As per case facts, the dispute involves the interplay of the Income Tax Act 1961, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 (TOLA), and ...
2024 INSC 754 Page 1 of 112
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE/ORIGINAL JURISDICTION
Civil Appeal No 8629 of 2024
Union of India & Ors. … Appellants
Versus
Rajeev Bansal …Respondent
WITH
C.A. No. 8631/2024
C.A. No. 9270/2024
C.A. No. 8632/2024
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T.P. (C) No. 549/2023
T.P. (C) No. 936/2023
T.P.(C) No. 2187-2194/2024
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T.P.(C) No. 2937/2023
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C.A. No. 8635/2024
C.A. No. 10984 /2024
(Arising out of SLP(C) No. 23391/2024)
(Diary No 24653/2023)
C.A. No. 9261/2024
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C.A. No. 9443/2024
C.A. No. 8945/2024
C.A. No. 8813/2024
C.A. No. 9339/2024
C.A. No. 9464/2024
C.A. No. 9565/2024
C.A. No. 8817/2024
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C.A. No. 9524/2024
C.A. No. 9310/2024
C.A. No. 9553/2024
C.A. No. 9343/2024
C.A. No. 8835/2024
C.A. No. 9313/2024
C.A. No. 9357/2024
C.A. No. 9372/2024
C.A. No. 8933/2024
C.A. No. 9554/2024
C.A. No. 8812/2024
C.A. No. 9525/2024
C.A. No. 8815/2024
C.A. No. 9320/2024
C.A. No. 9442/2024
C.A. No. 9466/2024
C.A. No. 9526/2024
C.A. No. 9439/2024
C.A. No. 9926/2024
C.A. No. 9555/2024
C.A. No. 9527/2024
C.A. No. 8935/2024
C.A. No. 9385/2024
C.A. No. 9528/2024
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C.A. No. 8816/2024
C.A. No. 8936/2024
C.A. No. 8839/2024
C.A. No. 9572/2024
C.A. No. 9440/2024
C.A. No. 9344/2024
C.A. No. 9566/2024
C.A. No. 9237/2024
C.A. No. 9242/2024
C.A. No. 8633/2024
C.A. No. 8657/2024
C.A. No. 9251/2024
C.A. No. 9569/2024
C.A. No. 9307/2024
C.A. No. 9570/2024
C.A. No. 9577/2024
C.A. No. 10293/2024
C.A. No. 9435/2024
C.A. No. 9403/2024
C.A. No. 8834/2024
C.A. No. 9382/2024
C.A. No. 9579/2024
C.A. No. 9318/2024
C.A. No. 9580/2024
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C.A. No. 9315/2024
C.A. No. 9326/2024
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C.A. No. 9591/2024
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C.A. No. 9582/2024
C.A. No. 9587/2024
C.A. No. 9594/2024
C.A. No. 9054/2024
C.A. No. 10985 /2024
(Arising out of SLP(C) No. 17283/2024)
C.A. No. 9402/2024
C.A. No. 9047/2024
C.A. No. 9588/2024
C.A. No. 8934/2024
C.A. No. 9595/2024
C.A. No. 9404/2024
C.A. No. 9409/2024
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C.A. No. 8833/2024
C.A. No. 9244/2024
C.A. No. 9249/2024
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C.A. No. 9426/2024
C.A. No. 9045/2024
C.A. No. 9281/2024
C.A. No. 10036/2024
C.A. No. 9600/2024
C.A. No. 8937/2024
C.A. No. 9278/2024
C.A. No. 9590/2024
C.A. No. 9601/2024
C.A. No. 9169/2024
C.A. No. 10986 /2024
(Arising out of SLP(C) No. 17284/2024)
C.A. No. 9274/2024
C.A. No. 9276/2024
C.A. No. 9416/2024
C.A. No. 9286/2024
C.A. No. 9179/2024
C.A. No. 9227/2024
C.A. No. 9219/2024
C.A. No. 9209/2024
C.A. No. 9415/2024
C.A. No. 9279/2024
C.A. No. 9417/2024
C.A. No. 8828/2024
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C.A. No. 8832/2024
C.A. No. 9190/2024
C.A. No. 9182/2024
C.A. No. 9197/2024
C.A. No. 9283/2024
C.A. No. 9174/2024
C.A. No. 10987 /2024
(Arising out of SLP(C) No. 17286/2024)
C.A. No. 9176/2024
C.A. No. 10988 /2024
(Arising out of SLP(C) No. 17287/2024)
C.A. No. 9418/2024
C.A. No. 9284/2024
C.A. No. 9419/2024
C.A. No. 8829/2024
C.A. No. 9214/2024
C.A. No. 9420/2024
C.A. No. 9193/2024
C.A. No. 8831/2024
C.A. No. 9185/2024
C.A. No. 9421/2024
C.A. No. 9423/2024
C.A. No. 9424/2024
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C.A. No. 8830/2024
And With
C.A. No. 9425/2024
Page 33 of 112
J U D G M E N T
Dr Dhananjaya Y Chandrachud, CJI
Table of Contents
A. Background ........................................................................................................ 35
i. Income Tax Act ............................................................................................... 35
ii. TOLA ................................................................................................................ 39
iii. Finance Act 2021 ............................................................................................ 41
B. Issues .................................................................................................................. 50
C. Submissions ...................................................................................................... 51
D. Legal Background ............................................................................................. 55
i. Assessment as a quasi-judicial function ..................................................... 55
ii. Assessment as an issue of jurisdiction ....................................................... 59
iii. Principles of strict interpretation and workability ....................................... 63
iv. Principle of harmonious construction.......................................................... 66
E. Reading TOLA into the Income Tax Act ........................................................... 70
i. First proviso to Section 149(1) of the new regime ...................................... 70
ii. TOLA can extend the time limit till 31 June 2021 ........................................ 75
a. Finance Act 2021 substituted the old regime ................................................ 75
b. Reading TOLA into Section 149 .................................................................... 82
Page 34 of 112
iii. Sanction of the specified authority .............................................................. 86
F. Section 148 notices issued in June-September 2022 ..................................... 91
i. Scope of Article 142 ....................................................................................... 91
ii. The scope of Ashish Agarwal extended to all the reassessment notices
issued between 1 April 2021 and 30 June 2021 under the old regime ...... 96
iii. Effect of the legal fiction ................................................................................ 99
a. Third proviso to Section 149 ....................................................................... 100
b. Interplay of Ashish Agarwal with TOLA ....................................................... 107
G. Conclusions ..................................................................................................... 110
PART A
Page 35 of 112
1. The present batch of appeals involves the interplay of three Parliamentary
statutes: the Income Tax Act 1961
1
, the Taxation and Other Laws (Relaxation
and Amendment of Certain Provisions) Act 2020,
2
and the Finance Act 2021.
The Income Tax Act was enacted to levy and collect tax on the income of
assesses.
3
Sections 147 to 151 of the Income Tax Act deal with the procedure
of reassessment of income chargeable to tax which has escaped
assessment. The TOLA was enacted in the backdrop of the COVID-19
pandemic to provide relaxation of time limits specified under the provisions of
the Income Tax Act and certain other legislations as defined under Section
2(1)(b) of TOLA. The Finance Act 2021 amended the provisions dealing with
the reassessment procedure under the Income Tax Act with effect from 1 April
2021.
A. Background
i. Income Tax Act
2. Sections 147 to 151 deal with the procedure of reassessment. The scheme
of reassessment under Sections 147 to 151 was substantially overhauled by
the Finance Act 2021 with effect from 1 April 2021. Under the old regime,
Section 147 empowered the assessing officer
4
to reopen assessment
1
“Income Tax Act”
2
“TOLA”
3
Section 2(7), Income Tax Act. [It defines an “assessee” to mean “a person by whom any tax or any other
sum of money is payable under this Act, and includes –
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment
of his income or assessment of fringe benefits or of the income of any other person in respect of which he is
assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him
or to such other person;
(b) every person who is deemed to be an assessee under any provisions of this Act;
(c) every person who is deemed to be an assessee in default under any provision of this Act;”]
4
Section 2(7A), Income Tax Act. [It defines an “assessing officer” to mean “the Assistant Commissioner or
Deputy Commissioner or Assistant Director or Deputy Director or the Income- tax Officer who is vested with
PART A
Page 36 of 112
proceedings if they had “reason to believe” that any income chargeable to tax
has escaped assessment for the relevant assessment year.
5
Section 148
mandated the assessing officer to serve a notice on the assessee requiring
them to submit a return of their income.
6
3. Section 149
7
prescribed the following time limits for issuing a notice under
Section 148 for an assessment year:
the relevant jurisdiction by virtue of directions or orders issued under sub- section (1) or sub- section (2) of
section 120 or any other provision of this Act, and the Additional Commissioner or Additional Director or Joint
Commissioner or Joint Director who is directed under clause (b) of sub- section (4) of that section to exercise
or perform all or any of the powers or functions conferred on, or assigned to, an Assessing Officer under this
Act.”]
5
Section 147, I ncome Tax Act
6
Section 148, I ncome Tax Act. [It read:
“148.(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing
Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified
in the notice, a return of his income or the income of any other person in respect of which he is assessable
under this Act during the previous year corresponding to the relevant assessment year, in the prescribed
form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and
the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required
to be furnished under section 139:
Provided that in a case –
(a) where a return has been furnished during the period commencing on the 1
st
day of October, 1991
and ending on the 30
th
day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under sub- section (2) of section 143 after the expiry of twelve
months specified in the proviso to sub- section (2) of section 143, as it stood immediately before the
amendment of said sub- section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit
for making the assessment, re- assessment or recomputation as specified in sub- section (2) of section 153,
every such notice referred to in this clause shall be deemed to be a valid notice:
Provided further that in a case –
(a) where a return has been furnished during the period commencing on the 1
st
day of October, 1991
and ending on the 30
th
day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under clause (ii) of sub- section (2) of section 143 after the
expiry of twelve months specified in the proviso to sub- section (2) of section 143, as it stood immediately
before the amendment of said sub- section by the Finance Act, 2002 (20 of 2002) but before the expiry of the
time limit for making the assessment, re- assessment or recomputation as specified in sub- section (2) of
section 153, every such notice referred to in this clause shall be deemed to be a valid notice.
Explanation – For the removal of doubts, it is hereby declared that nothing contained in the first proviso or
the second proviso shall apply to any return which has been furnished on or after the 1
st
day of October 2005
in response to a notice served under this section.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing
so.”]
7
Section 149, Income Tax Act. [It reads:
“149. Time limit for notice - (1) No notice under section 148 shall be issued for the relevant assessment
year,—
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under
clause (b) or clause (c);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year
unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one
lakh rupees or more for that year;
PART A
Page 37 of 112
(i) four years from the end of the relevant assessment year;
(ii) four years but not more than six years from the end of the relevant
assessment year if the income chargeable to tax which has escaped
assessment amounted to or was likely to amount to Rupees one lakh
or more for that year; and
(iii) four years but not more than sixteen years from the end of the relevant
assessment year if the income in relation to any asset (including
financial interest in any entity) located outside India and chargeable to
tax has escaped assessment.
4. Section 151 required the assessing officer to obtain the sanction of the
specified authority before issuing a notice under Section 148.
8
In case the
notice was issued within four years, the sanctioning authority was the Joint
(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year
unless the income in relation to any asset (including financial interest in any entity) located outside India,
chargeable to tax, has escaped assessment.
Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of
this sub- section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of
that section.
(2) The provisions of sub- section (1) as to the issue of notice shall be subject to the provisions of section
151.
(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a
non-resident under section 163 and the assessment, reassessment or recomputation to be made in
pursuance of the notice is to be made on him as the agent of such non- resident, the notice shall not be issued
after the expiry of a period of six years from the end of the relevant assessment year.
Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3),
as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or
before the 1st day of April, 2012.”]
8
Section 151, Income Tax Act. [It read:
151.(1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of
four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the
Assessing Officer, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under sub- section (1), no notice shall be issued under section 148 by
an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is
satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
(3) For the purposes of sub- section (1) and sub- section (2), the Principal Chief Commissioner or the Chief
Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case
may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue
of notice under section 148, need not issue such notice himself.]
PART A
Page 38 of 112
Commissioner.
9
In case the notice was issued after the expiry of four years,
the sanctioning authority was the Principal Chief Commissioner,
10
Chief
Commissioner,
11
Principal Commissioner or Commissioner.
12
The authorities
have a distinct meaning under the Income Tax Act. Following a decision of
this Court in GKN Driveshafts (India) Ltd v. Income Tax Officer,
13
the
assessing officer was also required to furnish reasons for reopening
assessments and give an opportunity of hearing to the assessee.
5. The Revenue had to follow the following procedure for reopening assessment
under the old regime:
(i) Section 147 allowed the assessing officer to reassess any income
chargeable to tax if the officer had “reasons to believe” that such
income escaped assessment;
(ii) The assessing officer had to ensure that the notice under Section 148
was issued within the time limits prescribed under Section 149;
9
Section 2(28C) of the Income Tax Act defines Joint Commissioner to mean “a person appointed to be a
Joint Commissioner of Income- tax or an Additional Commissioner of Income- tax under sub- section (1) of
section 117.”
10
Section 2(34- A) of the Income Tax Act defines Principal Chief Commissioner of Income tax to mean “a
person appointed to be a Principal Chief Commissioner of Income- tax under sub- section (1) of section 117.”
11
Section 2(15A) of the Income Tax Act defines a Chief Commissioner to mean “a person appointed to a
Chief Commissioner of Income tax or a Director General of Income tax or a Principal Chief Commissioner of
Income tax or a Principal Director General of Income- tax under sub- section (1) of Section 117.”
12
Section 2(16) defines Principal Commissioner or Commissioner to mean “a person appointed to be a
Principal Commissioner or Commissioner of Income tax or a Principal Director or Director of Income tax or a
Principal Commissioner of Income tax or a Principal Director of Income tax under sub- section (1) of section
117.”
13
(2003) 1 SCC 72 [5]. It reads:
“5. […] However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper
course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The
assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is
entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by
passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the
assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding
with the assessment in respect of the abovesaid five assessment years.”]
PART A
Page 39 of 112
(iii) The assessing officer had to obtain the sanction of the specified
authority under Section 151 before issuing a reassessment notice;
(iv) The assessing officer had to grant an opportunity of hearing to the
assessee in terms of GKN Driveshafts (supra); and
(v) The assessing officer was t hereafter empowered to issue a notice of
reassessment under Section 148.
ii. TOLA
6. On 24 March 2020, the Central Government announced “a complete
lockdown for the entire nation” for twenty-one days to contain the spread of
the COVID-19 pandemic.
14
Following this, the Central Government sought to
implement various relief measures to redress the challenges faced by the
taxpayers in meeting the statutory requirements due to the pandemic.
15
On
31 March 2020, the President of India promulgated the Taxation and Other
Laws (Relaxation of Certain Provisions) Ordinance 2020
16
to extend time
limits for completion or compliance of actions under the specified Acts falling
for completion or compliance between 20 March 2020 and 29 June 2020 till
30 June 2020. On 24 June 2020, the C entral Government issued a notification
under Section 3(1) of the TOLA Ordinance to extend the time limit for
completion or compliance of actions under the specified Act s till 31 March
2021.
17
14
Press Information Bureau, PM calls for complete lockdown of entire nation for 21 days (24 March 2020)
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1608009
15
Press Information Bureau, ‘Finance Minister announces several relief measures relating to Statutory and
Regulatory compliance matters across Sectors in view of COVID-19 outbreak’ (24 March 2020) available at:
https://pib.gov.in/PressReleseDetail.aspx?PRID=1607942
16
“TOLA Ordinance”
17
CBDT, Notification No. 35 of 2020, dated 24 June 2020.
PART A
Page 40 of 112
7. On 29 September 2020, Parliament enacted TOLA, which came into force
with retrospective effect from 31 March 2020.
