Provisions Of Section 148 Under Old Regime Including TOLA Can't Be Applied To New Regime: Calcutta High Court

The Calcutta High Court has held that if the provisions of the old regime of Section 148 of the Income Tax Act, including Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), are read into or applied to the new regime applicable from 01.04.2021, it would also necessarily mean that a provision repealed by the Parliament without any savings and exception clause is applied by the department even after its life has come to an end, which is clearly not permissible in law.

The bench of Justice Md. Nizamuddin has relied on the decision of the Supreme Court in the case of Union of India vs. Ashis Aggarwal, in which the judgment of the Calcutta High Court was modified or substituted by directing that the notice under the old Section 148 of the Income Tax Act shall be deemed to have been issued under the new Section 148A(b), and all defenses that may be available to the assessee, including those under Section 149 of the Income Tax Act, and all rights and contentions that may be available to the assessee and department under the Finance Act, 2021, shall continue to be available.

The petitioner/assessee has challenged the notices issued on or after April 1, 2021, under Section 148 (old) of the Income Tax Act, 1961, by converting or treating them under Section 148A(b) of the Income Tax Act, 1961, inserted by the Finance Act, 2021, which came into effect on April 1, 2021, and all subsequent proceedings. The assessee has challenged the notices on the grounds that the notices have already become time-barred after March 31, 2021, under the old, unamended Section 149(1)(b) of the Income Tax Act, 1961.

On March 31, 2020, the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, was promulgated. In terms of Section 3(1), the time to issue notice under the old, unsubstituted Section 148 of the Income Tax Act, 1961, which was due to expire on March 31, 2020, was extended to June 30, 2020.

On June 24, 2020, Notification No. 35/2020 was issued by the CBDT in exercise of the power of Section 3(1) of the Ordinance, extending the time for the issue of notice under Section 148 to March 31, 2021. The notification came into force on June 30, 2020.

On September 29, 2020, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) was enacted to replace the Ordinance, which received the assent of the President. TOLA was deemed to have come into force on March 31, 2020. In terms of Section 3(1), the time to issue notice under Section 148 of the Income Tax Act (old unsubstituted) was extended to March 31, 2021.

On March 28, 2021, the Finance Act, 2021, received the assent of the President. By Sections 40, 41, 43, and 44, old Sections 147, 148, 149, and 151 were to be substituted with effect from April 1, 2021, and by Section 42, Section 148A was to be inserted also with effect from April 1, 2021.

On March 31, 2021, Notification No. 20/2021 was issued by the CBDT in purported exercise of power under Section 3(1) of TOLA to extend the time limit under the old Section 149 for the issue of notice under the old Section 148 for the assessment years 2013–14 and 2014–15 (which was to expire on March 31, 2021) to April 30, 2021.

On April 27, 2021, Notification No. 38/2021 was issued by the CBDT in exercise of power under Section 3(1) of TOLA to extend the time limit under the old Section 149 for the issue of notice under the old Section 148 for the assessment years 2013–14 and 2014–15, which was extended to June 30, 2021.

On May 4, 2022, a judgment of the Hon'ble Supreme Court was passed in the case of Union of India vs. Ashis Aggarwal (2022) 444 ITR 1 (SC), by which the judgment dated January 17, 2022, of this Hon'ble Court was modified or substituted by directing that the notice under the old Section 148 of the Act shall be deemed to have been issued under the new Section 148A(b) and all defenses which may be available to the assessee, including under Section 149 of the Act, and all rights and contentions which may be available to the assessee and revenue under the Finance Act, 2021, shall continue to be available.

On May 11, 2022, Instruction No. 01/2022 was issued by the Central Board of Direct Taxes. The circular proceeded on the basis that proceedings under Sections 147/148 for, inter alia, the assessment years 2013–14 and 2014–15 did not get time barred on March 31, 2021.

The Finance Act, 2021, completely reformed the system of reassessment by bringing in a completely new procedure for reassessment with effect from April 1, 2021.

In terms of Sections 40, 41, 43, and 44 of the Finance Act, 2021, which came into force on April 1, 2021, as per Section 2(a), the old Sections 147, 148, 149, and 151 were repealed or abrogated and replaced by a new set of provisions.

By Section 42, a new Section 148A was also inserted, with effect from April 1, 2021. By Section 43 of the Finance Act 2021, old Section 149 of the Act was substituted with effect from April 1, 2021, without any savings clause. The new Section 149 laid down new time limits for the issue of notice under the new Section 148. As such, the first proviso to the new Section 149(1) stipulated that no notice under the new Section 148 shall be issued at any time if such notice could not have been issued at that time on account of being beyond the time limit specified under the old Section 149(1)(b).

The first proviso to the new Section 149(1) placed an embargo on the issue of notice under the new Section 148 in cases where the time limit for the issue of notice under the old Section 148 had expired in terms of the old Section 149(1)(b).

Since the Finance Act, 2021, repealed and replaced the old Section 149 with a new provision with effect from April 1, 2021, there was no question of complying with the old Section 149 of the Act after March 31, 2021. Similarly, there was no question of an extension of the time limit for compliance with the old Section 149 of the Act after March 31, 2021. Having regard to the proviso to the new Section 149(1), the only purpose for which one was required to look at the old Section was to ascertain whether the limitation for the issue of notice under the old Section 149 had set in before April 1, 2021.

