2021 (12) TMI 664 - DELHI HIGH COURT

Reopening of assessment u/s 147 - scope of mandatory procedure prescribed u/s 148A - relation between Relaxation Act, 2020 and Finance Act, 2021 - enhanced/reduced time limit specified in Section 149 - initiation of reassessment proceedings prior to coming into force of the Finance Act, 2021 - substitution made by the Finance Act, 2021 - legality and validity of only the Explanations to the two Notifications, being Notification No.20/2021 dated 31st March, 2021 and Notification No.38/2021 dated 27th April, 2021, issued by Central Government in exercise of powers vested under Section 3(1) of Relaxation Act, 2020 - reformative changes to Sections 147 to 151 - income escaping assessment - onset of Covid-19 pandemic followed by nationwide lockdown in March, 2020 - Relaxation of certain provision of specified Act - scope of declaration declaring Explanations A(a)(ii)/A(b) to the Notification No.20 [S.O.1432(E)] dated 31st March, 2021 and Notification No.38 [S.O.1703(E)] dated 27th April, 2021 to the extent that the same extend the a0pplicability of the “provisions of Section 148, Section 149 and Section 151 of the Act, as the case may be, as they stood as on the 31st day of March, 2021, before the commencement of the Finance Act, 2021” to the period beyond 31st March, 2021 - whether the Government/Executive can make or change law of the land by way of Explanations to Notifications without specific Authority from the Legislature to do so and whether the Government/Executive can impede the implementation of law made by the Legislature -

HELD THAT:- By virtue of Section 1(2)(a) of the Finance Act, 2021, the substituted Sections 147, 148, 149 and 151 of the Income Tax Act, 1961 pertaining to reopening of assessments came into force on 1st April, 2021. The significance of the expression ‘shall’ in Section 1(2)(a) of the Finance Act, 2021 cannot be lost sight of. This is in contrast to the language under Section 1(2)(b) which states that Sections 108 to 123 of the Finance Act, 2021 shall come into force on such date, as the Central Government may, by Notification in the Official Gazette, appoint. The Memorandum to the Finance Bill, 2021, too, clarifies that its Sections 2 to 88 which included the substituted Sections 147 to 151 of the Income Tax Act, 1961 will take effect from 1st April, 2021. There is also no power with the Executive/Respondents/Revenue to defer/postpone the implementation of Sections 2 to 88 of the Finance Act, 2021 which includes the substituted Sections 147 to 151 of the Income Tax Act, 1961.

Applicability of law as amended - It is settled law that the law prevailing on the date of issuance of the notice under Section 148 has to be applied.

This Court is of the view that had the intention of the Legislature been to keep the erstwhile provisions alive, it would have introduced the new provisions with effect from 1st July, 2021, which has not been done. Accordingly, the notices relating to any assessment year issued under Section 148 on or after 1st April, 2021 have to comply with the provisions of Sections 147, 148, 148A, 149 and 151 of the Income Tax Act, 1961 as specifically substituted by the Finance Act, 2021 with effect from 1st April, 2021.

Consequently, this Court is of the opinion that as the Legislature has permitted re-assessment to be made in this manner only, it can be done in this manner, or not at all.

Relaxation Act, 2020 and Notifications issued thereunder can only change the time-lines applicable to the issuance of a Section 148 notice, but they cannot change the statutory provisions applicable thereto which are required to be strictly complied with. Further, just as the Executive cannot legislate, it cannot impede the implementation of law made by the Legislature.

Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are ultra vires the Relaxation Act, 2020 and are therefore, bad in law and null and void - As the impugned Explanation is not only beyond the power delegated to the Government, but also in conflict with the provisions of the Income Tax Act, 1961 which had specifically made the new reassessment scheme applicable from 1st April, 2021. It is settled law that the delegation of authority must be express. There is no scope for any implied delegation of authority. The delegated authority must act strictly within the parameters of the authority delegated to it. The delegated authority cannot override the Act either by exceeding the authority or by making provisions inconsistent with the Act. The distinction between conditional legislation or delegated legislation is irrelevant to the controversy at hand, as the person to whom the power is entrusted in either situation can do nothing beyond the limits which circumscribe the power. Subordinate legislation cannot be contrary to the parent statute.