18
Section 2(1)(b) defines
“specified Act” to mean and include the Income Tax Act. Section 3(1) of TOLA
extended the time limit for completion or compliance of actions under the
“specified Act”, which fell for completion or compliance during the period from
20 March 2020 and 31 December 2020, to 31 March 2021. The relevant part
of Section 3 reads thus:
“3(1) Where, any time- limit has been specified in, or
prescribed or notified under, the specified Act which
falls during the period from the 20th day of March,
2020 to the 31st day of December, 2020, or such
other date after the 31st day of December, 2020, as
the Central Government, may, by notification,
specify in this behalf, for the completion or
compliance of such action as –
(a) completion of any proceedings or passing of any
order or issuance of any notice, intimation,
notification, sanction or approval, or such other
action, by whatever name called, by any
authority, commission or tribunal, by whatever
name called, under the provisions of the
specified Act;
[…]
And where completion of compliance of such action
has not been made within such time, then, the time-
limit for completion or compliance of such action
shall, notwithstanding anything contained in the
specified Act, stand extended to the 31
st
day of
March, 2021, or such other date after 31
st
day of
March, 2021, as the Central Government may, by
notification, specify in this behalf:”
18
Section 1(2), TOLA. [It reads: “(2) Save as otherwise provided, it shall be deemed to have come into force
on the 31
st
day of March, 2020.”]
PART A
Page 41 of 112
8. Section 3(1) empowered the Central Government to extend the time limit
beyond 31 March 2021 by a notification. In pursuance of its powers, the
Central Government issued the following notifications to extend the period of
relaxation till 30 June 2021:
a. Notification No. 93 of 2020 dated 31 December 2020 extended the end date
to 30 March 2021. Resultantly, TOLA covered the period between 20 March
2020 to 30 March 2021;
b. Notification No. 20 of 2021 dated 31 March 2021 specified that 31 April 2021
shall be the end date of the time period covered by TOLA. It extended the
time limit for completion or compliance of actions under the Income Tax Act
till 30 April 2021; and
c. Notification No. 38 of 2021 dated 27 April 2021 extended the time limit for
completion or compliance of actions till 30 June 2021.
9. The effect of TOLA and the notifications issued under the legislation was that:
(i) if the time prescribed for passing of any order or issuance of any notice,
sanction, or approval fell for completion or compliance from 20 March 2020
to 31 March 2021; and (ii) if the completion or compliance of such action could
not be made during the stipulated period, then the time limit for completion or
compliance of such action was extended to 30 June 2021.
iii. Finance Act 2021
10. The Finance Act 2021 substituted the entire scheme of reassessment under
Sections 147 to 151 of the Income Tax Act with effect from 1 April 2021 .
PART A
Page 42 of 112
Substantial changes were brought about by the new regime. Broadly
speaking, they are summarized thus:
(i) Section 148
19
mandates the assessing officer to initiate proceedings only
based on prior information and with the prior approval of the specified
authority;
19
Section 148, Income Tax Act [It reads:
[“148. Issue of notice where income has escaped assessment - Before making the assessment,
reassessment or recomputation under section 147, and subject to the provisions of section 148A, the
Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required,
under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such
notice, a return of his income or the income of any other person in respect of which he is assessable under
this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and
verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the
provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be
furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing
Officer which suggests that the income chargeable to tax has escaped assessment in the case of the
assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the
specified authority to issue such notice.
Explanation 1.—For the purposes of this section and section 148A, the information with the Assessing Officer
which suggests that the income chargeable to tax has escaped assessment means,—
(i) any information flagged in the case of the assessee for the relevant assessment year in accordance with
the risk management strategy formulated by the Board from time to time;
(ii) any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment
in the case of the assessee for the relevant assessment year has not been made in accordance with the
provisions of this Act.
Explanation 2. —For the purposes of this section, where, —
(i) a search is initiated under section 132 or books of account, other documents or any assets are
requisitioned under
section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or
(ii) a survey is conducted under section 133A, other than under sub- section (2A) or sub- section (5) of that
section, on or
after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner,
that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132
or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee;
or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner,
that any books of account or documents, seized or requisitioned under section 132 or section 132A in case
of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained
therein, relate to, the assessee,
the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax
has escaped assessment in the case of the assessee for the three assessment years immediately preceding
the assessment year relevant to the previous year in which the search is initiated or books of account, other
documents or any assets are requisitioned or survey is conducted in the case of the assessee or money,
bullion, jewellery or other valuable article or thing or books of account or documents are seized or
requisitioned in case of any other person.
PART A
Page 43 of 112
(ii) Section 148A
20
requires the assessing officer to provide an opportunity
of being heard to the assessee before deciding to issue a reassessment
notice under Section 148. Section 148A requires the assessing officer to:
(a) conduct any enquiry, if required, with the prior approval of the
specified authority;
(b) provide an opportunity of hearing to the assessee by serving a show
cause notice with the prior approval of the specified authority;
Explanation 3.—For the purposes of this section, specified authority means the specified authority referred
to in section 151.]
20
Section 148A, Income Tax Act [It reads:
“Section 148A. Conducting inquiry, providing opportunity before issue of notice under section 148.
The Assessing Officer shall, before issuing any notice under section 148,—
(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the
information which suggests that the income chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by
serving upon him a notice to show cause within such time, as may be specified in the notice, being not less
than seven days and but not exceeding thirty days from the date on which such notice is issued, or such
time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section
148 should not be issued on the basis of information which suggests that income chargeable to tax has
escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any,
as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause
(b);
(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a
Ct case to issue a notice under section 148, by passing an order, with the prior approval of specified authority,
within one month from the end of the month in which the reply referred to in clause (c) is received by him, or
where no such reply is furnished, within one month from the end of the month in which time or extended time
allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where, —
(a) a search is initiated under section 132 or books of account, other documents or any assets are
requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or
(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner
that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or
requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021,
belongs to the assessee; or
(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner
that any books of account or documents, seized in a search under section 132 or requisitioned under section
132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any
information contained therein, relate to, the assessee.
Explanation.—For the purposes of this section, specified authority means the specified authority referred to
in section 151.”]
PART A
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(c) consider the reply furnished by the assessee in response to the show
cause notice; and
(d) decide on the basis of available material, including the reply of the
assessee, whether or not it is a fit case to issue a notice under Section
148 by passing an order.
(iii) The time limit under Section 149 has been reduced from four years to
three years from the end of the relevant assessment year for all
situations.
21
Assessments can be reopened beyond three years but
within ten years from the end of the relevant assessment year if the
income chargeable to tax which has escaped assessment amounts to or
is likely to amount to Rupees fifty lakhs or more. However, the first
21
Section 149, Income Tax Act. [It reads:
149.Time limit for notice - (1) No notice under section 148 shall be issued for the relevant assessment year, —
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under
clause (b);
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year
unless the Assessing Officer has in his possession books of account or other documents or evidence which
reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment
amounts to or is likely to amount to fifty lakh rupees or more for that year:
Provided 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:
Provided further that the provisions of this sub- section shall not apply in a case, where a notice under section
153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under
section 132 or books of account, other documents or any assets requisitioned under section 132A, on or
before the 31st day of March, 2021:
Provided also that for the purposes of computing the period of limitation as per this section, the time or
extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A
or the period during which the proceeding under section 148A is stayed by an order or injunction of any court,
shall be excluded:
Provided also that where immediately after the exclusion of the period referred to in the immediately
preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause
(d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the
period of limitation under this sub- section shall be deemed to be extended accordingly.
Explanation.—For the purposes of clause (b) of this sub- section, "asset" shall include immovable property,
being land or building or both, shares and securities, loans and advances, deposits in bank account.
(2) The provisions of sub- section (1) as to the issue of notice shall be subject to the provisions of section
151.]
PART A
Page 45 of 112
proviso to Section 149 prohibits the issuance of a reassessment notice
under the new regime if such notices have become time-barred under
the old regime; and
(iv) The sanctioning authorities specified under Section 151 of the new
regime are different from those specified under the old regime.
22
Section
151 of the new regime specifie s the following authorities for Section 148
and 148A: (i) Principal Commissioner or Principal Director
23
or
Commissioner or Director if three years or less have elapsed from the
end of the relevant assessment year; and (ii) Principal Chief
Commissioner or Principal Director General or Chief Commissioner or
Director General if more than three years have elapsed from the end of
the relevant assessment year.
11. The notifications dated 31 March 2021 and 27 April 2021 issued by the
Central Government under Section 3(1) of TOLA contained an explanation
declaring that the provisions under the old regime shall apply to the
reassessment proceedings initiated under them.
24
Thus, the notifications
22
Section 151, Income Tax Act. [It reads:
151. Sanction for issue of notice – Specified authority for the purposes of section 148 and section 148A shall
be, -
(i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three
years have elapsed from the end of the relevant assessment year;
(ii) Principal Chief Commissioner or Principal Director General or where there is no Principal Chief
Commissioner or Principal Director General, Chief Commissioner or Director General, if more than three
years have elapsed from the end of the relevant assessment year.”]
23
Section 2(21) of the Income Tax Act defines Principal Director General or Director General or Principal
Director or Director to mean “a person appointed to be a Principal Director General or Director General of
Income tax or a Principal Director General or Director General of Income tax or, as the case may be, a
Principal Director or Director of Income tax or Principal Director of Income tax, under sub- section (1) of
Section 117, and includes a person appointed under that sub- section to be an Additional Director of Income
tax or a Joint Director of Income tax or as Assistant Director or Deputy Director of Income tax.”
24
Notification No. 20 of 2021 dt. 31 March 2021; Notification No. 38 of 2021 dt. 27 April 2021. [The
explanation reads:
“Explanation – For the removal of doubts, it is hereby clarified that for the purposes of issuance of notice
under section 148 as per time- limit specified in section 149 or sanction under section 151 of the Income- tax
Act, under this sub- clause, the provisions of section 148, section 149 and section 151 of the Income- tax Act,
PART A
Page 46 of 112
directed the assessing officers to apply the provisions of the old regime for
reassessment notices issued after 1 April 2021. The assessing officers
accordingly issued reassessment notices between 1 April 2021 and 30 June
2021 by relying on the provisions under Section 148 of the old regime. These
reassessment notices were challenged by the assesses before various High
Courts.
25
12. The High Courts allowed the writ petitions and quashed all the reassessment
notices issued between 1 April 2021 and 30 June 2021 under the old regime
on the ground that: (i) Sections 147 to 151 stood substituted by Finance Act
2021 from 1 April 2021;
26
(ii) In the absence of any saving clause, the
Revenue could initiate reassessment proceedings after 1 April 2021 only in
accordance with the provisions of the new regime since they were remedial,
beneficial, and meant to protect the rights and interests of the assesses;
27
and (iii) the Central Government could not exercise its delegated authority to
“re-activate the pre- existing law.”
28
13. In Union of India v. Ashish Agarwal,
29
this Court held that it was “in
complete agreement with the view taken by various High Courts in holding”
that “the benefit of the new provisions shall be made available even in respect
as the case may be, as they stood as on the 31
st
day of March 2021, before the commencement of the
Finance Act, 2021, shall apply.”]
25
See: Ashok Kumar Agarwal v. Union of India, 2021 SCC OnLine All 799; Vellore Institute of Technology v.
CBDT, 2022 SCC OnLine Mad 2213; Tata Communications Transformation Services Ltd v. ACIT, 2022 SCC
OnLine Bom 664; Bagaria Properties and Investment Pvt Ltd v. Union of India, 2022 SCC OnLine Cal 1093;
Mon Mohan Kohli v. ACIT, 2021 SCC OnLine Del 5250; Sudesh Taneja v. ITO, 2022 SCC OnLine Raj 937;
Manoj Jain v. Union of India, 2022 SCC OnLine Cal 1369.
26
Sudhesh Taneja (supra) [36]
27
Ashok Kumar Agarwal (supra) [66]; Mon Mohan Kohli (supra) [66]; Tata Communications Transformation
Services (supra) [34]
28
Ashok Kumar Agarwal (supra) [80]; Sudesh Taneja (supra) [40]; Mon Mohan Kohli [49]; Tata
Communications Transformation Services [49]
29
(2023) 1 SCC 617
PART A
Page 47 of 112
of the proceedings relating to past assessment years, provided Section 148
notice has been issued on or after 1- 4-2021.” However, the Court observed
that the R evenue issued the reassessment notices under a “bona fide belief
that the amendments may not yet have been enforced.” This Court exercised
its discretionary jurisdiction under Article 142 in order to balance the interests
of the Revenue and the assesses and directed that the reassessment notices
issued under the old regime shall be deemed to have been issued under
Section 148- A(b) of the new regime. Th is Court issued the following
directions:
“28. In view of the above and for the reasons stated
above, the present appeals are allowed in part. The
impugned common judgments and orders passed by
the High Court of Judicature at Allahabad in WT No.
524 of 2021 and other allied tax appeals/petitions,
is/are hereby modified and substituted as under:
28.1. The impugned Section 148 notices issued to
the respective assessees which were issued under
unamended Section 148 of the IT Act, which were
the subject-matter of writ petitions before the various
respective High Courts shall be deemed to have
been issued under Section 148- A of the IT Act as
substituted by the Finance Act, 2021 and construed
or treated to be show-cause notices in terms of
Section 148- A(b). The assessing officer shall, within
thirty days from today provide to the respective
assessees information and material relied upon by
the Revenue, so that the assessees can reply to the
show-cause notices within two weeks thereafter.
28.2. The requirement of conducting any enquiry, if
required, with the prior approval of specified
authority under Section 148- A(a) is hereby
dispensed with as a one- time measure vis-à-vis
those notices which have been issued under Section
148 of the unamended Act from 1- 4-2021 till date,
including those which have been quashed by the
High Courts.
PART A
Page 48 of 112
28.3. Even otherwise as observed hereinabove
holding any enquiry with the prior approval of
specified authority is not mandatory but it is for the
assessing officers concerned to hold any enquiry, if
required.
28.4. The assessing officers shall thereafter pass
orders in terms of Section 148- A(d) in respect of
each of the assessees concerned; Thereafter after
following the procedure as required under Section
148-A may issue notice under Section 148 (as
substituted).
28.5. All defences which may be available to the
assessees including those available under Section
149 of the IT Act and all rights and contentions which
may be available to the assessees concerned and
Revenue under the Finance Act, 2021 and in law
shall continue to be available.”
14. On 11 May 2022, the Central Board of Direct Taxes issued an I nstruction
30
for
the implementation of the decision Ashish Agarwal (supra). The Instruction
“clarified” that Ashish Agarwal (supra) will apply “to all cases where
extended reassessment notices have been issued […] irrespective of the fact
whether such notices have been challenged or not.” Paragraph 6.1 of the
Instruction stated that the reassessment notices will “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.” Thus, the I nstruction is based on
the presumption that the notices issued under Section 148 of the new regime
will travel back in time to their original dates, that is, the date when the Section
148 notice under the old regime was issued.
30
Instruction No. 01/2022 dt. 11 May 2022
PART A
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15. Paragraph 6.2 of the I nstruction elaborated on the mechanism for issuing
notices under Section 148 of the new regime:
“6.2 Based on the above, the extended assessment
notices are to be dealt with as under:
AY 2013- 14, AY 2014- 15 and AY 2015- 16: Fresh
notice under section 148 of the Act can be issued in
these cases, with the approval of the specified
authority, only if the case falls under clause (b) of
sub-section (1) of section 149 as amended by the
Finance Act, 2021 and reproduced in paragraph 6.1
above. Specified authority under section 151 of the
new law in this case shall be the authority prescribed
under clause (ii) of that section.
AY 16-17, AY 17- 18: Fresh notice under Section 148
can be issued in these cases, with the approval of
the specified authority, under clause (a) of sub-
section (1) of new section 149 of the Act, since they
are within the period of three years from the end of
the relevant assessment year. Specified authority
under section 151 of the new law in this case shall
be the authority prescribed under clause (i) of that
section.”
