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Executive Summary
In this Article, the Author has tried to capture all the nuances and practical implications of the Hon'ble Supreme Court judgement on Validity of Old 148 Re-Assessment Notices, and gives a Clear and Unambiguous Picture & Guidance on the New Valid Timelines for Validity of such impugned Re-assessment Notices, in accordance with the directions given in the SC judgement. This Article also contains guidance on existing legal precedents on the Doctrine of Complete Justice under Article 142 of the Constitution of India, and its limiting factors, if any. The author finally sums up his discussion with his Poem titled, "A Poem on Re-Assessment Mayhem", capturing the entire litigation journey of these re-assessment notices, very beautifully.
Analysis of the SC Judgement on Validity of Old 148 Notices
The hon’ble Supreme Court, on 4.5.2022, in a batch of Civil Appeals, with the case of Union of India & Ors. Vs. Ashish Aggarwal, Civil Appeal No. 3005/2022, as the lead case, has upheld the validity of all the respective re-assessment notices, hitherto, issued under old section 148, on or after 1.4.2021 and up to 30.6.201, by holding them as deemed to have been issued under the new section 148A, of the Income Tax Act, as per the provisions of the Finance Act, 2021.
It is pertinent to mention here that hitherto, the hon’ble High Courts of Allahabad, Delhi, Rajasthan, Calcutta, Bombay and Madras, in around 9000 writ petitions, have quashed the respective reassessment notices, issued under old section 148, on or after 1.4.2021, and uptill 30.6.2021, as bad in law, by reinstating the well settled legal position that ‘Delegated Power can’t Overreach Principal Legislation’.
However, the Hon’ble Supreme Court, has now modified all the above judgements of the hon’ble High Courts, by invoking the special power enshrined under Article 142 of the Constitution of India.
The Hon’ble Supreme Court has exercised its power under Article 142 of the Constitution of India, and has passed the captioned judgement dated 4.5.2022, holding it as applicable on PAN India basis also holding that the respective judgements passed by different hon’ble High Courts, on this issue, shall stand modified.
In its judgement, the Hon’ble Supreme Court has observed that, “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.”
The Hon’ble Supreme Court has held that the impugned unamended section 148 notices issued to the respective assessees, shall be deemed to have been issued under section 148A of the Income Tax Act, as substituted by the Finance Act, 2021. Such Notices shall be treated as show cause notices in terms of section 148A(b) of the Income Tax Act.
The respective assessing officers shall within thirty days from 4.5.2022, provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter.
The assessing officers shall thereafter pass an order in terms of section 148A(d) after following the due procedure as required under section 148A(b) in respect of each of the concerned assessees.
The Hon’ble Supreme Court has also held that all the defences which may be available to the assessee under section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021, are kept open and/or shall continue to be available.
This in turn implies that the validity of all such impugned notices, although originally issued under old section 148, shall now be governed by the amended reassessment provisions in sections 147-151, as per the Finance Act, 2021.
Thus, even though the impugned Notices issued under old section 148 have now held as deemed to be issued under section 148A, as inserted by the Finance Act, 2021, and as such, have been saved from being quashed outrightly, but at the same time, their validity has also been made subject to the condition of their issuance, within the time period as specified under the amended provisions of section 149 of the Income Tax Act, as per the Finance Act, 2021.
Therefore, this in turn implies that all such notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, and now held as deemed to be issued under new section 148A, as per the Finance Act 2021, shall be considered as legally valid only if they pertain to assessment year 2018-19 and onwards, if the amount of alleged escaped income is less than or equal to Rs. 50 lakhs in an assessment year.
Further, if the amount of alleged escaped income exceeds Rs. 50 lakhs, in an assessment year, then such Notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, and now held as deemed to be issued under new section 148A, as per the Finance Act 2021, shall be considered as legally valid only if they pertain to assessment year 2011-12 and onwards.