With the coming into force of the Finance Act, 2021 w.e.f. 1st April, 2021, there has been no curtailing or taking away the power of the Revenue. It has merely changed the procedure of issuing notice. Consequently, the “power” as per Hohfeld’s theory that existed prior to 31st March, 2021 continues to exist even thereafter.

Ignorance of legislative intent of Finance Act - It is pertinent to mention that the Legislature had even prior to Finance Act, 2021 enhanced/reduced time limit specified in Section 149 of the Income Tax Act, 1961, by way of Finance Acts, 1961, 1989, 2001, 2012 and pertinently such enhancement/reduction to the time limit was made effective from different dates of the relevant financial year - In the present cases to ignore the legislative intent of Finance Act, 2021 would neither be legal nor reasonable.

Retrospective operation - It is a cardinal principle of construction that every statute is prima facie prospective, unless it is expressly or by necessary implication made to have retrospective operation - In contrast to statutes dealing with substantive rights, statutes dealing with merely matters of procedure are presumed to be retrospective, unless such a construction is textually inadmissible

Determining whether Amendment is procedural or substantive - This Court is of the view that the Finance Act, 2021 introduces a new regime regarding the procedure to be complied with in respect of the re-opening of an Income-tax assessment and accordingly, the benefit of the new provisions must necessarily be made available even in respect of proceedings relating to past Assessment Years provided, of course, Section 148 notice has been issued on or after 1st April, 2021.

Concept of vested rights - Admittedly, time limit to issue notices for re-assessment under the Income Tax Act, 1961 stood expired long time ago. The Legislature by virtue of the Relaxation Act, 2020 had extended the time limit till 31^st December, 2020 and had given discretion to the executive to issue Notification to extend the timeline alone. However, extending the time limit or giving power to issue Notification to extend the time cannot be taken to be a vested right of the respondents. Consequently, this Court is of the view that vested right in favour of the Revenue stood exhausted/expired long ago and no vested right of the respondents has been infringed leave alone violated.

Substitution made as applicable to past assessment - On the one hand, the Respondents are contending that the amendment made by the Finance Act, 2021 shall not be applicable to past assessment years, while on the other hand, they are contending that from 1st July, 2021, the amendments made by the Finance Act, 2021 will be applicable. This is contradictory inasmuch as for three months starting on or after 1st April, 2021, the amendment made by the Finance Act, 2021 shall be considered as substantive in nature and hence applicable prospectively, while from 1st July, 2021, the amendment made by the Finance Act, 2021 will be considered as procedural and hence will be applicable retrospectively for any assessment year including earlier years. Keeping in view its own submission and past precedent to treat Sections 147 to 152 of the Income Tax Act, 1961 as procedural, the respondents are estopped from contending to the contrary.

Explanation in Notification No. 20 dated 31st March, 2021 extended the applicability of old procedure of reassessment beyond 31st March, 2021 - As per Sections 153A and 153C, the provisions of these two sections will not apply where search/survey is done after 1st April, 2021. Department contends that the erstwhile law continues to apply from 1st April, 2021 to 30th June, 2021. The erstwhile law on reopening did not cover search/survey cases. Consequently, for the search/survey done from 1st April to 30th June, there can neither be an assessment under sections 153A/153C or under 147, which cannot be the case. Further, Sections 148, 148A and 149 specifically cover cases where search/survey is done after 1st April, 2021. If department’s interpretation is accepted, this specific date in all three Sections will have to be changed and read as 1st July, 2021, which cannot be done. Moreover, as the new provisions seek to bring uniformity between regular reassessments and search/survey cases, it follows that the cut off date for initiation of reassessment proceedings even for regular reassessment is 1st April, 2021.

Covid -19 effect - When Finance Minister moved the Finance Bill, 2021 in Parliament on 1st February, 2021 and the Finance Act, 2021 was enacted in March, 2021, COVID-19 was widely prevalent and Parliament was fully aware of the same. Nevertheless, with the objective of promoting ease of doing business and reducing litigation, Parliament specifically enacted that the new reassessment provisions would come into operation on 1st April, 2021. The Revenue cannot, therefore, rely on COVID-19 for contending that the new provisions should not operate during the period 1st April, 2021 to 30th June, 2021 or that Relaxation Act, 2020 deals with the situation arising out of Covid-19 and the Finance Act, 2021 was passed being oblivious of the Covid-19 Pandemic.