16. The assessing officers accordingly considered the replies furnished by the
assesses and passed orders under Section 148A(d). Subsequently, notices
under Section 148 of the new regime were issued to the assesses by the
assessing officers between July and September 2022 for the assessment
years 2013- 2014, 2014-2015, 2015- 2016, 2016-2017, and 2017- 2018. These
notices were challenged before several High Courts. The High Courts
declared the notices to be invalid on the ground that they were: (i) time -barred;
and (ii) issued without the appropriate sanction of the specified authority.
PART B
Page 50 of 112
17. In Ashish Agarwal (supra), this Court was called upon to decide whether the
Revenue was correct in issuing the reassessment notices under the old
regime when the new regime, which was beneficial to the assesses, was
already in force. This Court resolved the issue by holding that all
reassessment notices issued after 1 April 2021 should have been issued in
accordance with the new regime. However, the Court construed the notices
issued under Section 148 of the old regime by deeming them to be notices
issued under Section 148A(b) of the new regime. In Ashish Agarwal (supra),
this Court did not deal with the issue of whether or not the reassessment
notices were issued within the time limits prescribed under the provisions of
the Income Tax Act read with the relaxations provided under TOLA. This is
the primary issue that comes up for our consideration in the present batch of
appeals.
B. Issues
18. The present batch of appeals gives rise to the following issues:
a. Whether TOLA and notifications issued under it will also apply to
reassessment notices issued after 1 April 2021; and
b. Whether the reassessment notices issued under Section 148 of the new
regime between July and September 2022 are valid.
PART C
Page 51 of 112
C. Submissions
19. Mr N Venkataraman, learned Additional Solicitor General of India, made the
following submissions on behalf of the R evenue:
a. Parliament enacted TOLA as a free- standing legislation to provide relief and
relaxation to both the assesses and the R evenue during the time of COVID-
19. TOLA seeks to relax actions and proceedings that could not be
completed or complied with within the original time limits specified under the
Income Tax Act;
b. Section 149 of the new regime provides three crucial benefits to the
assesses: (i) the four -year time limit for all situations has been reduced to
three years; (ii) the first proviso to Section 149 ensures that re- assessment
for previous assessment years cannot be undertaken beyond six years; and
(iii) the monetary threshold of Rupees fifty lakhs will apply to the re-
assessment for previous assessment years;
c. The relaxations provided under Section 3(1) of TOLA apply “notwithstanding
anything contained in the specified Act.” Section 3(1) , therefore, overrides
the time limits for issuing a notice under Section 148 read with Section 149
of the Income Tax Act;
d. TOLA does not extend the life of the old regime. It merely provides a
relaxation for the completion or compliance of actions following the
procedure laid down under the new regime;
e. The Finance Act 2021 substituted the old regime for re- assessment with a
new regime. The first proviso to Section 149 does not expressly bar the
application of TOLA. Section 3 of TOLA applies to the entire Income Tax Act,
PART C
Page 52 of 112
including Sections 149 and 151 of the new regime. Once the first proviso to
Section 149(1)(b) is read with TOLA, then all the notices issued between 1
April 2021 and 30 June 2021 pertaining to assessment years 20 13-2014,
2014- 2015, 2015-2016, 2016- 2017, and 20 17-2018 will be within the period
of limitation as explained in the tabulation below:
Assessment
Year
(1)
Within 3
Years
(2)
Expiry of
Limitation
read with
TOLA for (2)
(3)
Within six
Years
(4)
Expiry of
Limitation
read with
TOLA for (4)
(5)
2013-2014 31.03.2017 TOLA not
applicable
31.03.2020 30.06.2021
2014-2015 31.03.2018 TOLA not
applicable
31.03.2021 30.06.2021
2015-2016 31.03.2019 TOLA not
applicable
31.03.2022 TOLA not
applicable
2016-2017 31.03.2020 30.06.2021 31.03.2023 TOLA not
applicable
2017-2018 31.03.2021 30.06.2021 31.03.2024 TOLA not
applicable
f. The Revenue concedes that for the assessment year 2015- 16, all notices
issued on or after 1 April 2021 will have to be dropped as they will not fall for
completion during the period prescribed under TOLA;
g. Section 2 of TOLA defines “specified Act” to mean and include the Income
Tax Act. The new regime, which came into effect on 1 April 2021, is now part
of the Income Tax Act. Therefore, TOLA continues to apply to the Income
Tax Act even after 1 April 2021; and
h. Ashish Agarwal (supra) treated Section 148 notices issued by the R evenue
between 1 April 2021 and 30 June 2021 as show-cause notices in terms of
Section 148A(b). Thereafter, the Revenue issued notices under Section 148
PART C
Page 53 of 112
of the new regime between July and August 2022. Invalidation of the Section
148 notices issued under the new regime on the ground that they were
issued beyond the time limit specified under the Income Tax Act read with
TOLA will completely frustrate the judicial exercise undertaken by this Court
in Ashish Agarwal (supra).
20. Mr Percy Pardiwalla, Mr V Sridharan, Mr Tushar Hemani, Mr Saurabh
Soparkar, and Mr K Shivram, learned senior counsel, Mr Manish Shah, Mr
Darshan Patel, Mr Suhrith Parthasarthy, Mr Dharan Gandhi, and Mr Ved Jain,
learned counsel, made the following submissions on behalf of the
respondents:
a. TOLA applies only when the period of limitation expires between 20 March
2020 and 31 March 2021. Finance Act 2021 was enacted after TOLA.
Consequently, TOLA only held the field till the new regime came into effect
from 1 April 2021. The Revenue had to issue Section 148 notices in terms
of the new regime without recourse to the extended timelines under TOLA;
b. TOLA did not amend the erstwhile Section 149 but merely extended the
specified time limits. The first proviso to Section 149(1)(b) only refers to the
period of limitation under the erstwhile Section 149(1)(b);
c. Notification No. 38 of 2021 was issued on 27 April 2021 to extend the time
limits expiring under Section 149(1)(b) of the old regime till 30 June 2021.
The notification was issued after 1 April 2021, when the old regime was
repealed and substituted by a new regime. Therefore, this notification
cannot be read into the new regime;
d. The notices can be categorized into the following four categories:
PART C
Page 54 of 112
i. First category: for assessment years 2013- 2014 and 2014- 2015, the
six-year time limit in terms of Section 149 expired on 31 March 2020
and 31 March 2021 respectively. However, the reassessment notices
were issued after 1 April 2021 and would be barred by limitation;
ii. Second category: for the assessment year 2015- 2016, the issue
pertains to whether the sanction of the appropriate authority was
obtained by the assessing officers before issuing re- assessment
notices under Section 148 of the old regime. For this category of
cases, the four-year period expired on 31 March 2020. However,
notices were issued after 31 March 2020 by obtaining sanction under
Section 151(2) instead of Section 151(1) of the old regime;
iii. Third category: for assessment years 2016- 2017 and 2017- 2018, the
three- year period in terms of the amended regime expired on 31
March 2020 and 31 March 2021, respectively. The notices under
Section 148 were issued after the expiry of three years, that is, after
1 April 2021. However, the sanctions were obtained under Section
151(i) instead of Section 151(ii) of the new regime; and
iv. The directions issued by this Court in Ashish Agarwal (supra) were
not intended to apply to assesses who did not challenge the
reassessment notices before the High Courts or this Court. Therefore,
reassessment proceedings could not have been initiated for such
assesses.
e. The applicability of the first proviso to Section 149(1)(b) of the new regime
has to be tested on the date of issuance of notice under Section 148 of the
PART D
Page 55 of 112
new regime. Even if TOLA is read into the Income Tax Act, the time limits for
completion or compliance of actions can be extended till 30 June 2021.
However, the notices under Section 148 of the new regime were issued by
the Revenue from July to September 2022. The period of July to September
2022 is beyond the extended time limits stipulated under the Income Tax Act
read with TOLA;
f. Ashish Agarwal (supra) cannot be interpreted in a manner to exclude the
entire period from April 2021 to September 2022. The directions issued by
this Court under Article 142 of the Constitution cannot contravene the
substantive provisions contained in the Income Tax Act. Moreover, this Court
in Ashish Agarwal (supra) expressly left open all the defences available to
the assesses under the new regime, including the defence of limitation
available under Section 149; and
g. TOLA is only applicable to the provisions that specify time limits. Section
151 does not prescribe any time limit for the issuance of sanctions by the
specified authorities. Therefore, TOLA does not apply to Section 151.
D. Legal Background
i. Assessment as a quasi-judicial function
21. The power to levy tax is an essential and inherent attribute of sovereignty.
31
It is an inherent attribute because the government requires funds to discharge
its governmental functions.
32
Taxation is also a recognised fiscal tool to
31
Jindal Stainless Ltd v. State of Haryana, (2017) 12 SCC 1 [17]; [310]
32
Amrit Banaspati Co. Ltd. v. State of Punjab, (1992) 2 SCC 411 [10]; Dena Bank v. Bhikhabhai Prabhudas
Parekh & Co., (2000) 5 SCC 694 [8]
PART D
Page 56 of 112
achieve fiscal and social objectives.
33
Although the power to levy taxes is
plenary, it is subject to certain well-defined limitations. Article 265 of the
Constitution provides that no tax shall be levied or collected except by
authority of law. A taxing statute must be valid and conform to other provisions
of the Constitution.
34
22. Article 265 makes a distinction between “levy” and “collection.” The
expression “levy” has a wider connotation. It includes both the imposition of a
tax as well as assessment.
35
The quantum of tax levied by a taxing statute,
the conditions subject to which it is levied, and how it is sought to be recovered
are all matters within the competence of the legislature.
36
In a taxing statute,
the charging provisions are generally accompanied by a set of provisions for
computing or assessing the levy. The character of assessment provisions
bears a relationship to the nature of the charge.
37
23. Thomas Cooley describes assessment as the most important of all the
proceedings in taxation. He further describes the necessity of assessment
thus:
“An assessment, when taxes are to be levied upon a
valuation, is obviously indispensable. It is required
as the first step in the proceedings against individual
subjects of taxation, and is the foundation of all
which follow it. Without an assessment they have no
support, and are nullities. The assessment is,
therefore, the most important of all the proceedings
in taxation, and the provisions to insure its
accomplishing its office are commonly very full and
particular. If there is no valid assessment, a tax on
33
Elel Hotels & Investments Ltd v. Union of India, (1989) 3 SCC 698 [20]
34
Mafatlal Industries Ltd v. Union of India, (1997) 5 SCC 536 [25]
35
CCE v. National Tobacco Co. of India Ltd., (1972) 2 SCC 560 [19]
36
Rai Ramkrishna v. State of Bihar, (1963) SCC OnLine SC 31 [12]
37
CIT v. B C Srinivasa Setty, (1981) 2 SCC 460 [10]
PART D
Page 57 of 112
sale of lands is a nullity. A want of assessment is not
a mere irregularity remedied by a curative statute.
On the other hand, no assessment is necessary
where the statute itself prescribes the amount to be
paid, and this can be recovered by suit. For instance,
where a statute imposes a tax at a specified rate
upon bank deposits, no other assessment other than
that made by the statute itself is necessary.”
38
24. The expression “assessment” comprehends the entire procedure for
ascertaining and imposing liability upon taxpayers.
39
The process of
assessment involves computation of the income of the assessees,
determination of tax payable by them, and the procedure for collecting or
recovering tax.
40
An assessing officer is concerned with the assessment and
collection of r evenue. An assessing officer must administer the provisions of
the Income Tax Act in the interests of the public revenue and to prevent
evasion or escapement of tax legitimately due to the State.
41
25. In Province of Bombay v. Khushaldas S Advani,
42
Justice S R Das (as the
learned Chief Justice then was), in his concurring opinion observed that if a
statutory authority has the power to perform any act that will prejudicially
affect the subject, then although there are no two parties apart from the
authority and the contest is between the authority proposing to do the act and
38
Thomas Cooley, The Law of Taxation (4
th
edn, 1924) 2116
39
Kalawati Devi Harlalka v. CIT, 1967 SCC OnLine SC 44; Addl ITO v. E Alfred, 1961 SCC OnLine SC 243
[7]; S Sankappa v. ITO, 1967 SCC OnLine SC 25 [3]; CCE v. National Tobacco Co. of India, (1972) 2 SCC
560 [19] [“19. […] The term “assessment”, on the other hand, is generally used in this country for the actual
procedure adopted in fixing liability to pay a tax on account of particular goods of property or whatever may
be the object of the tax in a particular case and determining its amount.”]
40
Bhopal Sugar Industries Ltd v. State of Madhya Pradesh, (1979) 3 SCC 792 [12]
41
M M Ipoh v. CIT, 1967 SCC OnLine SC 40 [14]
42
1950 SCC OnLine SC 26 [80]; Also see Express Newspaper (P) Ltd. v. Union of India, 1958 SCC OnLine
SC 23 [111]
PART D
Page 58 of 112
the subject opposing it, the final determination of the authority will be quasi-
judicial provided the authority is required by the statute to act judicially. A
quasi-judicial authority is under an obligation to act judicially.
43
26. An assessment acquires finality on the making of an assessment order by the
assessing officer.
44
It creates a vested right in favour of the assessee.
45
Section 2(8) of the Income Tax Act defines “assessment” to include
reassessment. Reassessment is nothing but a fresh assessment.
46
The effect
of reopening the assessment is to vacate or set aside the order of assessment
and to substitute in its place the order of reassessment.
47
The procedure of
reassessment of tax is quasi-judicial because it prejudicially affects the vested
rights
48
of the assessee. In CIT v. Simon Carves Ltd.,
49
Justice H R Khanna,
speaking for a Bench of three Judges, explained the quasi-judicial function
performed by the assessing officers during the process of assessment and
reassessment thus:
“10. […] The taxing authorities exercise quasi-
judicial powers and in doing so they must act in a fair
and not a partisan manner. Although it is part of their
duty to ensure that no tax which is legitimately due
from an assessee should remain unrecovered they
must also at the same time not act in a manner as
might indicate that scales are weighted against the
assessee. We are wholly unable to subscribe to the
view that unless those authorities exercise the power
in a manner most beneficial to the revenue and
consequently most adverse to the assessee, they
43
Gullapalli Nageswara Rao v. State of A P, 1959 SCC OnLine SC 53 [6]
44
Indian & Eastern Newspaper Society v. CIT, (1979) 4 SCC 248 [5]; K T Moopil Nair v. State of Kerala, 1960
SCC OnLine SC 7 [9]
45
CED v. M A Merchant, 1989 Supp (1) SCC 499 [8]
46
CST v. H M Esufali, H M Abdali, (1973) 2 SCC 137 [17]
47
Deputy Commissioner of Commercial Taxes v. H R Sri Ramulu, (1977) 1 SCC 703 [7]
48
See Income Tax Officer v. S K Habibullah, 1962 SCC OnLine SC 58 [7]
49
(1976) 4 SCC 435
PART D
Page 59 of 112
should be deemed not to have exercised it in a
proper and judicious manner.”
27. Since the assessing officers perform a quasi-judicial function during
reassessment, the powers vested in them are regulated by law.
50
The process
of reassessment is generally preceded by administrative proceedings, which
require the assessing officer to obtain the sanction of the specified
authorities.
51
The taxing statutes generally lay down the procedure for
issuance of notice to the proposed assessee in respect of income or property
proposed to be taxed. It also prescribes the authority and procedure for
hearing any objections to the liability for taxation.
52
ii. Assessment as an issue of jurisdiction
28. Jurisdiction is defined as the power of a court, tribunal, or authority to hear
and determine a cause or exercise any judicial power concerning such
cause.
53
The Revenue officers must have requisite jurisdiction to perform their
functions and responsibilities following the provisions of the Income Tax Act.
Under the Income Tax Act 1922,
54
Section 34 allowed an Income Tax Officer
to reassess income that escaped assessment for a relevant assessment year.