However, as per the Grandfathering provisions contained in First Proviso to amended section 149 of the Income Tax Act, as per the Finance Act, 2021, the impugned 148 notices, now to be considered as deemed 148A Notices, issued on or after 1.4.2021, if pertaining to AY 2013-14 and 2014-15, shall be considered as invalid and nonest in the eyes of Law. It is pertinent to mention here that assessment years 2011-12 and 2012-13, were already time barred as per the unamended provisions of section 149, as on 31.3.2021, and as such, these two assessment years are not the subject matter of consideration in present scenario.
Thus, the Summarised Picture, concerning the New Timelines for Validity of the impugned Notices originally issued under unamended section 148 and now to be considered as deemed 148A Notices, as per the Supreme Court judgement, emerges as under:
1.Reassessment Notices for AYs 2013-14 and 2014-15 shall be considered as invalid by virtue of First Proviso to Section 149.
2. Notices for AYs 2015-16, 2016-17 & 2017-18 shall survive only if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in each of such assessment year.
3. Notices for AY 2018-19 and onwards, have already been issued under new provisions and as such were not the subject matter of consideration in the SC judgement.
Reason to Believe vs Information in Possession
In the new re-assessment regime, applicable w.e.f. 1.4.2021, as per the amended provisions in the Finance Act 2021, the well-settled and established legal position in respect of mandatory condition of formation of an independent reason to believe, of escapement of income, by the jurisdictional assessing authority, has been replaced with the condition of possession of an information with the assessing authority, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment.
Since, the impugned Notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, as per the SC judgement, shall now be deemed to be issued under new section 148A, as per the Finance Act 2021, the mandatory condition of formation of reason to believe of escapement of income by the jurisdictional AO (hitherto applicable, for the validity of the impugned Notices u/s 148, before the SC Judgement), shall now be replaced with the condition of possession of an information, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment.
Therefore, if the assessing authority, is not able to establish that it is in possession of an information, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment, then all such Notices which shall now be issued by the assessing authorities under the new section 148, in consequence of the SC judgement deeming the impugned Notices issued under old section 148, as issued under the new section 148A, are amenable to be considered as bad in law.
However, the hitherto applicable, additional mandatory condition of establishment of failure on the part of the assessee to disclose fully and truly all material facts, as per Explanation to old section 147, for entitling the assessing authority, to reopen the case, beyond four years and up to six years, shall not be available to the assessee, now.
Doctrine of Complete Justice: Article 142 of the Constitution of India
As the sole thrust of the captioned judgement of the Hon’ble Supreme Court rests upon the invocation of special power granted by the Article 142, of the Constitution of India, and which can be exercised by the Supreme Court to bring in ‘Complete Justice’, therefore, it is but desirable to discuss this Doctrine of Complete Justice as enshrined in Article 142 of the Constitution of India, also.
This power under Article 142, is to be exercised by the hon’ble Supreme Court, broadly for two purposes, viz.
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to grant relief to do “complete justice” in a given case dehors the applicable statutory provisions and;
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to issue directions to fill, what the court perceives as “legislative gaps”, which directions operate as the law of the land until such time that the legislature or the executive steps in.
Interestingly, uptill now, the power granted under Article 142 of the Constitution of India, has been exercised by the hon’ble Supreme Court, majorly in cases of public interest and social justice, like the ‘Shri Ram Janma Bhumi, Ayodhya case, Bhopal Gas Tragedy Case, Coal Block Allocation Case, Banning of Liquor Selling on Highway case etc. and unrelated to tax laws.
Therefore, the date 4.5.2022, will now assume great significance, in the history of legal jurisprudence, when, the hon’ble Supreme Court, has exercised its power, under Article 142 of the Constitution of India, probably for the first time, on an issue, not related to any public interest or social justice, but on an issue, strictly pertaining to the interpretation of a Tax Provision, with the primary objective of safeguarding the revenue interests of the exchequer, in probably 90,000 such cases , in order to bring ‘Complete Justice’.