Non - obstante clause in Section 3(1) of Relaxation Act, 2020 - To get over this inherent conflict between Section 3 of Relaxation Act, 2020 and various timelines provided in provisions prescribed in the specified Acts, the legislature has carefully incorporated the non-obstante clause in the said Section. Consequently, this non-obstante provision only operates to prevail over the time lines laid down in the specified Act. Apart from these timelines, no other provision of any specified Act is suspended or overridden. This non-obstante clause cannot, therefore, possibly be relied upon by the Revenue to contend that a Notification issued under Section 3 of Relaxation Act, 2020 overrides any provision of the Income-tax Act, 1961 other than the applicable time-lines. Any Notification issued under Relaxation Act, 2020 cannot possibly have a reach and ambit wider than the Relaxation Act, 2020 itself for that would be contrary to the settled canons of construction of statutes.

Relaxation Act, 2020 was enacted long before the Finance Act, 2021. Consequently, it cannot possibly be contended that any provision of Relaxation Act, much less of any Notification issued thereunder, can be so construed as amending or modifying or excluding the applicability of the yet to be enacted Finance Act, 2021. Further, as the Petitioners are not questioning any of the time extensions made by or under Relaxation Act, 2020, the said non-obstante clause is totally irrelevant to controversy at hand.

Selectively chosen and picked up two terms viz. “such action” & “stand extended” - To substantiate its stand that the impugned notices are not barred by limitation, the Revenue without even considering the pre-condition prescribed by Section 3 of Relaxation Act, 2020 has selectively chosen and picked up two terms viz. “such action” & “stand extended” to put forward an interpretation which could not have been contemplated by the Legislature at the time of enactment of the said provision, namely, that notices under Section 148 will relate back and be governed by old law. In the opinion of this Court, the submission of the Revenue is completely flawed, as the same is contrary to basic principles of interpretations, which prohibits selectively choosing/ignoring words from the statutory language. It is settled law that when the words of a statute are clear and unambiguous, it is not permissible for the Court to read words into the statute. Relaxation Act, 2020 received the President’s assent on 29th September, 2020, whereas the Finance Act, 2021 received the assent on 31st March, 2021. Consequently, it cannot be contended that any provision of the Relaxation Act, 2020, much less of any Notification issued thereunder, should be so construed as amending or modifying or excluding the applicability of the yet to be enacted Finance Act, 2021.

Not mentioning substituted section 147 in impugned explanation - Even if it is assumed that the impugned Explanations in the two Notifications are valid, still the impugned notices are bad in law, as the impugned Explanations only seek to effectuate the erstwhile Sections 148, 149 and 151 and they do not cover Section 147. However, the conditions provided for in the substituted Section 147 were not considered while issuing notices by the Assessing Officer. In fact, the said Section 147 is itself subject to Sections 148 to 153, which would include Section 148A.

“Legal fiction” argument is without any foundation. A statute can be said to enact a legal fiction when it assumes the existence of something which is known not to exist. The extension of time for completing an assessment or issuing a Section 148 notice has no element of legal fiction in it. The only effect and consequence of this extension of the time limit is that if the act in question is performed within the extended time limit, it will be considered to be legally compliant. However, there is no assumption that the act in question is deemed to have been performed within the original time limit, as wrongly contended by the learned counsel for the Respondents. For achieving that result, clear and unequivocal language was required in the Relaxation Act, 2020 – which is missing.

Provision to be termed as a Stop the clock provision - Section 3 of the Relaxation Act, 2020 is not a ‘stop the clock’ provision, as it only relaxes the time limit, so as to facilitate the cases in which the Revenue/assessee has not been able to take the specified action within the statutory timelines. The essential condition for a provision to be termed as stop the clock provision is that the time during which such clock is stopped, such period has to be excluded. In the present instance, time limit is extended, not excluded or stopped.