Section 34 provided that a reassessment notice could not be issued beyond
the prescribed time limit (which was generally within eight years from the end
50
Supdt. of Taxes v. Onkarmal Nathmal Trust, (1976) 1 SCC 766 [37];
51
S Narayanappa v. CIT, 1966 SCC OnLine SC 173 [4] [“4. […] The proceedings for assessment or re-
assessment under Section 34(1)(a) of the Income Tax Act start with the issue of a notice and it is only after
the service of the notice that the assessee, whose income in sought to be assessed or re-assessed, becomes
a party to those proceedings. The earlier stage of the proceeding for recording the reasons of the Income
Tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not
quasi-judicial.]
52
K T Moopil Nair v. State of Kerala, 1960 SCC OnLine SC 7 [9]
53
In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the
Indian Stamp Act 1899, 2023 INSC 1066 [125]
54
“Income Tax Act 1922”
PART D
Page 60 of 112
of the relevant assessment year). Thus, Section 34 conferred jurisdiction on
Income Tax Officers to reopen an assessment subject to the issuance of
notice within the prescribed time limits .
55
In Ahmedabad Manufacturing and
Calico Printing Co. Ltd. v. S G Mehta, ITO,
56
Justice M Hidayatullah (as the
learned Chief Justice then was), writing for himself and Justice Raghubar
Dayal, observed:
“It must be remembered that if the Income- tax Act
prescribes a period during which the tax due in any
particular assessment year may be assessed, then
on the expiry of that period the department cannot
make an assessment. Where no period is prescribed
that assessment can be completed at any time but
once completed it is final. Once a final assessment
has been made, it can only be reopened to rectify
a mistake apparent from the record (section 35)
or to reassess where there has been an
escapement of assessment of income for one
reason or another (section 34). Both these
sections which enable reopening of back
assessments provide their own periods of time
for action but all these periods of time, whether
for the first assessment or for rectification, or for
reassessment, merely create a bar when that
time passed against the machinery set up by the
Income-tax Act for the assessment and levy of
the tax. They do not create an exemption in
favour of the assessee or grant an absolution on
the expiry of the period. The liability is not
enforceable but the tax may again become
exigible if the bar is removed and the taxpayer is
brought within the jurisdiction of the said
machinery by reasons of a new power. This is, of
course, subject to the condition that the law
must say that such is the jurisdiction, either
expressly or by clear implication. If the language
of the law has that clear meaning, it must be given
that effect and where the language expressly so
declares or clearly implies it, the retrospective
55
R K Upadhyaya v. Shanabhai Patel, (1987) 3 SCC 96 [2]
56
1962 SCC OnLine SC 73
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operation is not controlled by the commencement
clause.”
29. In S S Gadgil v. Lal & Co., a three-Judge Bench of this Court held that the
period prescribed under Section 34 of the Income Tax Act 1922 “is not a
period of limitation.”
57
It was further observed that Section 34 “imposes a fetter
upon the power of the Income Tax Officer to bring to tax escaped income” by
prescribing “different periods in different classes of cases for enforcement of
the right of the States to recover tax.”
58
Under Section 34, Income Tax Officers
were statutorily barred from issuing a notice of assessment or reassessment
after the expiry of the statutory time limit prescribed under the Income Tax
Act. Consequently, reassessment notices issued by the R evenue beyond the
prescribed time limits were declared invalid for being time- barred.
59
Assessment proceedings that have attained finality under existing law due to
a time bar cannot be held to be open for revival unless the amended provision
is given retrospective effect to allow upsetting the legal proceedings.
60
30. If a statute expressly confers a power or imposes a duty on a particular
authority, then such power or duty must be exercised or performed by that
authority itself.
61
Further, when a statute vests certain power in an authority
to be exercised in a particular manner, then that authority has to exercise its
power following the prescribed manner.
62
Any exercise of power by statutory
57
1964 SCC OnLine SC 112 [10]
58
S S Gadgil (supra) [10]
59
CIT v. Robert J Sas, (1963) 48 ITR 177; CIT v. Thayaballii Mulla Jeevaji Kapasi, 1967 SCC OnLine SC
352.
60
CIT v. Onkarmal Meghraj, (1974) 3 SCC 349 [11]; K M Sharma v. ITO, (2002) 4 SCC 339 [14]; M A Merchant
(supra) [8]
61
Dr Premchandran Keezhoth v. Chancellor, Kannur University, 2023 SCC OnLine SC 1592 [73]
62
CIT v. Anjum M.H. Ghaswala, (2002) 1 SCC 633 [27]; State of U P v. Singhara Singh, 1963 SCC OnLine
SC 23 [8]
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authorities inconsistent with the statutory prescription is invalid.
63
Section 34
of the Income Tax Act 1922 prescribed a duty on Income Tax Officers to seek
prior approval of the Commissioner before issuing a reassessment notice. In
CIT v. Maharaja Pratapsingh Bahadur of Gidhaur,
64
a three- Judge Bench
of this Court held that a notice issued under Section 34 without prior approval
of the Commissioner was invalid.
31. The Income Tax Act 1961 also mandates assessing officers to fulfil certain
pre-conditions before issuing a notice of reassessment. Section 149 requires
assessing officers to issue a notice of reassessment under Section 148 within
the prescribed time limits. Further, Section 151 requires assessing officers to
obtain sanction of the specified authority before issuing notice under Section
148. In Chhugamal Rajpal v. S P Chaliha, a three- Judge Bench of this Court
held that Section 151 must be strictly adhered to because it contains
“important safeguards.”
65
32. A statutory authority may lack jurisdiction if it does not fulfil the preliminary
conditions laid down under the statute, which are necessary to the exercise
of its jurisdiction.
66
There cannot be any waiver of a statutory requirement or
provision that goes to the root of the jurisdiction of assessment.
67
An order
passed without jurisdiction is a nullity. Any consequential order passed or
action taken will also be invalid and without jurisdiction.
68
Thus, the power of
63
Tata Chemicals Ltd. v. Commissioner of Customs, (2015) 11 SCC 628 [18]
64
1960 SCC OnLine SC 55 [6]
65
(1971) 1 SCC 453 [5]
66
Chhotobhai Jethabhai Patel v. Industrial Court, Maharashtra, (1972) 2 SCC 46 [16]
67
Superintendent of Taxes v. Onkarmal Nathmal Trust, (1976) 1 SCC 766 [28]
68
Dwarka Prasad Agarwal v. B D Agarwal, (2003) 6 SCC 230 [37]
PART D
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assessing officers to reassess is limited and based on the fulfilment of certain
preconditions.
69
iii. Principles of strict interpretation and workability
33. The dominant purpose in interpreting a taxing statute is to ascertain the
intention of the legislature to impose a charge.
70
A literal rule of construction
requires the language of a statute to be construed according to its literal and
grammatical meaning, whatever the result may be.
71
In comparison, a strict
interpretation of a statute does not encompass strict literalism, which leads to
absurdity or goes against the express legislative intent.
72
The principle of strict
interpretation requires the courts to interpret and decipher the meaning of the
words of the statute in their usual sense.
73
34. Taxing statutes are interpreted by following the principles of strict
interpretation.
74
While interpreting a taxing statute, there is no room for any
intendment.
75
A taxing statute must be construed by having regard to the strict
letter of the law.
76
In a taxing statute, it is not possible to assume any intention
or governing purpose more than what is stated in the plain language. A taxing
statute can successfully impose liability on persons or property only if it
frames appropriate provisions to that end. The courts cannot plug in a
loophole in a taxing statute “by a strained construction in reference to the
69
CIT v. Kelvinator of India Ltd, (2010) 2 SCC 723 [6]. [“6. […] Reassessment has to be based on the
fulfilment of certain precondition […]”]
70
Banarsi Debi v. ITO, 1964 SCC OnLine SC 48 [6]
71
Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court (1990) 3
SCC 682 [67]
72
Commissioner of Customs v. Dilip Kumar & Co., (2018) 9 SCC 1 [28]
73
State of Gujarat v. Mansukhbhai Kanjibhai Shah, (2020) 20 SCC 360 [24]
74
G P Singh, Principles of Statutory Interpretation (15
th
edn, 2023) 616.
75
Cape Brandy Syndicate v. Inland Revenue Commissioners, (1921) KB 64, 71
76
A V Fernandes v. State of Kerala, 1957 SCC OnLine SC 23
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supposed intention of the Legislature.”
77
Further, the considerations of equity
or justice are not relevant in interpreting a taxing statute.
78
35. It is a well- accepted rule of construction that in situations where the
interpretation of taxing legislation is ambiguous or leads to two possible
interpretations, the interpretation most beneficial to the subject of the tax
should be adopted.
79
It would not be an unjust result if a taxpayer escapes
the tax net on account of the legislature’s failure to express itself clearly.
80
36. In a taxing statute, the charging section has to be construed strictly, but the
machinery provisions must be interpreted in accordance with the ordinary
rules of statutory interpretation.
81
The purpose is to give effect to the clear
intention of the legislature. In Murarilal Mahabir Prasad v. B R Vad,
82
this
Court held that:
“29. […] There is no equity about a tax in the sense
that a provision by which a tax is imposed has to be
construed strictly, regardless of the hardship that
such a construction may cause either to the treasury
or to the taxpayer. If the subject falls squarely within
the letter of law he must be taxed, howsoever
inequitable the consequences may appear to the
judicial mind. If the Revenue seeking to tax cannot
bring the subject within the letter of law, the subject
is free no matter that such a construction may cause
serious prejudice to the Revenue. In other words,
though what is called equitable construction may be
admissible in relation to other statutes or other
provisions of a taxing statute, such a construction is
77
Muralilal Mahabir Prasad v. B R Vad, (1975) 2 SCC 736 [28]
78
ITO v. T S Devinatha Nadar, 1967 SCC OnLine SC 52 [30]
79
Central India Spinning and Waving Co. Ltd. v. Municipal Committee, 1957 SCC OnLine SC 18 [5]; CIT v.
Shahzada Nand & Sons, 1966 SCC OnLine SC 24 [10]; T S Devinatha Nadar (supra) [25]; Voltas Ltd. v.
State of Gujarat, (2015) 7 SCC 527 [24]
80
CIT v. Jargaon Electric Supply Co. Ltd., 1960 SCC OnLine SC 105 [7]; State of W B v. Kesoram Industries
Ltd., (2004) 10 SCC 201 [106]
81
Mahim Patram (P) Ltd. v. Union of India, (2007) 3 SCC 668 [25]
82
(1975) 2 SCC 736 [29]
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not admissible in the interpretation of a charging or
taxing provision of a taxing statute.”
37. A statute is designed to be workable. A statutory provision must be construed
in a manner to make it workable to achieve the purpose of the legislation.
83
A
construction that fails to achieve the manifest purpose of legislation or
reduces the statutory provisions to futility should be avoided.
84
The machinery
provisions must be construed to effectuate the object and purpose of a statute
and not defeat them. In J K Synthetics Ltd. v. CTO ,
85
a Constitution Bench
of this Court observed:
“16. It is well- known that when a statute levies a tax
it does so by inserting a charging section by which a
liability is created or fixed and then proceeds to
provide the machinery to make the liability effective.
It, therefore, provides the machinery for the
assessment of the liability already fixed by the
charging section, and then provides the mode for the
recovery and collection of tax, including penal
provisions meant to deal with defaulters. Provision is
also made for charging interest on delayed
payments, etc. Ordinarily the charging section
which fixes the liability is strictly construed but
that rule of strict construction is not extended to
the machinery provisions which are construed
like any other statute. The machinery provisions
must, no doubt, be so construed as would
effectuate the object and purpose of the statute
and not defeat the same.”
(emphasis supplied)
83
K P Mohammed Salim v. CIT, (2008) 11 SCC 573 [14];
84
Mohan Kumar Singhania v. Union of India, 1992 Supp (1) SCC 594 [52]; CIT v. Hindustan Bulk Carriers,
(2003) 3 SCC 57 [17]
85
(1994) 4 SCC 276
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38. The provisions in a taxing statute dealing with machinery for assessment have
to be construed in accordance with the intention of the legislature to make the
charge levied effective.
86
While interpreting provisions that set up the
machinery of assessment, the rule is that construction should be preferred
which makes the machinery workable
87
and furthers the intention of the
legislature.
88
In CIT v. Sun Engineering Works (P) Ltd.,
89
a two-Judge
Bench of this Court observed that the provision dealing with reassessment
contained in Section 147 of the Income Tax Act was for the benefit of the
Revenue:
“40. Although, Section 147 is part of a taxing statute,
it imposes no charge on the subject but deals merely
with the machinery of assessment and in interpreting
a provision of that kind, the rule is that construction
should be preferred which makes the machinery
workable. Since the proceedings under Section 147
of the Act are for the benefit of the Revenue and not
an assessee and are aimed at gathering the
‘escaped income’ of an assessee, the same cannot
be allowed to be converted as ‘revisional’ or ‘review’
proceedings at the instance of the assessee, thereby
making the machinery unworkable.”
iv. Principle of harmonious construction
39. The legislature is presumed to enact a consistent and harmonious body of
laws in deference to the rule of law.
90
In case of any apparent conflict within
a provision or between two provisions of the same statute, the courts must
read the provisions harmoniously.
91
The principle of harmonious construction
86
Gursahai Saigal v. CIT, (1963) 48 ITR (SC) 1 [9]
87
CIT v. Mahaliram Ramjidas, AIR 1940 PC 124;
88
Gursahai Saigal (supra) [13]
89
(1992) 4 SCC 363 [40]
90
MCD v. Shiv Shanker, (1971) 1 SCC 442 [5]
91
Sultana Begum v. Prem Chand Jain, (1997) 1 SCC 373 [15]
PART D
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requires courts to bring about a reconciliation between seemingly conflicting
provisions to give effect to both. An interpretation which reduces one of the
provisions to a “dead letter” is not a harmonious construction. The principle of
harmonious construction also applies to reconcile two seemingly conflicting
provisions of different statutes.
92
40. A legislature often appends a non obstante clause to a provision to give it an
overriding effect over provisions contained in the same statute or a separate
statute.
93
The purpose of incorporating a non obstante clause in a provision
is to prohibit the operation and effect of all contrary provisions.
94
In
Chadavarkar Sita Ratna Rao v. Ashalata S Guram,
95
Justice Sabyasachi
Mukharji (as the learned Chief Justice then was) explained the purpose of a
non obstante clause thus:
“67. A clause beginning with the expression
“notwithstanding anything contained in this Act or in
some particular provision in the Act or in some
particular Act or in any law for the time being in force,
or in any contract” is more often than not appended
to a section in the beginning with a view to give the
enacting part of the section in case of conflict an
overriding effect over the provision of the Act or the
contract mentioned in the non obstante clause. It is
equivalent to saying that in spite of the provision of
the Act or any other Act mentioned in the non
obstante clause or any contract or document
mentioned the enactment following it will have its full
operation or that the provisions embraced in the non
obstante clause would not be an impediment for an
operation of the enactment.”
92
In re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the
Indian Stamp Act 1899, 2023 INSC 1066 [165]
93
State of Bihar v. Bihar Rajya MSESKK Mahasangh, (2005) 9 SCC 129 [45]
94
Union of India v. G M Kokil, 1984 Supp SCC 196 [11]
95
(1986) 4 SCC 447
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41. A non-obstante clause must be given effect to the extent Parliament intended
and not beyond.
96
In construing a provision containing a non obstante clause,
courts must determine the purpose and object for which the provision was
enacted.
97
The courts are also required to find out the extent to which the
legislature intended to give one provision overriding effect over another
provision.
98
In case of a clear inconsistency between two enactments, a
provision containing a non obstante clause can be given an overriding effect
over a provision contained in another statute.
42. Another principle of interpretation is that when two laws are inconsistent or
repugnant, the later legislation is interpreted as having impliedly repealed the
earlier legislation. The principle underlying implied repeal is that there is no
need for the later enactment to state in express words that the earlier
enactment has been repealed if the legislative intent to supersede the earlier
law is manifested through the provisions of the later enactment.
99
In MCD v.
