9911796707
TMI Blog2025 (5) TMI 1338X X X X Extracts X X X X X X X X Extracts X X X X ..... iling the orders passed by the learned Income Tax Appellate Tribunal [ITAT] allowing the respective appeals preferred by the respondents [Assessees]. 2. The present batch of appeals concerns three Assessees namely Smt. Sneh Lata Sawhney, Smt. Sangeeta Sawhney and Sh. Praveen Sawhney. ITA No. 216/2023 concerns Late Sh. B.L. Sawhney and Smt. Sneh Lata Sawhney is arrayed as the respondent in the said appeal being the legal heir of the deceased assessee, Sh. B.L. Sawhney. 3. The Assessees had filed their respective appeals against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] in respect of appeals emanating from the assessment orders [quantum appeals] as well as the orders passed in the penalty proceedings [penalty appeals]. It is material to note that the assessments made in the case of Smt. Sneh Lata Sawhney and Smt. Sangeeta Sawhney were made on protective basis. However, in the case of Sh. Praveen Sawhney and in the case of Sh. B.L. Sawhney (since deceased), the assessment has been made on substantive basis. 4. The Assessees are related and the questions involved are identical and therefore, the present appeals have been taken up together. It is also material t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Penalty 25 Sh. Praveen Sawhney 89/2024 2011-12 18.05.2023 Penalty 26 Sh. Praveen Sawhney 90/2024 2009-10 18.05.2023 Penalty 27 Sh. Praveen Sawhney 94/2024 2007-08 18.05.2023 Penalty 28 Sh. Praveen Sawhney 92/2024 2008-09 18.05.2023 Penalty 29 Sh. Praveen Sawhney 93/2024 2010-11 18.05.2023 Penalty 6. For the purpose of disposal of the present batch of appeals, we refer to the facts as relevant in ITA No. 782/2023. This appeal assails the order dated 18.05.2023 [impugned order] passed by the learned ITAT in a batch of appeals including ITA No. 1539/Del/2017, which was preferred by Parveen Sawhney [hereafter the Assessee] in respect of the Assessment Year [AY] 2006-07. 7. The impugned order passed by the learned ITAT is a common order in the present batch of twenty-four appeals relating to the AY 2006-07 to AY 2011-12 by the connected Assessees - Praveen Sawhney and Smt. Sangeeta Sawhney. The said two Assessees had filed two appeals in respect of each of the assessment year covered by the common order relating to the AY 2006-07 to AY 2011-12; one in respect of the quantum of the additions made, and the other in respect to the penalty imposed under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... barred?" 12. By a subsequent order dated 12.11.2024, this court had held that the appeals being [ITA Nos. 69/2024, ITA 72/2024, ITA 73/2024, ITA 74/2024, ITA 76/2024, ITA 75/2024, ITA 88/2024, ITA 89/2024, ITA 90/2024, ITA 92/2024, ITA 93/2024 and ITA 94/2024] would be heard on the questions of law as noted in the order dated 30.01.2024 passed in ITA Nos. 72-76/2024. PREFATORY FACTS 13. The Assessees have succeeded in their respective appeals before the learned ITAT on the ground that the assessment orders from which the appeals emanate were passed beyond the period as stipulated under Section 153B of the Act. As noted above, unless the context indicates otherwise, we shall refer to the facts as obtaining in ITA No.782/2023, which is a quantum appeal in the case of the Assessee, Parveen Sawhney, in respect of the AY 2006-07. 14. Search and seizure operations were conducted under Section 132 of the Act in the case of Sh. Bhushan Lal Sawhney and other related persons on 28.07.2011. In connection with the said operations, warrant of authorization under Section 132 of the Act was also issued in the name of the Assessee [Praveen Sawhney]. 15. Thereafter, the notices under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before the learned ITAT that the assessment order was not barred by limitation as the period for passing the assessment order under Section 153B of the Act was extended in terms of Clause (ix) of the Explanation to Section 153B of the Act. The Revenue contends that in terms of Clause (ix) of the Explanation to Section 153B of the Act, the period commencing from the date on which a reference was made for request for information by an authority competent under the agreement referred to in Section 90 or Section 90A of the Act - in this case the Indo-Swiss DTAA - and ending with the date on which the information is last received or a period of one year, whichever is less, is required to be excluded. 23. The Revenue claims that the request for information in terms of the Indo-Swiss DTAA was made to the concerned authority of the Swiss Confederation and no response was received within the period of one year from the date of the making such request. Therefore, the period of one year is required to be excluded for the purpose of computing the limitation under Section 153B of the Act. 24. The Assessee contends to the contrary. The Assessee claims that the reference made was not valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Central Board of the Direct Taxes, [CBDT], Department of Revenue forwarding the proforma/checklist for seeking information to the FT&TR Section of the CBDT in relation to "Swiss Tax Authority under DTAA". 