No doubt that the Article 142 of the Constitution of India has vested full power in the Hon’ble Supreme Court to exercise this power, to bring complete justice. However, a genuine and intriguing question, does arise as to whether, any guidance, in the form of earlier legal precedents, is available, as to how such substantial power is to be exercised and if there are any limiting factors on the exercise of this power.
The hon’ble Supreme Court, in its landmark judgement in the case of E.S.P. Rajaram & Ors vs. Union of India & Ors, dated 1.1.2001, in Civil Appeal No. 441 of 2001, has very beautifully analysed the discretion and limitations of invocation of the power granted under Article 142 of the Constitution of India and has held as under:
“……The said provision [Article 142] vests power in the Supreme Court to pass such decree or make such order as is necessary for doing complete justice in any case or mater pending before it…..However, this power is not to be exercised to override any express provision. It is not to be exercised in a case where there is no basis in law which can form an edifice for building up a super structure.
…."However, the powers conferred on the Court by Article 142 being curative in nature 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. This power cannot be used to 'supplant' substantive law applicable to the case or cause under consideration of the Court. Article 142, even with the width of its amplitude, cannot 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. The very nature of the power must lead the Court to set limits for itself within which to exercise those powers and ordinarily it cannot disregard a statutory provision governing a subject, except perhaps to balance the equities between the conflicting claims of the litigating parties by 'ironing out the creases' in a cause or matter before it. Indeed, the Supreme Court is not a court of restricted jurisdiction of only dispute-settling. The Supreme Court has always been a law-maker and its role travels beyond merely dispute settling. It is a 'problem-solver in the nebulous areas' but the substantive statutory provisions dealing with the subject-matter of a given case cannot be altogether ignored by the Supreme Court, while making an order under Article 142. Indeed, these constitutional powers cannot, in any way, be controlled by any statutory provisions but at the same time these powers are not meant to be exercised when their exercise may come directly in conflict with what has been expressly provided for in a statute dealing expressly with the subject."
Friends, summing up the entire discussion with a Poetic Spirit in My Poem titled, “A Poem on Re-Assessment Mayhem”.
‘A Poem on Re-Assessment Mayhem’
New Reassessment Regime in the Finance Act 2021, Got Introduced,
With time period for Reopening u/s 148, from 6 to 3 years, Reduced.
Only Escaped Income, exceeding Rs. 50 lakhs per year,
Gave the Jurisdiction, to reopen the cases up to 10 years.
Reason to Believe got Replaced with Information in Possession,
CBDT’s Risk Management Strategy substituted AO’s Discretion.
Deadline of 31.3.2021 for Issuing Old 148 Notices, got Mandated,
However, for 3 more months, CBDT proclaimed this deadline as Extended.
The Transition Phase resulted in Exchequer’s’ Loss of Revenue Worry,
Section 148 Notices, in large numbers, got issued in a Hurry.
Assessees challenged such 148 Notices’ Validity.
Contending the Finance Act 2021, Legal Sanctity.
Delegated Power can’t Overreach Principal Legislation,
This Settled Legal Position got reinstated in High Courts’ Decisions.
High Courts supported the Assessees’ Belief.
And Notices were Quashed, bringing the much-wanted Relief.
Revenue filed SLP before the Supreme Court,
The SC Invoked Article 142 of the Constitution, in Support.
The SC decrees to bring in Complete Justice,
But being Subjective, Justice may turn into Injustice.
Holding such old 148 Notices as Deemed 148A Notices,
The SC’s Order tries to Mitigate Revenue Losses.
With the Power of Article 142, Besides,
Substantive Provisions were given an Override.
Mandating Finance Act 2021 Provisions, as Applicable,
The SC Makes its Order Palatable.
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.
Interestingly, to Reduce Litigations, these Legislative Amendments, were Strived,
Ironically, increased Litigations, are now to be Contrived.
Now, no further Litigation, in this Clearness, is warranted,
If the philosophy of ‘Ease of Doing Business’ is to be adopted.
[By Mayank Mohanka]