Shiv Shanker,
100
this Court culled out the following principles applicable to
the implied repeal of legislation:
a. A subsequent legislation may not be too readily presumed to effectuate a
repeal of existing statutory laws in the absence of express or at least
unambiguous indication to that effect;
b. Courts must lean against implying a repeal unless the two provisions are so
plainly repugnant to each other that they cannot stand together and it is not
96
ICICI Bank Ltd v. SIDCO Leathers Ltd, (2006) 10 SCC 452 [37]
97
SIDCO Leathers Ltd (supra) [34]; Geeta v. State of U P, (2010) 13 SCC 678 [45]
98
A G Varadarajulu v. State of Tamil Nadu, (1998) 4 SCC 231 [16]
99
State of Orissa v. M A Tulloch, 1963 SCC OnLine SC 18 [20]
100
(1971) 1 SCC 442 [5]
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possible on any reasonable hypothesis to give effect to both at the same
time;
c. It is necessary to closely scrutinise and consider the true meaning and effect
of both the earlier and the later statute; and
d. If the objects of the two statutory provisions are different and the language
of each statute is restricted to its objects or subject, then they are generally
intended to rule in parallel lines without meeting and there would be no real
conflict.
43. The principle on which the rule of implied repeal rests is that if the subject-
matter of a later legislation is identical to that of an earlier legislation so that
they both cannot stand together, then the earlier legislation is impliedly
repealed by the later legislation.
101
The courts have to determine whether the
legislature intended the two sets of provisions to be applied simultaneously.
102
The presumption against implied repeal is based on the theory that the
legislature knows the existing laws and does not intend to create any
confusion by retaining two conflicting provisions or statutes.
103
The test to be
applied for the construction of implied repeal is whether the new or
subsequent law is inconsistent with or repugnant to the old law. The
inconsistency or repugnancy should clearly and manifestly reveal an intention
to repeal the existing laws.
104
The inconsistency or repugnancy must be such
that the two statutes cannot be reconciled on reasonable construction or
101
Zaverbhai Amaidas v. State of Bombay, (1954) 2 SCC 345 [16]
102
Ratan Lal Adukia v. Union of India, (1989) 3 SCC 537 [18]
103
Pradeep S Wodeyar v. State of Karnataka, (2021) 19 SCC 62 [69]
104
Municipal Council Palai v. T J Joseph, 1963 SCC OnLine SC 55 [10]
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hypothesis. To determine whether a later statute repeals by implication an
earlier statute, it is necessary to examine the scope and object of the two
enactments by comparison of their provisions.
105
Implied repeal should be
avoided, if possible, where both the statutes can stand together.
106
44. We now proceed to analyse the issues given the broad legislative and judicial
background discussed above.
E. Reading TOLA into the Income Tax Act
i. First proviso to Section 149(1) of the new regime
45. The first proviso to Section 149(1)(b) provides thus:
“149. (1) No notice under section 148 shall be issued
for the relevant assessment year, -
(a) If three years have elapsed from the end of the
relevant assessment year, unless the case falls
under clause (b);
(b) If three years, but not more than ten years, have
elapsed from the end of the relevant assessment
year unless the Assessing Officer has in
possession of books of account or other
documents or evidence which reveal that the
income chargeable to tax, represented in the
form of asset, which has escaped assessment
amounts to or is likely to amount to fifty lakh
rupees or more for that year:
Provided that no notice under section 148 shall
be issued at any time in a case for the relevant
assessment year beginning on or before 1
st
day
of April 2021, if such notice could not have been
issued at that time on account of being
105
State of M P v. Kedia Leather & Liquor Ltd., (2003) 7 SCC 389 [15]
106
Harshad S Mehta v. State of Maharashtra, (2001) 8 SCC 257 [31]
PART E
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immediately 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:”
(emphasis supplied)
46. The ingredients of the proviso could be broken down for analysis as follows:
(i) no notice under Section 148 of the new regime can be issued at any time
for an assessment year beginning on or before 1 April 2021; (ii) if it is barred
at the time when the notice is sought to be issued because of the “time limits
specified under the provisions of” 149(1)(b) of the old regime. Thus, a notice
could be issued under Section 148 of the new regime for assessment year
2021- 2022 and before only if the time limit for issuance of such notice
continued to exist under Section 149(1)(b ) of the old regime.
47. In CTO v. Biswanath Jhunjhunwalla,
107
the Bengal Sales Tax Rules 1941
empowered the Commissioner to revise any assessment within four years
from the date of assessment. Subsequently, the State Government issued a
notification following the law to extend the time limit from four years to six
years from the date of assessment. The extension of the time limit was
challenged by the respondents on the ground that the assessments which
had attained finality because of the expiry of the period of four years could
not be reassessed. This Court observed that it was the clear intention of the
notification to permit the Commissioner to revise any assessment made or
order passed, provided the assessment had not been made before six years.
107
(1996) 5 SCC 626
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It was held that if the legislative intention is clear and the language is
unambiguous, full effect must be given to the legislative intention by reading
the notification as applying not only to the incomplete assessments but also
to assessments that had reached finality because of lapse of the earlier
prescribed period. The principle that emanates from Biswanath
Jhunjhunwalla (supra) is that the courts should give full effect to the
legislative intention of granting reassessment powers to assessing officers
unless the legislature, by express provision, states otherwise.
48. Notices have to be judged according to the law existing on the date the notice
is issued. Section 149 of the old regime primarily provided two time limits: (i)
four years for all situations and (ii) beyond four years and within six years if
the income chargeable to tax which escaped assessment amounted to
Rupees one lakh or more. After 1 April 2021, the time limits prescribed under
the new regime came into force. The ordinary time limit of four years was
reduced to three years. Therefore, in all situations, reassessment notices
could be issued under the new regime if not more than three years have
elapsed from the end of the relevant assessment year. For example, for
assessment year 2018- 2019, the four year period would have expired on 31
March 2023 under the old regime. However, if the notice is issued after 1 April
2021, the three year time limit prescribed under the new regime will be
applicable. The three year time limit will expire on 31 March 2022.
49. The first proviso to Section 149(1)(b) requires the determination of whether
the time limit prescribed under Section 149(1)(b) of the old regime continues
to exist for the assessment year 2021-2022 and before. Resultantly, a notice
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under Section 148 of the new regime cannot be issued if the period of six
years from the end of the relevant assessment year has expired at the time
of issuance of the notice. This also ensures that the new time limit of ten years
prescribed under Section 149(1)(b) of the new regime applies prospectively.
For example, for the assessment year 2012- 2013, the ten year period would
have expired on 31 March 2023, while the six year period expired on 31 March
2019. Without the proviso to Section 149(1)(b) of the new regime, the
Revenue could have had the power to reopen assessments for the year 2012-
2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The
proviso limits the retrospective operation of Section 149(1)(b) to protect the
interests of the assesses.
50. Another important change under Section 149(1)(b) of the new regime is the
increase in the monetary threshold from Rupees one lakh to Rupees fifty
lakhs. The old regime prescribed a time limit of six years from the end of the
relevant assessment year if the income chargeable to tax which escaped
assessment was more than Rupees one lakh. In comparison, the new regime
increases the time limit to ten years if the escaped assessment amounts to
more than Rupees fifty lakhs. This change could be summarized thus:
Regime Time limit Income chargeable to
tax which has
escaped assessment
Old regime Four years but not
more than six years
Rupees one lakh or
more
New regime Three years but not
more than ten years
Rupees fifty lakhs or
more
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51. Given Section 149(1)(b) of the new regime, reassessment notices could be
issued after three years only if the income chargeable to tax which escaped
assessment is more than Rupees fifty lakhs. The proviso to Section 149(1)(b)
limits the retrospectivity of that provision with respect to the time limits
specified under Section 149(1)(b) of the old regime.
52. In Ashish Agarwal (supra), this Court held that the benefit of the new regime
must be provided for the reassessment conducted for the past periods. The
increase of the monetary threshold from Rupees one lakh to Rupees fifty lakh
is beneficial for the assesses. Mr Venkataraman has also conceded on behalf
of the R evenue that all notices issued under the new regime by invoking the
six year time limit prescribed under Section 149(1)(b) of the old regime will
have to be dropped if the income chargeable to tax which has escaped
assessment is less than Rupees fifty lakhs.
53. The position of law which can be derived based on the above discussion may
be summarized thu s: (i) Section 149(1) of the new regime is not prospective.
It also applies to past assessment years; (ii) The time limit of four years is
now reduced to three years for all situations. The Revenue can issue notices
under Section 148 of the new regime only if three years or less have elapsed
from the end of the relevant assessment year; (iii) the proviso to Section
149(1)(b) of the new regime stipulates that the Revenue can issue
reassessment notices for past assessment years only if the time limit survives
according to Section 149(1)(b) of the old regime, that is, six years from the
end of the relevant assessment year; and (iv) all notices issued invoking the
time limit under Section 149(1)(b) of the old regime will have to be dropped if
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the income chargeable to tax which has escaped assessment is less than
Rupees fifty lakhs.
ii. TOLA can extend the time limit till 31 June 2021
54. The proviso to Section 149(1)(b) of the new regime uses the expression
“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.” Thus, the proviso specifically
refers to the time limits specified under Section 149(1)(b) of the old regime.
The Revenue accepts that without application of TOLA, the time limit for
issuance of reassessment notices after 1 April 2021 expires for assessment
years 2013- 2014, 2014- 2015, 2015-2016, 2016- 2017, and 2017- 2018 in the
following manner:
(i) for the assessment years 2013- 2014 and 2014- 2015, the six year
period expires on 31 March 2020 and 31 March 2021 respectively; and
(ii) for the assessment years 2016- 2017 and 2017- 2018, the three year
period expires on 31 March 2020 and 31 March 2021 respectively.
a. Finance Act 2021 substituted the old regime
55. In Shamrao V Parulekar v. District Magistrate, Thana,
108
a Constitution
Bench of this Court was called upon to decide the validity of the detention of
the petitioner under the Preventive Detention Amendment Act 1950.
109
The
Detention Act 1950 was due to expire on 1 April 1951 , but the legislation was
108
(1952) 2 SCC 1
109
“Detention Act 1950”
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amended to prolong its life by another year till 1 April 1952 . The petitioner was
detained on 15 November 1951 and his detention would have expired on 1
April 1952 with the expiration of the enactment. However, the Detention Act
1950 was amended in 1952, further prolonging its application for six months
till 1 October 1952. The issue before this Court was whether the prolonging
of the Detention Act 1950 also prolonged the detention of the petitioner.
56. Justice Vivian Bose, writing for the Constitution Bench, held that the detention
continued until the expiry of the Detention Act 1950 on 1 October 1952. The
learned Judge further observed:
“7. The rule is that when a subsequent Act amends
an earlier one in such a way as to incorporate itself,
or a part of itself, into the earlier, then the earlier Act
must thereafter be read and construed (except
where that would lead to a repugnancy,
inconsistency or absurdity) as if the altered words
had been written into the earlier Act with pen and ink
and the old words scored out so that thereafter there
is no need to refer to the amending Act at all. […]
Bearing this in mind it will be seen that the 1950
Act remains the 1950 Act all the way through
even with its subsequent amendments.
Therefore, the moment the 1952 Act was passed
and Section 2 came into operation, the Act of
1950 meant the 1950 Act as amended by Section
2, that is to say, the 1950 Act now due to expire
on 1-10-1952.”
(emphasis supplied)
The principle which emanates from Shamrao V Parulekar (supra) is that after
an amendment, the legislation has to be read along with the amended
provisions.
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57. The legislative practice of amendment by substitution is often used by the
legislatures. The process of substitution of a statutory provision generally
involves two steps: first, the existing rule is deleted; and second, the new rule
is brought into existence in its place.
110
The deletion effectively repeals the
existing provision.
111
Thus, an amendment by substitution results in the repeal
of an earlier provision and its replacement by a new provision.
112
The
repealed provision will cease to operate from the date of repeal and the
substituted provision will commence operation from the date of its
substitution.
113
After the substitution, the legislation must be read and
construed as if the altered words have been written into the legislation “with
pen and ink and the old words scored out.”
114
Therefore, after amendment by
substitution any reference to a legislation must be construed as the legislation
as amended by substitution.
58. In Shyam Sunder v. Ram Kumar,
115
a Constitution Bench of this Court was
called upon to decide the extent of retrospective operation of an amendment
by substitution. In that case, the Haryana Amendment Act 1995 substituted
Section 15 of the Punjab Pre- emption Act by taking away the right of a co-
sharer to pre- empt a sale during the pendency of an appeal. This Court
110
Koteswar Vittal Kamath v. K Rangappa Baliga & Co., (1969) 1 SCC 255 [8]
111
Bhagat Ram Sharma v. Union of India, 1988 Supp SCC 30 [17]
112
State of Rajasthan v. Mangilal Pindwal, (1996) 5 SCC 60 [9]
113
Pernod Ricard India (P) Ltd v. State of Madhya Pradesh, 2024 SCC OnLine SC 566 [13]
114
G V Krishnamraju v. Union of India, (2019) 17 SCC 590 [18]; Ram Narain v. Simla Banking & Industrial
Co. Ltd, 1956 SCC OnLine SC 1. [It was observed: 7. […] whenever an amended Act has to be applied
subsequent to the date of the amendment the various unamended provisions of the Act have to be read
along with the amended provisions as though they are part of it. This is for the purpose of determining what
the meaning of any particular provision of the Act as amended is, whether it is in the unamended part or in
the amended part. But this is the not the same thing as saying that the amendment itself must be taken to
have been in existence as from the date of the earlier Act. That would be imputing to the amendment
retrospective operation which could only be done if such retrospective operation is given by the amending
Act either expressly or by necessary implication.”]
115
(2001) 8 SCC 24
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observed that according to Order 20 Rule 14(1) of the Code of Civil Procedure
1908, the right of pre-emption becomes a vested right and can only be taken
away by a known method of law. As regards the retrospective operation of a
substituted provision, it was held that “where a repeal of provisions of
enactment is followed by fresh legislation by an amending Act, such
legislation is prospective in operation and does not affect substantive or
vested rights of the parties unless made retrospective either expressly or by
necessary intendment.”
116
This Court held that the language used by the
legislature indicated that it was introduced with prospective effect and could
not affect the accrued rights of the co- sharers. The decision of this Court in
Shyam Sunder (supra) is an authority for the proposition that an amendment
by substitution can have a retrospective effect and affect the vested rights of
the parties if the provision is made retrospective either expressly or by
necessary intendment.
59. Parliament has often used the legislative process of amendment by
substitution in the context of reassessment provisions under the Income Tax
Act. In S C Prashar v. Vasantsen Dwarkadas,
117
a Constitution Bench of this
Court had to decide on the validity of the notices issued under Section 34 of
the Income Tax Act 1922. In 1948, Section 34 of the Income Tax Act 1922 was
substituted by a new provision which provided the following time limits: (i)
eight years from the end of the year if there was omission or failure on the
part of an assessee to make a return or disclose fully and truly all material
116
Shyam Sunder (supra) [28]
117
(1964) 1 SCR 29
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facts necessary for assessment; and (ii) four years for all other cases. Justice
M Hidayatullah (as the learned Chief Justice then was), writing for himself and
Justice Raghubar Dayal, observed that the substituted provision was meant
to enable the reassessment of income which had escaped assessment for
past periods. It was further observed that the substituted provision “meant to
operate retrospectively eight years in some cases and four years in others.”
118
Justice A K Sarkar (as the learned Chief Justice then was) also observed that
no notice could be issued under the 1948 amendment “for a year from the
end of which eight years had expired.”
119
60. The above principles can be applied as follows to the factual situation in the
present appeals: (i) The Finance Act 2021 substituted Sections 147 to 151 of
the Income Tax Act with effect from 1 April 2021; (ii) Sections 147 to 151 of
the old law ceased to operate from 1 April 2021; (iii) After 1 April 2021, any
reference to the Income Tax Act means the Income Tax Act as amended by
the Finance Act 2021; (iv) The time limits prescribed for issuing reassessment
notices under Section 149 operate retrospectively for three years for all
situations and six years in case the escaped assessment amounts to or is
likely to amount to more than Rupees fifty lakhs.