30. We consider it apposite to refer to the letter dated 11.06.2013 sent by the Under Secretary of FT&TR-III (2) confirming that the request for information as sought by the AO was made to the concerned authorities of the Swiss Confederation under "Exchange of Information Article of Indo-Switzerland Double Taxation Avoidance Agreement". The same is set out below: - "Sir / Madam, Sub: Request for information under 'Exchange of Information' Article of Indo-Switzerland Double Taxation Avoidance Convention - Enquiry into the tax affairs of Mr. Praveen Sawhney -Reg. Your request for administrative assistance from received on 2013-05-20 on the above mentioned subject has been received in Exchange of Information Cell, Foreign Tax & Tax Research Division of Central Board of Direct Taxes. 2. A request for administrative assistance has been made to the Switzerland Tax Authorities on the 11 June, 2013 by the Joint Secretary, FT & TR-I, the competent authority of India, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference was invalid. 35. The learned ITAT referred to the decision of the Rajasthan High Court in Commissioner of Income-tax v. Bajrang Textiles (2007) 294 ITR 561 and the decision of the Allahabad High Court in Sadana Electric Stores v. CIT (2013) 219 Taxman 294 and on the strength of these decisions held that the invalid reference would not extend the period of the limitation as prescribed under Section 153B of the Act. The learned ITAT also referred to earlier decision of its coordinate bench in Consulting Engineering Services (India) Pvt. Limited & Another v. The ACIT & Another ITA No. 1734/Del/2014 decided on 05.02.2019. 36. It is material to note that the said decisions were rendered in the context of extension of period of limitation on account of the orders for special audit passed under Section 142 (2A) of the Act. In the decisions as relied, direction issued by the AO for conduct of the special audit was faulted. Therefore, the exclusion of period under Clause (i) of Sub-section (2A) of Section 142 of the Act was denied. 37. In view of the above, we consider it apposite to first address the question whether the request for information made by the Indian authorities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration) as is necessary for carrying out the provisions of this Agreement in relation to the taxes which are the subject of this Agreement. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those concerned with the assessment and collection of the taxes which are the subject of this Agreement. No information as aforesaid shall be exchanged which would disclose any trade, business, industrial or professional secret or trade process. 2. In no case shall the provisions of this Article be construed as imposing upon either of the Contracting States the obligation to carry out administrative measures at variance with the regulations and practice of either Contracting State or which would be contrary to its sovereignty, security or public policy or to supply particulars which are not procurable under its own legislation or that of the State making application." 40. The Indo-Swiss DTAA was subsequently amended by a Notification dated 07.02.2001 [G.S.R. 74(E)] annexing therewith the Protocol amending the Indo-Swiss DTAA ["Protocol Amending the Agreement Between the Republic of India and the Swiss Confederation for the Avoidance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 90 of the Act. The relevant extract of the said notification is set out below: "MINISTRY OF FINANCE (Department of Revenue) NOTIFICATION New Delhi, the 27th December, 2011 (INCOME-TAX) S.O. 2903 (E). - Whereas a Protocol amending the Agreement between the Republic of India and the Swiss Confederation for the avoidance of double taxation with respect to taxes on income with Protocol, signed at New Delhi on the 2nd day of November, 1994, as amended by the supplementary Protocol signed at New Delhi on the 16th day of February, 2000, was signed at New Delhi on the 30th day of August, 2010; And whereas the date of entry into force of the said Protocol is the 7th day of October, 2011, being the date of later of the notifications of satisfaction of all legal requirements and procedures as required by the respective laws for entry into force of the said Protocol, in accordance with Paragraph 2 of Article 14 of the said Protocol; And whereas sub-paragraph (a) of Paragraph 2 of Article 14 of the said Protocol provides that the provisions of the said Protocol shall have effect in India in respect of income arising in any fiscal year beginning on or after the first day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 1. 