Benefit of extended time frame under TOLA 2020 not available to Income Tax Department for proceedings under Income Tax Act : Allahabad High Court

Benefit of extended time frame under TOLA 2020 not available to Income Tax Department for proceedings under Income Tax Act : Allahabad High Court

The Allahabad High Court by its division bench of Justices Sunita Agarwal and Vipin Chandra Dixit observed that the relaxation law under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) would not govern the time frame prescribed under the first proviso to Section 149 as inserted by the Finance Act, 2021. TOLA cannot be used to conduct the reassessment proceedings beyond 30th March, 2021. The time limit outlined in Section 149(1)(b) (as amended beginning April 1, 2021) cannot be extended by the department after 30 March, 2020.

In the present case bunch of writ petitions were filed against the orders passed by the Assessing Authority under Section 148-A(d) of the Income Tax Act' 1961 (hereinafter referred as Act' 1961) and the consequential notices were issued under Section 148 of the Act' 1961. The dispute pertained to the assessment years 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18. The disputed notices having been issued on or after 1st April 2021, the period concerned was between 1st April, 2021to 30th June, 2021.

The two primary issues raised in the writ petition were:

1. Whether the reassessment proceedings initiated with the notice under Section 148 (deemed to be notice under Section 148-A), issued between 1st April, 2021 and 30th June, 2021, could be conducted by giving benefit of relaxation/extension under the TOLA up to 30th March, 2021, and then the time limit prescribed in Section 149 (1) (b) (as substituted with effect from 1st April, 2021) is to be counted by giving such relaxation, benefit of TOLA from 30th March, 2020 onwards to the revenue.

2. whether the department will be eligible to receive the benefits of TOLA 2020 in relation to the proceedings where the first proviso to Section 149(1)(b) is attracted.

The Relaxation Act/Enabling Act/TOLA 2020 was enacted in March 2020 on account of unforeseen circumstances faced by the country due to the onset of the pandemic COVID-19, which has led to the enforcement of intermittent lockdowns. The normal functioning of the government and its institutions had been put to a halt. Because of the obstructions due to the spread of COVID-19, the Enabling Act of 2020 was enacted solely to extend the limitation under the provisions of the Income Tax Act of 1961.

The petitioner contended that the Finance Act 2021, which is a later Act, does not contain any saving clauses that may allow the pre-existing provisions an extended life. After the enforcement of the amendment, the pre-existing provisions could not be pressed into service by the department. The Enabling Act does not and could not save the pre-existing Sections 147, 148, and 151 of the Income Tax Act pertaining to reassessment, and no overriding effect could arise or be given to the pre-existing reassessment legislative regime by the Enabling Act since, on the date of enactment of the Enabling Act, the Finance Act of 2021 was not born. The Enabling Act, therefore, became wholly unenforceable or unacceptable to the proceedings that would arise under the latter Act.

According to petitioners the assessments for 2013–14, 2014–15, 2015–16, 2016–17, and 2017–18 cannot be reopened as the maximum period of six years prescribed in the pre-amendment provision of Section 149(1)(b) had expired on 31st March, 2021.

The petitioners stated the monetary threshold and other requirements of the Income Tax Act in the post-amendment regime, i.e., after the commencement of the Finance Act in 2021, have to be followed. The validity of the jurisdictional notice under Section 148 is, therefore, to be tested touchstone of compliance or fulfillment of requirements by the revenue as per Section 149(1)(b) and the first proviso to Section 149(1) inserted by the amendment under the Finance Act of 2021, with effect from 1st April, 2021.

The bench noted that the period of notice for reassessment proceedings in pre-amended Section 149 was four years and six years. Whereas in the post-amendment sub-section (1) of Section 149, the time limit when notice for reassessment under Section 148 can be issued is three years in clause (a) and can be extended up to ten years after elapse of three years as per clause (b), but there is a substantial change in the threshold/requirements which must be met by the revenue before issuance of reassessment notice after elapse of three years under clause (b) of sub-section (1).

Further it noted that, not only monetary threshold has been substituted but the requirement of evidence to arrive at the opinion that the income escaped assessment has also been changed substantially.

The Court asserted that a burden is cast upon the revenue to meet the requirements of clause (b) of sub-section (1) of Section 149 for initiation of reassessment proceedings after lapse of three years. Further four provisos have been inserted to sub-section (1) of Section 149.

The Court further commented that, "the Enabling Act, 2020 was enacted to tide over the hardships being faced both by the assessees and the statutory authorities or their functionaries due to spread of pandemic Covid-19 but, on the other, Finance Act, 2021 has been enacted to bring reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings, with an aim to simplify the tax administration. The amendments brought to Section 149 of the Income Tax Act, by insertion of the first proviso to sub-section (1) of Section 149 and clause (b) of said sub-section are substantive amendments which confer right upon the assessee to seek immunity from reopening of the assessment proceedings after the maximum period prescribed in the unamended Section 149, six years from the end of the relevant assessment year having elapsed on or before 1.4.2021."

The bench stated, where three years period have elapsed from the end of the relevant assessment year, as noted above, higher threshold to meet the requirement of reopening assessment proceedings by the revenue has been provided under clause (b) of sub-section (1) of Section 149 (amended by the Finance Act, 2021).

The Court opined that if argument of the learned counsels for the revenue was accepted, it would render the first proviso to sub-section (1) of Section 149 ineffective until 31.6.2021. In essence, it would render the first proviso to sub-section (1) of Section 149 otiose.

"This view, if accepted, it would result in granting extension of time limit under the unamended clause (b) of Section 149, in cases where reassessment proceedings have not been initiated during the lifetime of the unamended provisions, i.e. on or before 31.3.2021. It would infuse life in the obliterated unamended provisions of clause (b) of sub-section (1) of Section 149, which is dead and removed from the Statute book w.e.f. 1.4.2021, by extending timeline for actions therein," stated the Court.

The Court discerned that in absence of any express saving clause, in a case where reassessment proceedings had not been initiated prior to the legislative substitution by the Finance Act 2021, the extended time limit of unamended provisions by virtue of Enabling Act cannot apply. The obligations upon the revenue under clause (b) of sub-section (1) of amended Section 149 cannot be relaxed. The defenses available to the assessee in view of the first proviso to subsection (1) of Section 149 cannot be taken away.

The bench lastly concluded that it is settled law that a taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute to supply any assumed deficiency. In interpreting a taxing statute, equitable considerations are out of place. The court must look squarely at the words of the statute and interpret them; Interpreting taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed.

The bench expressed, "there is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly," while disposing all the writ petitions.