61. TOLA is a legislation enacted by Parliament. The assesses have neither
challenged the legislative competence of Parliament to enact TOLA nor have
they challenged the vires of the legislation. Section 3(1) of TOLA provides for
the relaxation of “any time limit” prescribed under the specified Acts for
118
SC Prashar (supra) 107
119
SC Prashar (supra) 86
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completion or compliance of “any proceeding or passing of any order or
issuance of any sanction, intimation, notification, sanction, or approval.” The
expression “any” has been interpreted by this Court to mean “all” or “every”.
120
The context in which the word “any” appears has to be construed after taking
into consideration the scheme and the purpose of the enactment.
121
62. The purpose of Section 3(1) of TOLA is to provide relaxation of time limits
prescribed under the specified Acts, which fell for completion or compliance
from 20 March 2020 to 31 March 2021. TOLA was enacted in the backdrop
of the COVID -19 pandemic, which impeded the functioning of the government
at all levels. The imposition of national and local lockdowns created difficulties
for the common people, including litigants and assesses, to comply with their
legal obligations. The COVID-19 pandemic and the ensuing lockdowns
required legislatures across the world to dynamically adapt their laws and
policies to redress the difficulties faced by persons, entities, and
governmental authorities.
122
The World Bank identified that persons and
business entities faced severe financial situations characterised by a lack of
cash or easily convertible- to-cash assets. It suggested that this w ould impact
revenue collection because individuals and entities would not be in a position
to pay the assessed taxes . Therefore, the World Bank advised deferral of tax
filings and payment deadlines to allow individuals and business entities to
120
LDA v. M K Gupta, (1994) 1 SCC 243 [4]; Raj Kumar Shivhare v. Directorate of Enforcement, (2010) 4
SCC 772 [24];
121
Vivek Narayan Sharma v. Union of India, (2023) 3 SCC 1 [132]
122
Cary Coglianese and Neysun Mahboubi, ‘Administrative Law in a Time of Crisis: Comparing National
Responses to COVID-19’ (2021) 73(1) Administrative Law Review 1, 10.
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cope with the crisis.
123
Many countries across the world have extended
deadlines for filing tax returns.
124
63. TOLA extended the time limits for completion or compliance of certain actions
under the specified Act, which fell for completion during the COVID-19
outbreak. The use of the expression “any” in Section 3(1) indicates that the
relaxation applies to “all” or “every” action wh ose time limit falls for completion
from 20 March 2020 to 31 March 2021. Section 3(1) is only concerned with
the performance of actions contemplated under the provisions of the specified
Acts. Consequently, the amendment or substitution of a provision under the
specified Acts will not affect the application of TOLA, so long as the action
contemplated under the provision falls for completion during the period
specified by TOLA, that is, 20 March 2020 to 31 March 2021.
64. When enacting a statute, the legislature often endeavours to ensure that the
provisions of one legislation do not conflict with provisions of another
legislation.
125
The purpose of the Income Tax Act is to levy tax on income and
raise revenues for the functioning of the Government. On the other hand, the
purpose of TOLA is to provide relaxation of the time for completion of any
actions or proceedings falling for completion within a particular period. Thus,
the two enactments operate in separate and distinct fields. This Court must
123
Cebreiro Gomez, et al, COVID -19: Revenue Administration Implications – Potential Tax Administration
and Customs Measures to Respond to the Crisis, World Bank Group (2022) 19
124
See International Monetary Fund, Policy Responses to COVID-19 https://www.imf.org/en/Topics/imf-and-
covid19/Policy-Responses-to-COVID-19
125
In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the
Indian Stamp Act 1899, 2023 INSC 1066 [159]
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ensure that the provisions of the two enactments are interpreted
harmoniously unless there is an irreconcilable conflict between them.
b. Reading TOLA into Section 149
65. Section 3(1) of TOLA applies to the action of “issuance of any notice” under
the Income Tax Act. The relaxation provided under Section 3(1) of TOLA will
apply to the issuance of a reassessment notice under Section 148 of the
Income Tax Act. TOLA did not amend the time limits of four years and six
years from the end of the relevant assessment years as specified under the
Income Tax Act. It merely provided a relaxation of the time period for issuance
of a reassessment notice under Section 148. TOLA has no application in
situations where the time limit specified under Section 149 expired before 20
March 2020. The effect of TOLA is that at the time of issuance of a
reassessment notice under Section 148, the R evenue has to determine two
things: (i) the time limit specified under Section 149; and (ii) the extent of
relaxation provided by TOLA and its notifications for issuance of notices.
Thus, although TOLA did not amend Section 149 of the Income Tax Act, it has
to be read with Section 149 to determine the time limit for issuance of a notice.
This was the legislative intent behind the enactment of TOLA. For instance,
the six year time limit for assessment year 2013- 2014 under Section 149(1)(b)
of the old regime expired on 31 March 2020. TOLA extended the period for
issuing notice until 30 June 2021, given the difficulties that arose because of
the COVID-19 pandemic.
66. Section 3(1) of TOLA allowed the Central Government to specify by
notification “such other date after the 31
st
day of March, 2021” as the time limit
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for completion or compliance of any action under the specified Acts. The
provision also empowered the Central Government to specify different dates
for completion or compliance of different actions. The notifications dated 31
March 2021 and 27 April 2021 extend the operation of TOLA by providing an
extended time limit for completing actions under the Income Tax Act till 30
June 2021.
67. Section 2(1)(b)(ii) of TOLA defines ‘specified Act’ to include the Income Tax
Act. After 1 April 2021, Section 2(1)(b)(ii) must be read to mean the Income
Tax Act as amended by the Finance Act 2021. The substitution of Sections
147 to 151 will not affect the purpose of TOLA, which is, to provide relaxation
of the time limit for completion or compliance of any actions falling for
completion between 20 March 2020 and 31 March 2021. TOLA will continue
to apply to the Income Tax Act after 1 April 2021 if any action or proceeding
specified under the substituted provisions of the Income Tax Act falls for
completion between 20 March 2020 and 31 March 2021.
68. After 1 April 2021, the Income Tax Act has to be read along with the
substituted provisions. The substituted provisions apply retrospectively for
past assessment years as well. On 1 April 2021, TOLA was still in existence,
and the Revenue could not have ignored the application of TOLA and its
notifications. Therefore, for issuing a reassessment notice under Section 148
after 1 April 2021, the Revenue would still have to look at: (i) the time limit
specified under Section 149 of the new regime; and (ii) the time limit for
issuance of notice as extended by TOLA and its notifications. The Revenue
cannot extend the operation of the old law under TOLA, but it can certainly
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benefit from the extended time limit for completion of actions falling for
completion between 20 March 2020 and 31 March 2021.
69. For instance, Section 149(1)(a) of the new regime specified the time limit of
three years from the end of the relevant assessment year for reopening of the
assessment. For assessment year 2017- 2018, the three year period expired
on 31 March 2021. The expiry of time fell within the time period contemplated
by Section 3 of TOLA read with its notifications. Resultantly, the Revenue had
time until 30 June 2021 to issue a reassessment notice for assessment year
2017- 2018 under Section 149(1)(a). This harmonious reading gives effect to
the legislative intention of both the Income Tax Act and TOLA. Moreover,
Sections 147 to 151 are machinery provisions. Therefore, they must be given
an interpretation that is consistent with the object and purpose of the Income
Tax Act.
70. In Income-tax Officer v. Vikram Sujitkumar Bhatia,
126
a two-Judge Bench
of this Court had to decide whether Section 153C of the Income Tax Act, as
amended by the Finance Act 2015, would apply to searches conducted before
1 June 2015 (the date of coming into force of the amendment). This Court
observed that since Section 153C is a machinery provision, it should be
interpreted in a manner to effectuate the object and purpose of the statute. It
was observed that the object and purpose of Section 153C was the
assessment of the income of any other person. It was held that if the amended
126
(2023) 453 ITR 417
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provision is made applicable prospectively, it will frustrate the object and
purpose of Section 153C.
71. Section 3(1) of TOLA contains a non obstante clause: “notwithstanding
anything contained in the specified Act.” The legislative intention of including
the non obstante clause is to remove any obstacles which may come in the
way of the operation of the extension of the time limit till 31 March 2021 or
such other date after 31 March 2021 specified by the Central Government.
The purpose is to ensure that the full benefit of the relaxation should be
provided to both the assesses and the Revenue to tide over the difficulties
caused by the COVID-19 pandemic.
72. The non obstante clause in Section 3(1) has to be read as controlling the
provisions of the specified Acts, including the provisions of the Income Tax
Act.
127
In the context of the issuance of a reassessment notice, the non
obstante clause will override the provisions of the I ncome Tax Act in case of
any direct conflict or inconsistency. Section 3(1) overrides Section 149 only
to the extent of relaxing the time limit for issuance of reassessment notice
under Section 148. The time limit for issuance of a reassessment notices,
which fall for completion between 20 March 2020 and 31 March 2021, has
been extended till 30 June 2021. However, the non obstante clause under
Section 3(1) of TOLA will operate neither to extend the time limit of three years
from the end of the relevant assessment year under Section 149(1)(a) of the
new regime nor to extend the time limit of six years from the end of the
relevant assessment years under Section 149(1)(b) of the old regime. The
127
M P V Sundararamier v. State of Andhra Pradesh, 1958 SCC OnLine SC 22
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non obstante clause ensures that the R evenue has additional time beyond
the statutory stipulated time limit to complete or comply with the formalities
given the administrative difficulties that arose due to the COVID-19 pandemic.
iii. Sanction of the specified authority
73. Section 151 imposes a check upon the power of the R evenue to reopen
assessments. The provision imposes a responsibility on the R evenue to
ensure that it obtains the sanction of the specified authority before issuing a
notice under Section 148. The purpose behind this procedural check is to
save the assesses from harassment resulting from the mechanical reopening
of assessments.
128
A table representing the prescription under the old and
new regime is set out below:
Regime Time limits Specified authority
Section 151(2) of the
old regime
Before expiry of four
years from the end of
the relevant
assessment year
Joint Commissioner
Section 151(1) of the
old regime
After expiry of four
years from the end of
the relevant
assessment year
Principal Chief
Commissioner or Chief
Commissioner or
Principal
Commissioner or
Commissioner
Section 151(i) of the
new regime
Three years or less
than three years from
the end of the relevant
assessment year
Principal
Commissioner or
Principal Director or
Commissioner or
Director
Section 151(ii) of the
new regime
More than three years
have elapsed from the
end of the relevant
assessment year
Principal Chief
Commissioner or
Principal Director
General or Chief
Commissioner or
Director General
128
Srikrishna Private Ltd v. ITO, (1996) 9 SCC 534 [4]
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74. The above table indicates that the specified authority is directly co- related to
the time when the notice is issued. This plays out as follows under the old
regime:
(i) If income escaping assessment was less than Rupees one lakh: (a) a
reassessment notice could be issued under Section 148 within four
years after obtaining the approval of the Joint Commissioner; and (b)
no notice could be issued after the expiry of four years; and
(ii) If income escaping was more than Rupees one lakh: (a) a
reassessment notice could be issued within four years after obtaining
the approval of the Joint Commissioner; and (b) after four years but
within six years after obtaining the approval of the Principal Chief
Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner.
75. After 1 April 2021, the new regime has specified different authorities for
granting sanctions under Section 151. The new regime is beneficial to the
assesse because it specifies a higher level of authority for the grant of
sanctions in comparison to the old regime. Therefore, in terms of Ashish
Agarwal (supra), after 1 April 2021, the prior approval must be obtained from
the appropriate authorities specified under Section 151 of the new regime.
The effect of Section 151 of the new regime is thus:
(i) If income escaping assessment is less than Rupees fifty lakhs: (a) a
reassessment notice could be issued within three years after obtaining
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the prior approval of the Principal Commissioner, or Principal Director or
Commissioner or Director; and (b) no notice could be issued after the
expiry of three years; and
(ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a
reassessment notice could be issued within three years after obtaining
the prior approval of the Principal Commissioner, or Principal Director or
Commissioner or Director; and (b) after three years after obtaining the
prior approval of the Principal Chief Commissioner or Principal Director
General or Chief Commissioner or Director General.
76. Grant of sanction by the appropriate authority is a precondition for the
assessing officer to assume jurisdiction under Section 148 to issue a
reassessment notice. Section 151 of the new regime does not prescribe a
time limit within which a specified authority has to grant sanction. Rather, i t
links up the time limits with the jurisdiction of the authority to grant sanction.
Section 151(ii) of the new regime prescribes a higher level of authority if more
than three years have elapsed from the end of the relevant assessment year.
Thus, non-compliance by the assessing officer with the strict time limits
prescribed under Section 151 affects their jurisdiction to issue a notice under
Section 148.
77. Parliament enacted TOLA to ensure that the interests of the R evenue are not
defeated because the assessing officer could not comply with the pre-
conditions due to the difficulties that arose during the COVID-19 pandemic.
Section 3(1) of TOLA relaxes the time limit for compliance with actions that
fall for completion from 20 March 2020 to 31 March 2021. TOLA will
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accordingly extend the time limit for the grant of sanction by the authority
specified under Section 151. The test to determine whether TOLA will apply
to Section 151 of the new regime is this: if the time limit of three years from
the end of an assessment year falls between 20 March 2020 and 31 March
2021, then the specified authority under Section 151(i) has an extended time
till 30 June 2021 to grant approval. In the case of Section 151 of the old
regime, the test is: if the time limit of four years from the end of an assessment
year falls between 20 March 2020 and 31 March 2021, then the specified
authority under Section 151(2) has time till 31 March 2021 to grant approval .
The time limit for Section 151 of the old regime expires on 31 March 2021
because the new regime comes into effect on 1 April 2021.
78. For example, the three year time limit for assessment year 2017-2018 falls
for completion on 31 March 2021. It falls during the time period of 20 March
2020 and 31 March 2021, contemplated under Section 3(1) of TOLA.
Resultantly, the authority specified under Section 151(i) of the new regime
can grant sanction till 30 June 2021.
79. Under Finance Act 2021, the assessing officer wa s required to obtain prior
approval or sanction of the specified authorities at four stages:
a. Section 148A(a) – to conduct any enquiry, if required, with respect to the
information which suggests that the income chargeable to tax has escaped
assessment;
b. Section 148A(b) – to provide an opportunity of hearing to the assessee by
serving upon them a show cause notice as to why a notice under Section
148 should not be issued based on the information that suggests that
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income chargeable to tax has escaped assessment. It must be noted that
this requirement has been deleted by the Finance Act 2022;
129
c. Section 148A(d) – to pass an order deciding whether or not it is a fit case for
issuing a notice under Section 148; and
d. Section 148 – to issue a reassessment notice.
80. In Ashish Agarwal (supra), this Court directed that Section 148 notices which
were challenged before various High Courts “shall be deemed to have been
issued under Section 148- A of the Income Tax Act as substituted by the
Finance Act, 2021 and construed or treated to be show-cause notices in terms
of Section 148- A(b).” Further, this Court dispensed with the requirement of
conducting any enquiry with the prior approval of the specified authority under
Section 148A(a). Under Section 148A(b), an assessing officer was required
to obtain prior approval from the specified authority before issuing a show
cause notice. When this Court deemed the Section 148 notices under the old
regime as Section 148A(b) notices under the new regime, it impliedly waived
the requirement of obtaining prior approval from the specified authorities
under Section 151 for Section 148A(b). It is well established that this Court
while exercising its jurisdiction under Article 142, is not bound by the
procedural requirements of law.
130
81. This Court in Ashish Agarwal (supra) directed the assessing officers to “pass
orders in terms of Section 148- A(d) in respect of each of the assesses
concerned.” Further, it directed the assessing officers to issue a notice under
129
Section 45, Finance Act 2022
130
Allahabad High Court Bar Association v. State of U P, (2024) 6 SCC 267 [27.3]
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Section 148 of the new regime “after following the procedure as required
under Section 148- A.” Although this Court waived off the requirement of
obtaining prior approval under Section 148A(a) and Section 148A(b), it did
not waive the requirement for Section 148A(d) and Section 148. Therefore,
the assessing officer was required to obtain prior approval of the specified
authority according to Section 151 of the new regime before passing an order
under Section 148A(d) or issuing a notice under Section 148. These notices
ought to have been issued following the time limits specified under Section
151 of the new regime read with TOLA, where applicable.