2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use. 3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation: a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding paragraph 2 of this Article, with respect to Article 26 of the Agreement, the exchange of information provided for in this Amending Protocol will be applicable for information that relates to any fiscal year beginning on or after the first day of January of the year next following the date of signature of this Amending Protocol. In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Amending Protocol. Done in duplicate at New Delhi this 30th day of August, 2010 in the English, German and Hindi languages, all texts being equally authentic. In the case of any divergence, the English text shall prevail. For the Government of the Republic of India: (Shri Pranab Mukherjee) Finance Minister For the Swiss Federal Council: (Micheline Calmy-Rey) Head of the Swiss Federal Department of Foreign Affairs [Notification No. 62/2011/F. No. 501/01/1973-FTD-I] SANJAY KUMAR MISHRA, Jt. Secy." 43. It is apparent from the above that the Indo-Swiss DTAA did exist between the Republic of India and the Swiss Confederation as the same was signed on 02.11.1994 and was notified under Section 90 of the Act on 21.04.1995. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore, the request for information relating to a period prior to 01.04.2011 would be valid, is unmerited. 47. It is material to note that by virtue of Article 8 of the Amending Protocol, Article 26 of the Indo-Swiss DTAA as amended by the Supplementary Protocol was deleted. Thus, Article 26 (which was earlier numbered as Article 24) of the Indo-Swiss DTAA as it existed prior to 30.08.2010 ceased to exist, any request under that Article cannot be made after 30.08.2010. The only agreement that existed between the Swiss Confederation and India in respect of exchange of information under the Indo-Swiss DTAA is embodied in Article 26 as was substituted by the Amending Protocol. 48. By virtue of the Amending Protocol, the Indo-Swiss DTAA stood novated insofar as the provision regarding exchange of information is concerned. It is well settled that novation discharges the original contract. Thus, for all intents and purposes, Article 26 as it existed prior to 30.08.2010, ceased to exist. It is also well settled that the effect of substitution of an agreement obliterates the existing agreement and replaces the same. Thus, after 30.08.2010, the Revenue had no recourse to Article 26 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of just deleting the old rule and making the new rule operative. In Mangilal Pindwal case [State of Rajasthan v. Mangilal Pindwal, (1996) 5 SCC 60], this Court upheld the legislative practice of an amendment by substitution being incorporated in the text of a statute which had ceased to exist and held that the substitution would have the effect of amending the operation of law during the period in which it was in force. In Koteswar case [Koteswar Vittal Kamath v. K. Rangappa Baliga & Co., (1969) 1 SCC 255] a three-Judge Bench of this Court emphasised the distinction between "supersession" of a rule and "substitution" of a rule and held that the process of substitution consists of two steps: first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place." 52. In a recent decision in Pernod Ricard (India) Private Limited v. State of Madhya Pradesh & Ors. (2024) 8 SCC 742, the Supreme Court once again took note of the distinction between supersession and substitution. The relevant observations of the said decision are set out below: "14. Questioning the legality and validity of the decision [State of M.P. v. Pernod Ricard (India) (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid " 54. Although the said decisions were rendered in the context of legislative amendments; the enunciated principles of construction are instructive. In the case of agreements, substitution of a covenant would novate the agreements and unless the intention of the parties to preserve the rights and obligations under the agreement prior to novation is expressly preserved, the same cannot be inferred. It is trite that novation discharges the prior agreement. 55. There is no clause in the Amending Protocol that has an effect of saving any rights and obligations under Article 26 (numbered as Article 24 prior to 16.02.2000), or one which could be read as expressing the intention of the treaty partners to save any rights and obligations regarding exchange of information as extant prior to 30.08.2010. On the contrary, paragraph 3 of Article 14 of the Amending Protocol contains a non-obstante clause that makes it abundantly clear that Article 26 of the Indo-Swiss DTAA regarding exchange of the information would be applicable only for the information that relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable at the earliest to reports relating to the "previous year" having commenced on 1st April 2011 (corresponding to the "fiscal year" 2011/2012), which will be taxed during the "assessment year" 2012/2013. This provision shall remain without retroactive effect. More specifically, the retroactive effect of the new Art. 26 of IN-CH CDI is limited to the fiscal year in which followed the date of signature of the Protocol of 30 August 2010, while the amendments entered into force after ratification by both countries on 7 October 2011. Contracting States thus provided for a certain date of entry into force, pending revocation of the report to that intended purpose for the other