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The Delhi High Court, on Wednesday, quashed reassessment notices that were issued under the old regime after April 1, 2021 without adhering to the procedure entailed in Section 148A of the Income Tax Act.
This decision was given after hearing a batch of 1,346 writ petitions challenging the action of the Income Tax Department. The judgement is in line with similar rulings given by the Allahabad High Court and the Rajasthan High Court. Experts feel this ruling will have positive impact on similar matter filed all over the country.
A division bench of Justices Manmohan and Navin Chawla made it clear that the executive cannot use the administrative power ‘undermining the expression of Parliamentary supremacy in the form of an Act of Parliament.’
“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,” the bench said.
The whole issue behind this litigation is the substitution of provisions related with Sections 147 (income escaping assessment), 148 (issue of notice where income has escaped assessment), 149 (time limit for notice) and 151 (sanction for issue of notice) through the Finance Act 2021. The act also inserted new Section 148 A, which prescribes for conducting inquiry, providing opportunity before issue of notice under Section 148.
Validity challenged
The assessees challenged the validity of reassessment notices issued under the old regime of reassessment but after April 1, 2021 in the light of the extension notifications issued by the Central Board of Direct Taxes (CBDT) under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), without adhering to the procedure entailed in Section 148A.
After going through detailed hearing, the Bench rejected the doctrine of conditional legislation relied upon by the Chhattisgarh High Court but concurred with the view of the Allahabad High Court and the Rajasthan High Court. It held the impugned explanations to extension notifications as ultra vires TOLA. It also held that that TOLA does not empower the Revenue to extend application of the old reassessment regime beyond March 31, 2021 as the Finance Act, 2021 introduced new scheme of reassessment with effect from April 1, 2021.
Commenting on the ruling, Shailesh Kumar, Partner, Nangia & Co LLP feels this judgment will not only provide relief to thousands of taxpayers, who have filed similar petitions before the Delhi High Court, but will also have favourable impact for taxpayers, who have filed similar petitions before other High Courts across the country, viz. Bombay High Court, Gujarat High Court, Karnataka High Court, Calcutta High Court, etc.
“It is also important to note that this judgment will be binding only on those taxpayers, who have challenged the reassessment notices before the High Court. In case of other taxpayers, who have not challenged the notices and continue to participate in reassessment proceedings initiated by the Income Tax Department, they may have to go through the long process of reassessment proceedings and appellate proceedings (if any adjustment is made by income tax department after conclusion of reassessment proceedings),” Kumar said.
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