provisions in sections 147-151 of the Act, including the amended limitation period u/s 149, applicable w.e.f. 1.4.2021.
However, the CBDT Instruction is again making the same mistake for the second time, of making applicable the TOLA extended timelines, even in the substituted re-assessment regime, even after the clear and unambiguous contrary directions and the mandate of the hon’ble Supreme Court, in this regard.
Thus, the very basis or edifice of this presumptuous interpretation in the CBDT Instruction, that TOLA Extensions will hold good simultaneously with the amended provisions of section 149 as per the Finance Act 2021, containing the limitation period, has no factual and legal basis or merit.
iii) Presumption of Applicability of Substituted Section 149, from Backdate:
Finally, a very convenient presumption has been made in the CBDT Instruction, that the amended limitation period under substituted section 149 of the Income Tax Act, as per the Finance Act, 2021, which is undisputedly and undeniably applicable w.e.f. 1.4.2021, is to be made applicable from the deeming back dates/ original dates of such impugned re-assessment notices, when the same were supposed to be issued.
Thus, the CBDT Instruction is trying to make the substituted provisions of section 149, as per the Finance Act, 2021, applicable from the dates, falling prior to 1.4.2021, even when the Finance Act, 2021, has not come into force.
However, it is again a matter of fact that the substituted limitation period mandated under the substituted section 149, as per the Finance Act, 2021, applicable w.e.f. 1.4.2021, by no stretch of imagination, can be read into the pre-amended re-assessment regime, applicable uptill 31.3.2021.
Limitation Period for Issuance of 148 Notices, as per Substituted Provisions of Section 149, applicable w.e.f. 1.4.2021:
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Notice u/s 148 is to be issued, on or after 1.4.2021, within a period of three years, from the end of the relevant assessment year, if the amount of alleged escape income, represented in the form of an asset, is less than or equal to Rs. 50 lakhs, in an assessment year. [section 149(1)(a)]
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Notice for reassessment u/s 148 could be issued after three years and uptill ten years if the Assessing Officer has in possession, books of accounts/documents/evidence which reveal that income chargeable to tax, exceeding fifty lakh rupees, in an assessment year, represented in the form of an asset, has escaped assessment. [section 149(1)(b)]
However, First Proviso to Section 149 of the Income Tax Act, as per the Finance Act, 2021, clearly, categorically and expressly mandates 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.
Valid Timelines for Sustainability of Old 148 Notices, as per Correct Interpretation of SC Judgement
a) In Respect of Assessment Years 2013-14, 2014-15 & 2015-16:
The First Proviso to Section 149, provides that no Notice u/s 148, can be issued on or after 1.4.2021, in the new reassessment regime, as per Finance Act, 2021, if it could not have been issued on 1.4.2021, in view of the limitation period, as per old regime.
So effectively, it provides grandfathering protection to four AYs 2011-12, 2012-13, 2013-14 and 2014-15 as on 1.4.2021, and as such, no Notice u/s 148 can be issued, for the assessment years 2013-14 and 2014-15, on or after 1.4.2021, even if the amount of alleged escaped income, in any of such assessment years is in excess of Rs. 50 lakhs.
Effect of First Proviso to Section 149 of the Income Tax Act as per Finance Act 2021, Completely Ignored in respect of AYs 2013-14 & AY 2014-15
However, it appears that the applicability of First Proviso to Section 149 of the Income Tax Act, has not at all been taken into consideration and cognizance, in the CBDT Instruction, and as such its interpretation that Fresh Reassessment Notices for AYs 2013-14 and AY 2014-15, can be issued u/s 149(1)(b) of the Act, if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in such assessment years, surely needs a review and reconsideration.
In respect of AY 2015-16, the CBDT interpretation is correct that fresh notice u/s 148 can be issued u/s 149(1)(b) of the Act, only if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in the assessment year 2015-16, and the assessing authority is having in its possession, books of accounts or other documents or evidence, which reveal that such income in the form of an asset, has escaped assessment.
b) In Respect of Assessment Years 2016-17 and 2017-18
It appears that, based on the above thoroughly analysed wrong and factually misconceived underlying presumptions, it has been directed in para no. 6.2 of the CBDT Instruction, that the impugned re-assessment notices for AY 2016-17 and AY 2017-18, are to be considered as issued within a period of three years from the end of the relevant assessment year and hence are to be covered in the amended section 149(1)(a) of the Income Tax Act.