provisions of the Protocol dated 30 August 2010, which apply - for India - to income realized during tax years commencing on 1st April of the civil year following the entry into force of the Review Protocol or after that date (cf. Art. 14 par. 2 let. a of the Protocol of 30 August 2020), with respect to revenues realized from 1st April 2012, with respect to revenues realised from 1st April 2012, accounting for the fact that the instruments of ratification were exchanged on October 7, 2011. That being the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtue of the Amendment Act [Act 17 of 2013] to also cater to a situation where the direction issued by the AO for conduct of a special audit was challenged before a court. The amended clause also provided that where the direction was challenged before a court, the period commencing from the date of the direction and ending on the date on which the order setting aside such direction is received by the Principal Commissioner or Commissioner, would also be excluded. Clause (ii) of Explanation to Section 153B of the Act as it was existed prior to the Amendment Act [Act 17 of 2013] and as amended, thereafter, is set out below: "Prior to Amendment of Finance Act, 2013 [Act 17 of 2013] Explanation - In computing the period of limitation for the purposes of this section - *** *** *** (ii) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under subsection (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that subsection; or" After the amendment of Finance Act, 2013 [Act 17 of 2013] "Explanation.- In computing the period of limitation under this sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are stayed by any order or injunction of any court. In the aforesaid context, the Supreme Court observed as under: "21. We, therefore, agree with the High Court that the special audit was an integral step towards assessment proceedings. The argument of the appellants that the writ petition of the appellant was ultimately allowed and the Court had quashed the order directing special audit would mean that no special audit was needed and, therefore, it was not open to the respondent to wait for special audit, may not be a valid argument to the issue that is being dealt with. The assessing officer had, after going through the matter, formed an opinion that there was a need for special audit and the report of special audit was necessary for carrying out the assessment. Once such an opinion was formed, naturally, the assessing officer would not proceed with the assessment till the time the special audit report is received, inasmuch as in his opinion, report of the special audit was necessary. Take a situation where the order of special audit is not challenged. The assessing officer would naturally wait for this report before proceeding further. Order of special audit followed by condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od for passing the assessment order had lapsed. In the aforesaid back drop, the Supreme Court also issued directions for saving the period of limitation. The relevant extract of the said decision is set out below: "36. The next crucial question is that keeping in view the fact that the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1(iii) to sub-section (3) of Section 153 of the Act is already over, what appropriate order should be passed. As noted above, the learned Additional Solicitor General had pleaded that if we were not inclined to agree with him, the interpretation of the provision by us may be given prospective effect, otherwise the interest of the Revenue will be greatly prejudiced. 37. There is no denying the fact that the law on the subject was in a flux in the sense that till the judgment in Rajesh Kumar [(2007) 2 SCC 181: (2006) 287 ITR 91] was rendered, there was divergence of opinion amongst various High Courts. Additionally, even after the said judgment, another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT having approved the said proposal though after giving opportunity of hearing to the assessee is vitiated because of non-compliance with the principles of natural justice. Accordingly, the assessment order passed in the facts of present case is beyond the period of limitation and hence, the same is invalid and bad in law." 70. In K.M. Sharma v. Income Tax Officer, Ward 13(7), New Delhi (2002) 4 SCC 339, the Supreme Court had observed that "a fiscal statute, more particularly on a provision such as a present one regulating the period of limitation must receive strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to a litigant for an indefinite period of future unforeseen events". There is no cavil that the period of limitation as prescribed under Section 153B of the Act is required to be construed strictly. On a plain reading of the language of Explanation (ix) to Section 153B of the Act, the period commencing from the date on which a reference (or first of the reference) for exchange of information is made by an authority competent "under the Agreement referred to in Section 90 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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