Fiction created only for reassessment and not for faceless penalty scheme - Wherever the Legislature intended that the old procedure is to be followed in respect of any assessment year as against the new procedure post the amendment, then it has specifically provided so. For instance, the Direct Laws (Amendment) Act, 1987 had introduced a new scheme for best judgment assessment (ex parte) under Section 144 w.e.f. 1st April 1989. However, in order to ensure that the assessments for years before coming into force of the new law is done under the old law, a specific sub-Section (2) was inserted in Section 144 to provide that the provisions of this Section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987, shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year.

Overriding of special Act - It is equally well-settled law that a special Act overrides a general Act. But this principle has no application whatsoever in the present case because Relaxation Act, 2021 and the Finance Act, 2021 operate in their distinct and separate spheres. Consequently, the question whether one prevails over and supersedes the other does not arise at all.

Equality principles under Article 14 of the Constitution - The argument of the Respondents that Relaxation Act, 2020, promotes the equality principles under Article 14 of the Constitution and that if Petitioner’s arguments are accepted, it would lead to unreasonable classification with those assessees who could not be issued notices earlier is untenable in law. If this is taken to the logical end, then any amendment in the procedural law will create inequality since procedural law will be applicable for all pending assessments as on that date.

Substitution’ has to be distinguished from ‘suppression’ or a mere repeal of an existing provision. Substitution of a provision results in repeal of the earlier provision and its replacement by the new provision.

Consequently, the submission of the revenue that Section 6 of the General Clauses Act saves notices issued under Section 148 of the Income Tax Act, 1961 is untenable in law, as in the present case, the repeal is followed by a fresh legislation on the same subject and the new Act manifests an intention to destroy the old procedure.

Conclusion - As the Legislature has introduced the new provisions, Sections 147 to 151 of the Income Tax Act, 1961 by way of the Finance Act, 2021 with effect from 1st April, 2021 and as the said Section 147 is not even mentioned in the impugned Explanations, the reassessment notices relating to any Assessment Year issued under Section 148 after 31st March, 2021 had to comply with the substituted Sections.

As clarified that the power of reassessment that existed prior to 31st March, 2021 continued to exist till the extended period i.e. till 30th June, 2021; however, the Finance Act, 2021 has merely changed the procedure to be followed prior to issuance of notice with effect from 1st April, 2021.

This Court is of the opinion that Section 3(1) of Relaxation Act empowers the Government/Executive to extend only the time limits and it does not delegate the power to legislate on provisions to be followed for initiation of reassessment proceedings. In fact, the Relaxation Act does not give power to Government to extend the erstwhile Sections 147 to 151 beyond 31st March, 2021 and/or defer the operation of substituted provisions enacted by the Finance Act, 2021. Consequently, the impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 are not conditional legislation and are beyond the power delegated to the Government as well as ultra vires the parent statute i.e. the Relaxation Act. Accordingly, this Court is respectfully not in agreement with the view of the Chhattisgarh High Court in Palak Khatuja [2021 (9) TMI 199 - CHHATTISGARH HIGH COURT] but with the views of Ashok Kumar Agarwal [2021 (10) TMI 517 - ALLAHABAD HIGH COURT] and Bpip Infra Private Limited. [2021 (12) TMI 207 - RAJASTHAN HIGH COURT]

The argument of the respondents that the substitution made by the Finance Act, 2021 is not applicable to past Assessment Years, as it is substantial in nature is contradicted by Respondents’ own Circular 549 of 1989 and its own submission that from 1st July, 2021, the substitution made by the Finance Act, 2021 will be applicable.

Revenue cannot rely on Covid-19 for contending that the new provisions Sections 147 to 151 of the Income Tax Act, 1961 should not operate during the period 1st April, 2021 to 30th June, 2021 as Parliament was fully aware of Covid-19 Pandemic when it passed the Finance Act, 2021. Also, the arguments of the respondents qua non-obstante clause in Section 3(1) of the Relaxation Act, ‘legal fiction’ and ‘stop the clock provision’ are contrary to facts and untenable in law.

Consequently, this Court is of the view that the Executive/Respondents/Revenue cannot use the administrative power to issue Notifications under Section 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021. This Court is also of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of Income Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation.

Relief - Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are declared to be ultra vires the Relaxation Act, 2020 and are therefore bad in law and null and void.Consequently, the impugned reassessment notices issued under Section 148 of the Income Tax Act, 1961 are quashed and the present writ petitions are allowed.