F. Section 148 notices issued in June-September 2022
i. Scope of Article 142
82. Article 142 empowers this Court to pass such decree or make such order as
is necessary for doing complete justice in any cause or matter pending before
it.
131
The discretionary jurisdiction exercised by this Court under Article 142 is
of the widest amplitude.
132
The Constitution has left it to the judicial discretion
of this Court to decide the scope and limits of its jurisdiction to render
substantial justice in matters coming before it.
133
The expression “any cause
or matter” mentioned under Article 142 includes every kind of proceeding
pending before this Court.
134
Article 142 allows this Court to give precedence
131
Article 142, Constitution. [It reads:
“142(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as
is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed
or order so made shall be enforceable throughout the territory of India in such manner as may be prescribed
by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as
President may by order prescribe.”
132
Jose Da Costa v. Bascora Sadasiva Sinai Narcornim, (1976) 2 SCC 917 [37]
133
Ganga Bishan v. Jai Narain, (1986) 1 SCC 75 [5]
134
Delhi Judicial Service Association v. State of Gujarat, (1991) 4 SCC 406 [50]
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to equity over law, provided the exercise of the discretion is consistent with
constitutional provisions and after due consideration of substantive provisions
in statutory law.
135
83. In Prem Chand Garg v. The Excise Commissioner,
136
Justice P B
Gajendragadkar (as the learned Chief Justice then was), speaking for the
majority, observed that the order made by this Court under Article 142 “must
not only be consistent with the fundamental rights guaranteed by the
Constitution, but it cannot even be inconsistent with the substantive
provisions of the relevant statutory laws.” However, in Union Carbide Corpn.
Ltd. v. Union of India,
137
Justice Venkatachaliah (as the learned Chief Justice
then was), speaking for the majority, clarified Prem Chand Garg (supra) by
observing that ordinary laws cannot limit the constitutional powers of this
Court under Article 142. The learned Judge further observed that in exercising
its jurisdiction under Article 142, this Court will “take note of the express
prohibitions in any substantive statutory provision based on some
fundamental principles of public policy and regulate the exercise of its power
and discretion accordingly.”
84. In Supreme Court Bar Association v. Union of India,
138
a Constitution
Bench held that the powers under Article 142 cannot be exercised to supplant
135
Shilpa Sailesh v. Varun Sreenivasan, 2023 SCC OnLine SC 544 [12]
136
1962 SCC OnLine SC 37
137
(1991) 4 SCC 584 [83]
138 (1998) 4 SCC 409 [47. […] It, however, needs to be remembered that 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.]
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substantive law applicable to the matter pending before this Court. In
Allahabad High Court Bar Association v. State of Uttar Pradesh,
139
a
Constitution Bench laid down the following parameters for the exercise of the
jurisdiction under Article 142:
“27.1. The jurisdiction can be exercised to do
complete justice between the parties before the
Court. It cannot be exercised to nullify the benefits
derived by a large number of litigants based on
judicial orders validly passed in their favour who are
not parties to the proceedings before this Court;
27.2. Article 142 does not empower this Court to
ignore the substantive rights of the litigants; and
27.3. While exercising the jurisdiction under Article
142 of the Constitution of India, this Court can
always issue procedural directions to the courts for
streamlining procedural aspects and ironing out the
creases in the procedural laws to ensure expeditious
and timely disposal of cases. This is because,
while exercising the jurisdiction under Article
142, this Court may not be bound by procedural
requirements of law. However, while doing so,
this Court cannot affect the substantive rights of
those litigants who are not parties to the case
before it. The right to be heard before an adverse
order is passed is not a matter of procedure but
a substantive right.”
(emphasis supplied)
85. In M Siddiq v. Suresh Das,
140
a Constitution Bench observed that Article 142
embodies the concept of justice, equity, and good conscience. This Court
139
(2024) 6 SCC 267
140
(2020) 1 SCC 1 [1023]
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further observed that Article 142 empowers the court to pass an order which
accords with justice:
“1026. The extraordinary constitutional power to
pass any decree or an order which, in the opinion of
this Court is necessary for doing complete justice
embodies the idea that a court must, by necessity,
be empowered to craft outcomes that ensure a just
outcome. When a court is presented before it
with hard cases, they follow an interpretation of
the law that best fits and justifies the existing
legal landscape — the Constitution, statutes,
rules, regulations, customs and common law.
Where exclusive rule- based theories of law and
adjudication are inadequate to explain either the
functioning of the system or create a relief that
ensures complete justice, it is necessary to
supplement such a model with principles
grounded in equitable standards. The power
under Article 142 however is not limitless. It
authorises the Court to pass orders to secure
complete justice in the case before it. Article 142
embodies both the notion of justice, equity and good
conscience as well as a supplementary power to the
Court to effect complete justice. ”
(emphasis supplied)
86. The exercise of the jurisdiction under Article 142 is meant to supplement the
existing legal framework to do complete justice between the parties.
141
In a
given circumstance, this Court can supplement a legal framework to craft a
just outcome when strict adherence to a source of law and exclusive rule-
based theories create inequitable results.
142
87. The directions issued by this Court under Article 142 cannot be considered
as a ratio because they are issued based on the peculiar facts and
141
Vinay Chandra Mishra, In re, (1995) 2 SCC 584 [46]; Delhi Development Authority v. Skipper Construction
Co. (P) Ltd., (1996) 4 SCC 622 [16]
142
M Siddiq (supra) [1019]; [1026]
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circumstances of the cause or matter before this Court.
143
In State v. Kalyan
Singh,
144
this Court observed that a judgment has two components: (a)
declaration of law; and (b) directions. In Bir Singh v. Mukesh Kumar,
145
it
was held that what is binding on all courts under Article 141
146
is the
declaration of law, and not the directions issued under Article 142.
147
88. This Court has exercised its jurisdiction under Article 142 in tax matters where
the actions of the Revenue are not in accordance with the law.
148
In Whirlpool
of India Ltd. v. CIT,
149
this Court directed the Income Tax Officer to give effect
to the order of the Income Tax Appellate Tribunal by disallowing a particular
deduction. In CIT v. Greenworld Corporation,
150
the issue before this Court
was whether a Commissioner of Income Tax
151
appropriately issued
directions under Section 263 of the Income Tax Act to an assessing officer to
reopen assessments. It was held that the facts of the case did not merit the
CIT to issue directions to the assessing officer. Consequently, this Court
143
J & K Public Service Commission v. Narinder Mohan, (1994) 2 SCC 630 [11].
144
(2017) 7 SCC 444. [22. […] It is important to notice that Article 142 follows upon Article 141 of the
Constitution, in which it is stated that the law declared by the Supreme Court shall be binding on all courts
within the territory of India. Thus, every judgment delivered by the Supreme Court has two components —
the law declared which binds courts in future litigation between persons, and the doing of complete justice in
any cause or matter which is pending before it.]
145
(2019) 4 SCC 197 [30]
146
Article 141, Constitution of India. [It reads:
“141. Law declared by Supreme Court to be binding on all courts – The law declared by the Supreme Court
shall be binding on all courts within the territory of India.”]
147
Also see State of Punjab v. Rafiq Masih, (2014) 8 SCC 883 [12]. [12. […] The Court has compartmentalized
and differentiated the relief in the operative portion of the judgment by exercise of powers under Article 142
of the Constitution as against the law declared. The directions of the Court under Article 142 of the
Constitution, while moulding the relief, that relax the application of law or exempt the case in hand from the
rigour of the law in view of the peculiar facts and circumstances do not comprise the ratio decidendi and
therefore lose its basic premise of making it a binding precedent. This Court in the qui vive has expanded
the horizons of Article 142 of the Constitution by keeping it outside the purview of Article 141 of the
Constitution and declaring it a direction of the Court that changes its complexion with the peculiarity in the
facts and circumstances of the case.”]
148
See Prashanti Medical Services & Research Foundation v. Union of India, (2020) 14 SCC 785 [30]
149
(2000) 9 SCC 62
150
(2009) 7 SCC 69
151
“CIT”
PART F
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termed the reassessment notice issued by the assessing officer to be illegal
and exercised its jurisdiction under Article 142 to direct the reopening of the
assessment by an appropriate assessing authority.
ii. The scope of Ashish Agarwal extended to all the reassessment notices
issued between 1 April 2021 and 30 June 2021 under the old regime
89. In Ashish Agarwal (supra), this Court: (i) upheld the judgments of the High
Courts; and (ii) deemed the notices issued under Section 148 of the old
regime as show cause notices issued under Section 148A(b) of the new
regime. By agreeing with the judgments of the High Courts, this Court laid
down the law that the provisions of the new regime will be applicable for all
the reassessment notices issued under Section 148 after 1 April 2021. As a
result of this holding, all the reassessment notices issued in terms of Section
148 of the old regime would have been declared invalid. Therefore, this Court
deemed the reassessment notices issued under the old regime after 1 April
2021 as show cause notices issued under Section 148A(b) of the new regime.
90. In Ashish Agarwal (supra), this Court rendered its decision on the premise
that the Revenue issued approximately ninety thousand notices under the old
regime and all of them were the subject matter of writ petitions before the High
Courts:
“4. At this stage, it is required to be noted that
approximately 90,000 such reassessment notices
under Section 148 of the unamended Income Tax
Act were issued by the Revenue after 1- 4-2021,
which were the subject-matter of more than 9000
writ petitions before various High Courts across the
country and by different judgments and orders, the
particulars of which are as above, the High Courts
PART F
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have taken a similar view and have set aside the
respective reassessment notices issued under
Section 148 on similar grounds.”
Further, this Court directed that its directions “shall be applicable PAN INDIA” :
“29. The present order shall be applicable PAN
INDIA and all judgments and orders passed by the
different High Courts on the issue and under which
similar notices which were issued after 1- 4-2021
issued under Section 148 of the Act are set aside
and shall be governed by the present order and shall
stand modified to the aforesaid extent. The present
order is passed in exercise of powers under
Article 142 of the Constitution of India so as to
avoid any further appeals by the Revenue on the
very issue by challenging similar judgments and
orders, with a view not to burden this Court with
approximately 9000 appeals. We also observe that
the present order shall also govern the pending writ
petitions, pending before various the High Courts in
which similar notices under Section 148 of the Act
issued after 1- 4-2021 are under challenge.”
(emphasis supplied)
The purpose of this Court in deeming the reassessment notices issued under
the old regime as show cause notices under the new regime was two -fold: (i)
to strike a balance between the rights of the assesses and the R evenue which
issued approximately ninety thousand reassessment notices after 1 April
2021 under the old regime; and (ii) to avoid any further appeals before this
Court by the Revenue on the same issue by challenging similar judgments
and orders of the High Courts (arising from approximately nine thousand writ
petitions).
91. Ashish Agarwal (supra) was primarily concerned with the validity of the
reassessment notices issued between 1 April 2021 and 30 June 2021 under
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the old regime. The scope of the directions in Ashish Agarwal (supra) applied
PAN INDIA, including all the ninety thousand reassessment notices issued
under the old regime during the period 1 April 2021 and 30 June 2021, as is
evident from the following observation of this Court:
“26. There is a broad consensus on the aforesaid
aspects amongst the learned ASG appearing on
behalf of the Revenue and the learned Senior
Advocates/learned counsel appearing on behalf of
the respective assessees. We are also of the
opinion that if the aforesaid order is passed, it
will strike a balance between the rights of the
Revenue as well as the respective assessees as
because of a bona fide belief of the officers of the
Revenue in issuing approximately 90,000 such
notices, the Revenue may not suffer as
ultimately it is the public exchequer which would
suffer.”
(emphasis supplied)
92. This Court specifically mentioned that its directions would also apply to three
categories: (i) the judgment and order passed by the High Court of Judicature
at Allahabad; (ii) all judgments and orders passed by the different High Court on the issue where notices issued under Section 148 of the old regime after
1 April 2021 were set aside; and (iii) writ petitions pending before various High
Courts in which notices under Section 148 of the old regime issued after 1
April 2021 are under challenge.
152
The Court mentioned the above three
categories to clarify that the general nature of its directions will also give a
quietus to the matters that have already been adjudicated or are pending
adjudication before judicial forums. The operation of the directions cannot be
152
Ashish Agarwal (supra) [27] and [29]
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limited to the above three categories, especially when this Court has
specifically held that “the present order shall be applicable PAN INDIA.”
93. In Ashish Agarwal (supra), this Court was aware of the fact that it could not
have used its jurisdiction under Article 142 to affect the vested rights of the
assesses by deeming Section 148 notices under the old regime as Section
148 notices under the new regime. Hence, it deemed the reassessment
notices issued under the old regime as show cause notices under Section
148A(b) of the new regime. Further, the Court directed the Revenue to provide
all the relevant material or information to the assesses and thereafter allowed
the assesses to respond to the show cause notice by availing all the defences,
including those available under Section 149. Thus, the Court balanced the
equities between the Revenue and the assesses by giving effect to the
legislative scheme of reassessment as contained under the new regime. It
supplemented the existing legal framework of the procedure of reassessment
under the Income Tax Act with a remedy grounded in equitable standards.
iii. Effect of the legal fiction
94. Before we proceed, we need to bear in mind three important periods:
i. The period up to 30 June 2021 – this period is covered by the provisions of
the Income Tax Act read with TOLA;
ii. The period from 1 July 2021 to 3 May 2022 – the period before the decision
of this Court in Ashish Agarwal (supra); and
iii. The period after 4 May 2022 – the period after the decision of this Court in
Ashish Agarwal (supra). This period is covered by the directions issued by
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this Court in Ashish Agarwal (supra) and the provisions of the Income Tax
Act read with TOLA.
a. Third proviso to Section 149
95. The third proviso to Section 149 reads thus:
“Provided also that for the purposes of computing
the period of limitation as per this section, the time
or extended time allowed to the assessee, as per
show-cause notice issued under clause (b) of
section 148A or the period during which the
proceeding under section 148A is stayed by an order
or injunction of any court, shall be excluded.”
96. The third proviso excludes the following periods to calculate the period of
limitation: (i) the time allowed to the assessee under Section 148A(b); and (ii)
the period during which the proceedings under Section 148A are “ stayed by
an order or injunction of any court.”
97. A legal fiction is a supposition of law that a thing or event exists even though,
in reality, it does not exist.
153
The word “deemed” is used to treat a thing or
event as something, which otherwise it may not have been, with all the
attendant consequences.
154
The effect of a legal fiction is that “a position
which otherwise would not obtain is deemed to obtain under the
circumstances.”
155
In K Prabhakaran v. P Jayarajan,
156
Chief Justice R C
Lahoti, speaking for the majority, observed that:
“39. […] While pressing into service a legal fiction it
should not be forgotten that legal fictions are created
only for some definite purpose and the fiction is to be
153
Gajraj Singh v. STAT, (1997) 1 SCC 650 [22]
154
CIT v. Calcutta Stock Exchange, 1959 SCC OnLine SC 126 [5]; Sudha Rani Garg v. Jagdish Kumar,
(2004) 8 SCC 329 [11]
155
Gajraj Singh (supra) [22]
156
(2005) 1 SCC 754
PART F
Page 101 of 112
limited to the purpose for which it was created and
should not be extended beyond that legitimate field.
A legal fiction presupposes the existence of the state
of facts which may not exist and then works out the
consequences which flow from that state of facts.
Such consequences have got to be worked out only
to their logical extent having due regard to the
purpose for which the legal fiction has been created.
Stretching the consequences beyond what logically
flows amounts to an illegitimate extension of the
purpose of the legal fiction.”
98. A legal fiction is created for a definite purpose and it should be limited to the
purpose for which it is enacted or applied. It is a well-established principle of
interpretation that the courts must give full effect to a legal fiction by having
due regard to the purpose for which the legal fiction is created.
