Bombay High Court Quashes Reassessment Notice Against Tata Communications Transformation Services

The petitioner/assessee has challenged the initiation of assessment proceedings under Section 148 of the Income Tax Act, 1961 for different assessment years. All notices for the initiation of assessment proceedings have been issued after April 1, 2021.

Counsel for the petitioner contended that upon enactment of the Finance Act, 2021, the provisions pertaining to reassessment of income were substituted by a new set of provisions and, upon such substitution, the old provisions ceased to exist. There was no indication, either in express terms or implied, in the newly introduced provisions that the legislature desired to retain the old provisions for the past period. In such circumstances, any action of issuance of notice for reassessment that is taken after April 1, 2021, must be in accordance with the amended provisions. The insertion of new provisions and substitution of the old would have the effect of repealing the old provisions, which would cease to have any applicability.

Counsel for the petitioner submitted that the Relaxation Act merely authorised the government to extend the time limits contained in the specified Act, and that did not include the power to issue any explanation or clarification. The subordinate legislature must submit to the limits of powers vested in it by the parent Act. By way of explanation, the subordinate legislature cannot revive the statutory provisions that have lapsed. The explanations contained in the notifications dated 31st March 2021 and 27th April 2021 are thus ultra vires the powers of the subordinate legislation and, therefore, unconstitutional.

On the other hand, counsel for the department submitted that the substitution of old provisions for the reopening of assessment would not obliterate the previous set of statutory provisions. They would continue to have effect for the past period, i.e., for assessment years up to March 31st, 2021. If the notice for reopening of assessment was issued for any period prior to April 1, 2021, the provisions as they stood at the relevant time would apply. In such a case, there was no requirement to follow the procedure laid down under Section 148A of the Income Tax Act, 1961, before issuing a notice under Section 148 of the Income Tax Act, 1961.

Counsel for the department urged that the present situation was unprecedented and had arisen on account of the pandemic caused by COVID-19. Unprecedented situations require extraordinary measures. The Relaxation Ordinance, 2020 and the Relaxation Act were, therefore, framed to give extensions of time limits for taking actions and making compliance. These extensions were for the benefit of both the actions that had to be taken by the Revenue as well as the compliance that had to be made by the assessees. The assessees cannot take advantage of the unusual circumstances prevailing on account of COVID-19. The CBDT, therefore, in exercise of powers conferred in sub-section (1) of Section 3 of the Relaxation Act, has issued a necessary explanation which merely clarifies which statutory provisions any way provide. The explanation makes explicit what is otherwise implicit under the Income Tax Act, 1961. It is well within the power of the government.

The issue raised was whether, after the introduction of new provisions for reassessment of income by virtue of the Finance Act, 2021, with effect from April 1, 2021, substituting the then existing provisions, the substituted provisions would survive and be used for issuing notices for reassessment for the past period.

Yet another issue raised was whether the explanations contained in the CBDT Circular dated March 31st, 2021 and Circular No. 38 of 2021, dated April 27th, 2021, are legal and valid.

The court held that when the Income Tax Act, 1961 specifies that something is to be done in a particular manner, then,that thing must be done in that specified manner alone, and any other method of performance cannot be upheld. Hence, notices issued under Section 148 of the Income Tax Act, 1961 after April 1, 2021 must comply with the amended provisions of the law and cannot be sustained on the basis of the erstwhile provision.

The court held that Section 297 of the Income Tax Act, 1961, provides a saving clause for the applicability of various provisions of the 1922 Act, even though the Act itself has been repealed. In the absence of such a saving clause for the applicability of erstwhile Sections 147 to 151 of the Income Tax Act, 1961, the amended provision would apply from 1st April, 2021.

"In any case, the Relaxation Act is not applicable for Assessment Years 2015-2016 or any subsequent year and, hence, the question of applicability of the Notification Nos.20 and 38 of 2021 does not arise. The time limit to issue notice under Section 148 of the Income Tax Act, 1961 for the Assessment Years 2015-2016 onwards was not expiring within the period for which Section 3(1) of Relaxation Act was applicable and, hence, Relaxation Act could never apply for these assessment years. As a consequence, there can be no question of extending the period of limitation for such assessment years," the court said.

Case Title: Tata Communications Transformation Services Versus Assistant Commissioner of Income Tax | Writ Petition No. 1334 Of 2021

Citation: 2022 LiveLaw (Bom) 114

Dated: 29.03.2022

Counsel For Appellant: Senior Advocates J.D. Mistri, Percy Pardiwalla, Firoze B. Andhyarujina, B.M. Chatterji, Dr. K. Shivaram

Counsel For Respondent: Additional Solicitor General Anil C. Singh

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