The assessee contended that Section 3(1) of TOLA merely relaxed the period of limitation prescribed under various specified statutes, one of which was the Income Tax Act. The power under Section 3(1) of TOLA could be exercised only for the purpose of relaxing, i.e., extending the time limit specified in various statutes. The exercise of power under Section 3(1) of TOLA was dependent on the continued existence of the statutory provision, the time limit under which was sought to be extended. Section 3(1) of TOLA is secondary or ancillary legislation, dependent on the continued existence of the principal legislation. Section 3(1) of TOLA is not a completion of the continued existence of the principal legislation. It merely relaxes the time limit in the specified acts. It is in aid of such specified acts. No question arises of choosing between TOLA and any specified Act as to which one should prevail.

The assessee contended that once the enactment repealed the old reassessment provisions and replaced them with new provisions with effect from April 1, 2021, the power under Section 3(1) of TOLA could not be exercised for extending the time limit in the old Section 149 beyond March 31, 2021, particularly since the old Section 149 was no longer on the Statute Book after March 31, 2021. The power to extend the time limit specified in the old reassessment provisions could not be so exercised as to extend the time limit to any date beyond the repeal of the old reassessment provisions.

The department contended that TOLA and its provisions must be read in light of the aforesaid factual situation since the effect of COVID has been appreciated by the Hon'ble Supreme Court at least until February 2022, as would be clear from the aforesaid order dated January 10, 2022. TOLA, therefore, must be treated as special legislation enacted for a special purpose during special times and circumstances. TOLA must be given full effect, and the proviso to Section 149 permits the same by imbibing in it that what could be done on the basis of the unamended law could also be done after the amendment. The best course would be to harmonize the two laws and find a solution so that both exist.

The court noted that the provisions of TOLA applied only to the pre-amended law as applicable until March 31, 2021. Section 3 of TOLA clearly provided for an extension of the time limit for undertaking any action required to be undertaken from March 20, 2020, to March 31, 2021 only.

The court held that the notices issued on or after 1st April, 2021, by the CBDT, relating to assessment years 2013-14 and 2014-15, under Section 148 (old) of the Income Tax Act, 1961, by converting or treating the same as under newly inserted Section 148A of the Income Tax Act, 1961, by the Finance Act, 2021, which came into effect on 1st April, 2021, in exercise of power under TOLA being barred by limitation, all subsequent proceedings on the basis of notices being not sustainable in law are quashed, and all legal consequences will follow automatically.

Counsel For Appellant: Mr. J.P. Khaitan, Sr. Adv., Mr. Abhrotosh Majumder, Sr. Adv. Mr. Rohit Jain, Mr. Pranit Bag, Bar-at-Law, Mr. Avra Mazumder, Mr. Aniket D. Agarwal, Mr. Protyush Jhunjhunwala, Ms. Arijita Ghosh, Mr. Sanjay Bhowmick, Mr. Saurabh Bagadia, Mr. Saumya Kejriwal, Mr. Samarth Chaudhuri, Mr. Samrat Das, Mr. Suman Bhowmik, Ms. Ananya Rath, Mr. Salil Kapoor. Mr. Vibhu Jain, Mr. A.K. Dey, Ms. Sanjukta Gupta, Ms. Sonia Sharma, Mr. Kushagra Shah, Ms. Swapna Das, Mr. Siddharth Das, Mr. Subash Agarwal, Mr. Brijesh Kumar Singh, Mr. Arvind Agarwal, Mr. Farhan Ghaffar, Mr. Om Prakash Prasad, Ms. Debanjana De, Mr. Rites Goel, Mr. Gouri Shankar Gupta, Mr. Samit Rudra, Mr. Mrigank Kejriwal, Mr. Navin Mittal, Ms. Rosy Banerjee, Mr. Amit Agarwal, Mr. Pradeep Jewrajka, Ms. Pooja Jewrajka, Ms. Anjali Tulsian, Ms. Arti Agarwal, Mr. Binayak Gupta, Mr. Subrata Mukherjee, Mr. Hemant Tiwari, Mr. Sarban Bhattacharjee, Mr. A.K. Upadhyay, Mr. Anirudhya Dutta, Mr. Pranab Sharma, Mr. Arijit Sarkar, Mr. Sagnik Chatterjee, Mr. Indranil Banerjee, Ms. Anupa Banerjee, Mr. Anil Kumar Dugar, Mr. Rajarshi Chattterjee, Anuj Kr. Mishra, Balaram Patra, Ananda Sen, Souvik Ghosh, Monika Kalra, Rajeev Agarwal, Dipayan Kundu, Govind Jethalia, Debdutta Saha, Riddhiman Mukherjee, Sunil Singhania, Sretapa Sinha, Mrigank Kejriwal

Counsel For Respondent: Omnarayan Rai, Mr. Vipul Kundalia, Mr. Tilak Mitra, Ms. Smita Das De, Mr. Prithu Dudhoria, Mr. Smarajit Roy Chowdhury, Mr. Aryak Dutt, Mr. Soumen Bhattacharjee, Mr. Amit Sharma

Case Title: M/s Arati Marketing Pvt. Ltd. Vs Union of India & Ors.

Case No.: WPO No. 2747 of 2022

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