157
The
consequences that follow the creation of the legal fiction “have got to be
worked out to their logical extent.”
158
The court has to assume all the facts
and consequences that are incidental or inevitable corollaries to giving effect
to the fiction.
159
99. In Ashish Agarwal (supra), this Court created a legal fiction by deeming the
Section 148 notices issued under the old regime as show cause notices under
Section 148A(b) of the new regime. The purpose of the legal fiction was to
enable the R evenue “to proceed further with the reassessment proceedings
as per the substituted provisions” of the Income Tax Act. Accordingly, all the
reassessment notices issued under the old regime were deemed to always
have been show cause notices issued under Section 148A(b) of the new
regime. The fiction replaced Section 148 notices with Section 148A(b) notices
157
State of Maharashtra v. Laljit Rajshi Shah, (2000) 2 SCC 699 [6].
158
Bengal Immunity Company Ltd v. State of Bihar, 1955 SCC OnLine SC 2
159
Industrial Supplies (P) Ltd. v. Union of India, (1980) 4 SCC 341 [25]
PART F
Page 102 of 112
with effect from the date when the notices under Section 148 of the old regime
were issued between 1 April 2021 and 30 June 2021, as the case may be.
This ensured the continuance of the reassessment process initiated by the
Revenue from 1 April 2021 to 30 June 2021 under the old regime.
100. Importantly, this Court in Ashish Agarwal (supra) did not quash the
reassessment notices issued under Section 148 of the old regime. In Shree
Chamundi Mopeds Ltd. v. Church of South India Trust Association,
160
a
three- Judge Bench of this Court explained the distinction between quashing
an order and staying the operation of an order thus:
“10. […] Quashing of an order results in the
restoration of the position as it stood on the date of
the passing of the order which has been quashed.
The stay of operation of an order does not, however,
lead to such a result. It only means that the order
which has been stayed would not be operative from
the date of the passing of the stay order and it does
not mean that the said order has been wiped out
from existence.”
The reassessment proceedings erroneously initiated by the R evenue under
the old regime were not wiped out from existence. Consequently, the
Revenue was not required to start the procedure of reassessment afresh after
the decision of this Court in Ashish Agarwal (supra).
101. Under Section 148A(b), the assessing officer has to comply with two requirements: (i) issuance of a show cause notice; and (ii) supply of all the
relevant information which forms the basis of the show cause notice. The supply of the relevant material and information allows the assessee to
160
(1992) 3 SCC 1
PART F
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respond to the show cause notice. The deemed notices were effectively
incomplete because the other requirement of supplying the relevant material
or information to the assesses was not fulfilled. The second requirement could
only have been fulfilled by the R evenue by an actual supply of the relevant
material or information that formed the basis of the deemed notice.
102. While creating the legal fiction in Ashish Agarwal (supra), this Court was
cognizant of the fact that the assessing officers were effectively inhibited from
performing their responsibility under Section 148A until the requirement of
supply of relevant material and information to the assesses was fulfilled. This
Court lifted the inhibition by directing the assessing officers to supply the
assesses with the relevant material and information relied upon by the
Revenue within thirty days from the date of the judgment. Thus, during the
period between the issuance of the deemed notices and the date of judgment
in Ashish Agarwal (supra), the assessing officer s were deemed to have been
prohibited from proceeding with the reassessment proceedings.
103. In VLS Finance Limited v. Commissioner of Income Tax,
161
a two-Judge
Bench of this Court was called upon to interpret Explanation 1 to Section
158BE of the Income Tax Act. Section 158BE provides the time limit for
completion of block assessments. Explanation 1 to the provision excludes
“period during which the assessment proceedings is stayed by an order or
injunction of any court” from the period of limitation. This Court held that the
161
(2016) 12 SCC 32
PART F
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exclusion of the period of limitation has to be computed “rationally and
practically” in the following terms:
“18. As a general rule, therefore, when there is no
stay of the assessment proceedings passed by the
court, Explanation 1 to Section 158- BE of the Act
may not be attracted. However, this general
statement of legal principle has to be read subject to
an exception in order to interpret it rationally and
practically. In those cases where stay of some
other nature is granted than the stay of the
assessment proceedings but the effect of such
stay is to prevent the assessing officer from
effectively passing assessment order, even that
kind of stay order may be treated as stay of the
assessment proceedings because of the reason
that such stay order becomes an obstacle for the
assessing officer to pass an assessment order
thereby preventing the assessing officer to
proceed with the assessment proceedings and
carry out appropriate assessment.”
(emphasis supplied)
104. Section 11- A of the Land Acquisition Act 1894 mandated the Collector to make
an award under Section 11 within two years from the date of publication of the
declaration. The explanation to the provision allowed exclusion of “the period
during which any action or proceeding to be taken in pursuance of the said
declaration is stayed by an order of a court.” This Court has consistently
interpreted the phrase “stay of action or proceedings” to mean any type of
order passed by a court, which, in one way or another, prohibits or prevents
the authorities from passing an award.
162
Therefore, any order of a court that
162
Abhey Ram v. Union of India, (1997) 5 SCC 421 [9]; Indore Development Authority v. Manoharlal, (2020)
4 SCC (Civ) 496 [301]; Maharashtra Vidarbha Irrigation Development Corporation v. Mahesh, (2022) 2 SCC
772 [39].
PART F
Page 105 of 112
prevents or prohibits an authority from passing an order can be treated as a
stay order.
105. A direction issued by this Court in the exercise of its jurisdiction under Article
142 is an order of a court. The third proviso to Section 149 of the new regime
provides that the period during which the proceedings under Section 148A
are stayed by an order or injunction of any court shall be excluded for
computation of limitation. During the period from the date of issuance of the
deemed notice under Section 148A(b) and the date of the decision of this
Court in Ashish Agarwal (supra), the assessing officers were deemed to
have been prohibited from passing a reassessment order. Resultantly, the
show cause notices were deemed to have been stayed by order of this Court
from the date of their issuance (somewhere from 1 April 2021 till 30 June
2021) till the date of decision in Ashish Agarwal (supra), that is, 4 May 2022.
106. In Ashish Agarwal (supra), this Court directed the assessing officers to
provide relevant information and materials relied upon by the Revenue to the
assesses within thirty days from the date of the judgment. A show cause
notice is effectively issued in terms of Section 148A(b) only if it is supplied
along with the relevant information and material by the assessing officer. Due
to the legal fiction, the assessing officers were deemed to have been inhibited
from acting in pursuance of the Section 148A(b) notice till the relevant
material was supplied to the assesses. Therefore, the show cause notices
were deemed to have been stayed until the assessing officers provided the
relevant information or material to the assesses in terms of the direction
issued in Ashish Agarwal (supra). To summarize, the combined effect of the
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legal fiction and the directions issued by this Court in Ashish Agarwal (supra)
is that the show cause notices that were deemed to have been issued during
the period between 1 April 2021 and 30 June 2021 were stayed till the date
of supply of the relevant information and material by the assessing officer to
the assessee. After the supply of the relevant material and information to the
assessee, time begins to run for the assesses to respond to the show cause
notices.
107. The third proviso to Section 149 allows the exclusion of time allowed for the
assesses to respond to the show cause notice under Section 149A(b) to
compute the period of limitation. The third proviso excludes “the time or
extended time allowed to the assessee. ” Resultantly, the entire time allowed
to the assessee to respond to the show cause notice has to be excluded for
computing the period of limitation. In Ashish Agarwal (supra), this Court
provided two weeks to the assesses to reply to the show cause notices. This
period of two weeks is also liable to be excluded from the computation of
limitation given the third proviso to Section 149. Hence, the total time that is
excluded for computation of limitation for the deemed notices is : (i) the time
during which the show cause notices were effectively stayed, that is, from the
date of issuance of the deemed notice between 1 April 2021 and 30 June
2021 till the supply of relevant information or material by the assessing
officers to the assesses in terms of the directions in Ashish Agarwal (supra);
and (ii) two weeks allowed to the assesses to respond to the show cause
notices.
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b. Interplay of Ashish Agarwal with TOLA
108. The Income Tax Act read with TOLA extended the time limit for issuing
reassessment notices under Section 148, which fell for completion from 20
March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices
under challenge in the present appeals were issued from 1 April 2021 to 30
June 2021 under the old regime. Ashish Agarwal (supra) deemed these
reassessment notices under the old regime as show cause notices under the
new regime with effect from the date of issuance of the reassessment notices.
The effect of creating the legal fiction is that this Court has to imagine as real
all the consequences and incidents that will inevitably flow from the fiction.
163
Therefore, the logical effect of the creation of the legal fiction by Ashish
Agarwal (supra) is that the time surviving under the I ncome Tax Act read with
TOLA will be available to the R evenue to complete the remaining proceedings
in furtherance of the deemed notices, including issuance of reassessment
notices under Section 148 of the new regime. The surviving or balance time
limit can be calculated by computing the number of days between the date of
issuance of the deemed notice and 30 June 2021.
109. If this Court had not created the legal fiction and the original reassessment
notices were validly issued according to the provisions of the new regime, the
notices under Section 148 of the new regime would have to be issued within
the time limits extended by TOLA. As a corollary, the reassessment notices to
be issued in pursuance of the deemed notices must also be within the time
163
East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] AC 109. [Lord Asquith, in his concurring
opinion, observed: “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless
prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of
affairs had in fact existed, must inevitably have flowed from or accompanied it.”]
PART F
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limit surviving under the Income Tax Act read with TOLA. This construction
gives full effect to the legal fiction created in Ashish Agarwal (supra) and
enables both the assesses and the R evenue to obtain the benefit of all
consequences flowing from the fiction.
164
110. The effect of the creation of the legal fiction in Ashish Agarwal (supra) was
that it stopped the clock of limitation with effect from the date of issuance of
Section 148 notices under the old regime [which is also the date of issuance
of the deemed notices]. As discussed in the preceding segments of this
judgment, the period from the date of the issuance of the deemed notices till
the supply of relevant information and material by the assessing officers to
the assesses in terms of the directions issued by this Court in Ashish
Agarwal (supra) has to be excluded from the computation of the period of
limitation. Moreover, the period of two weeks granted to the assesses to reply
to the show cause notices must also be excluded in terms of the third proviso
to Section 149.
111. The clock started ticking for the Revenue only after it received the response
of the assesses to the show causes notices. After the receipt of the reply, the
assessing officer had to perform the following responsibilities: (i) consider the
reply of the assessee under Section 149A(c); (ii) take a decision under
Section 149A(d) based on the available material and the reply of the
assessee; and (iii) issue a notice under Section 148 if it was a fit case for
reassessment. Once the clock started ticking, the assessing officer was
164
See State of A P v. A P Pensioners Association, (2005) 13 SCC 161 [28]. [This Court observed that the
“legal fiction undoubtedly is to be construed in such a manner so as to enable a person, for whose benefit
such legal fiction has been created, to obtain all consequences flowing therefrom.”]
PART F
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required to complete these procedures within the surviving time limit. The
surviving time limit, as prescribed under the Income Tax Act read with TOLA,
was available to the assessing officers to issue the reassessment notices
under Section 148 of the new regime.
112. Let us take the instance of a notice issued on 1 May 2021 under the old
regime for a relevant assessment year. Because of the legal fiction, the
deemed show cause notices will also come into effect from 1 May 2021. After
accounting for all the exclusions, the assessing officer will have sixty-one
days [days between 1 May 2021 and 30 June 2021] to issue a notice under
Section 148 of the new regime. This time starts ticking for the assessing
officer after receiving the response of the assessee. In this instance, if the
assessee submits the response on 18 June 2022, the assessing officer will
have sixty- one days from 18 June 2022 to issue a reassessment notice under
Section 148 of the new regime. Thus, in this illustration, the time limit for
issuance of a notice under Section 148 of the new regime will end on 18
August 2022.
113. In Ashish Agarwal (supra), this Court allowed the assesses to avail all the
defences, including the defence of expiry of the time limit specified under
Section 149(1). In the instant appeals, the reassessment notices pertain to
the assessment years 2013- 2014, 2014- 2015, 2015- 2016, 2016- 2017, and
2017- 2018. To assume jurisdiction to issue notices under Section 148 with
respect to the relevant assessment years, an assessing officer has to: (i)
issue the notices within the period prescribed under Section 149(1) of the new
regime read with TOLA; and (ii) obtain the previous approval of the authority
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specified under Section 151. A notice issued without complying with the
preconditions is invalid as it affects the jurisdiction of the assessing officer.
Therefore, the reassessment notices issued under Section 148 of the new
regime, which are in pursuance of the deemed notices, ought to be issued
within the time limit surviving under the Income Tax Act read with TOLA. A
reassessment notice issued beyond the surviving time limit will be time-
barred.
G. Conclusions
114. In view of the above discussion, we conclude that:
a. After 1 April 2021, the Income Tax Act has to be read along with the
substituted provisions;
b. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any
action or proceeding specified under the substituted provisions of the
Income Tax Act falls for completion between 20 March 2020 and 31 March
2021;
c. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to
the extent of relaxing the time limit for issuance of a reassessment notice
under Section 148;
d. TOLA will extend the time limit for the grant of sanction by the authority
specified under Section 151. The test to determine whether TOLA will apply
to Section 151 of the new regime is this: if the time limit of three years from
the end of an assessment year falls between 20 March 2020 and 31 March
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2021, then the specified authority under Section 151(i) has extended time
till 30 June 2021 to grant approval;
e. In the case of Section 151 of the old regime, the test is: if the time limit of
four years from the end of an assessment year falls between 20 March 2020
and 31 March 2021, then the specified authority under Section 151(2) has
extended time till 31 March 2021 to grant approval;
f. The directions in Ashish Agarwal (supra) will extend to all the ninety
thousand reassessment notices issued under the old regime during the
period 1 April 2021 and 30 June 2021;
g. The time during which the show cause notices were deemed to be stayed is
from the date of issuance of the deemed notice between 1 April 2021 and
30 June 2021 till the supply of relevant information and material by the
assessing officers to the assesses in terms of the directions issued by this
Court in Ashish Agarwal (supra), and the period of two weeks allowed to
the assesses to respond to the show cause notices; and
h. The assessing officers were required to issue the reassessment notice
under Section 148 of the new regime within the time limit surviving under
the Income Tax Act read with TOLA. All notices issued beyond the surviving
period are time barred and liable to be set aside;
115. The judgments of the High Courts rendered in Union of India v. Rajeev
Bansal,
165
Keenara Industries Pvt. Ltd. v. ITO, Surat,
166
J M Financial and
Investment Consultancy Services Pvt. Ltd. v. ACIT,
167
Siemens Financial
165
Writ Tax No. 1086 of 2022 (Allahabad High Court)
166
R/Special CA No. 17321 of 2022 (High Court of Gujarat)
167
WP No. 1050 of 2022 (High Court of Judicature at Bombay)
PART G
Page 112 of 112
Services Pvt. Ltd. v. DCIT,
168
Geeta Agarwal v. ITO,
169
Ambika Iron and
Steel Pvt Ltd v. PCIT,
170
Twylight Infrastructure Pvt Ltd v. ITO,
171
Ganesh
Dass Khanna v. ITO,
172
and other judgments of the High Courts which relied
on these judgments, are set aside to the extent of the observations made in
this judgment.
116. The appeals filed by the Revenue are accordingly allowed. The appeals filed
by the assesses will be governed by reasons discussed in this judgment.
117. The transfer petitions are disposed of.
118. Pending application(s), if any, stand disposed of.
..….…….……………………………………CJI
[Dr Dhananjaya Y Chandrachud]
…….……………………………………………J
[J B Pardiwala]
…….……………………………………………J
[Manoj Misra]
New Delhi;
October 03, 2024
168
[2023] 457 ITR 647 (High Court of Judicature at Bombay)
169
DB Civil Writ Petition No. 14794 of 2022 (High Court of Judicature at Rajasthan)
170
WP(C) No. 20919 of 2021 (High Court of Orissa)
171
WP(C) No. 16524/2022 (High Court of Delhi)
172
[2024] 460 ITR 546 (High Court of Delhi)
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