It is presumed that such re-assessment notices for AYs 2016-17 and 2017-18, will travel back in time to their original dates, when these were supposed to be issued, and as such their issuance dates will be deemed as 31.3.2020 and 31.3.2021, respectively, and not their actual issuance dates, which undisputedly are, on or after 1.4.2021. CBDT Instruction, further goes to the extent of presuming, that since the dates 31.3.2020 and 31.3.2021, falls in the period of TOLA extensions, and as such, will be considered as valid dates, even in the amended re-assessment regime, and then the amended limitation period of three years as per section 149(1)(a) is to be applied.
However, as discussed above, the SC judgement has nowhere in its entire judgement, has directed or allowed the fictional concept of impugned re-assessment notices travelling back in time, to their original dates, and as such the actual dates of issuance of such notices, i.e., on or after 1.4.2021, shall have only to be considered, for determining their eligibility criteria, of three years, as per the provisions of amended section 149(1)(a), and clearly, such impugned re-assessment notices for AYs 2016-17 and 2017-18, issued on or after 1.4.2021, can by no stretch of imagination, be considered as falling within a period of three years from the end of the relevant assessment year. It is an undisputed fact that w.e.f. 1.4.2021, only Notices u/s 148, issued for AY 2018-19 and onwards, can qualify the limitation period of three years, as per section 149(1)(a) of the Act.
Concluding Remarks:
Contrary to what has been interpreted in the said CBDT Instruction, the undisputed and clear picture, which emerges, in respect of time barring limitation periods for issuance of Fresh Notices u/s 148 as per the provisions of section 149, in Finance Act 2021, in accordance with the directions and mandate of the hon’ble Supreme Court, is as under:
1. Fresh Reassessment Notices for AYs 2013-14 and 2014-15 can’t be issued on or after 1.4.2021 now, by virtue of First Proviso to Section 149.
2. Fresh Reassessment Notices for AYs 2015-16, 2016-17 & 2017-18 can be issued only, if the alleged escaped income, represented in the form of an asset, exceeds Rs 50 lakhs, in each of such assessment year, and the assessing authority is having in its possession, books of accounts or other documents or evidence, which reveal that such income in the form of an asset, has escaped assessment.
Summing up with a Poetic Spirit:
'CBDT Instruction on Old 148 Notices: A Second Bonafide Mistake or a Deliberate Take?'
On 11.5.2022, CBDT issues an Instruction,
Containing Guidelines for SC-148 Judgement Implementation.
Directing Instructions to be adopted in a Uniform Manner,
CBDT Instruction tries to serve as an Explainer.
However, on some aspects, Instruction appears to be Self-serving,
Making the Assessees, again Nerving.
First Time it was a Bonafide Mistake,
Second Time it’s a Deliberate Take.
Notices for AYs 2013-14 & 2014, Restored
Proviso to Section 149, completely Ignored.
Notices for AYs 2013-14, 2014-15 & 2015-16 will Survive,
If the Escaped Income in Asset, exceeding Rs. 50 lakhs, is Derived.
Notices for AYs 2016-17 & 2017-18 will Travel Back in Time,
Triggering More Litigation Bells to Chime.
And will be considered as Issued within 3 Years,
With TOLA extensions getting Reappeared.
Let us Understand SC Judgement Interpretation,
Correctly, by way of an easy Explanation.
Proviso to section 149, comes in support of Assessees’ Luck,
Notices for AY 2013-14 & 2014-15, shall get Struck.
Notices for AY 2015-16, 2016-17 & 2017-18 shall only Survive,
If the Escaped Income in Asset, exceeding Rs. 50 lakhs, is Derived.
[By Mayank Mohanka]
This Article has been authored by our Founder Director, Shri Mayank Mohanka, FCA, and has also been published in Taxmann with the Citation [2022] 138 taxmann.com 280 (Article)
For any related queries, the Author Mr. Mayank Mohanka, FCA can be reached at mayankmohanka@gmail.com
