Thoughts of scrutiny of an ITR generally gives goosebumps to a common taxpayer, despite having reported all the income and assets appropriately. This happens due to the general perception of tough questions being asked by the tax authorities and possibility of additional tax, interest or penalty to be demanded by income tax authorities if they are not satisfied with the answers and make some additions/ adjustments to the ITR.
Like every other thing, tax authorities’ power to initiate and conclude assessment/ reassessment proceedings also comes with an expiry date, to ensure that taxpayers do not have the sword of scrutiny hanging over their head for an unlimited time period.
TAX AUTHORITIES POWER TO INITIATE REASSESSMENT PROCEEDINGS
Although, Income tax law also allows tax authorities to reopen assessment of a taxpayer for past years, even beyond the normal tax scrutiny timelines, when the tax authorities receive some information/ material and they form some reason to believe that some/ whole of income of such taxpayer has escaped assessment. However, such power to reopen assessment proceedings for past years is not unfettered and it requires a prescribed procedure to be followed, necessary approvals to be taken and most importantly certain timelines to be followed.
Whenever tax authorities make lapses in following the prescribed procedure or taking necessary approvals or meeting the prescribed timelines, action of tax authorities of reopening assessment proceedings is challenged by taxpayers before Income tax appellate authorities or even before the jurisdictional High Courts invoking their extraordinary writ jurisdiction, seeking them to quash the reassessment proceedings.
EXTENSION OF TIMELINES DUE TO COVID-19
With the embarkment of COVID-19 in the country, the Government provided certain relaxation in timelines for statutory compliances, including compliances under the Income-tax law, vide the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘TOLA’). The relaxations provided in TOLA were further extended in view of the degrading situation relating to the pandemic.
Recent change in law relating to reassessment proceedings vide Finance Act, 2021
In midst of the ongoing pandemic situation, in order to grant relief to taxpayers, the Parliament introduced reformative changes in income tax provisions relating to reassessment proceedings, vide Finance Act, 2021. The Finance Act, 2021 introduced procedural requirements under section 148A of the Act, without following which no reassessment notice under section 148 of the Act could be issued. The revamped reassessment provisions were applicable from April 01, 2021.
Core of the dispute between tax authorities and taxpayers
At the same time, the highest tax administration body CBDT, vide its Notification No.20 [S.O.1432(E)] dated March 31, 2021 and Notification No.38 [S.O.1703(E)] dated April 27, 2021 extended the applicability of earlier reassessment provisions (applicable till March 31, 2021) till June 30, 2021. Consequent to such extension, reassessment notices were issued to thousands of taxpayers for Assessment Years 2014-15 to 2017-18, between April 01, 2021 to June 30, 2021.
The legal validity of such extension and consequent issuance of notices to thousands of taxpayers was unwelcomed by taxpayers. Consequently, such reassessment notices issued between April 01 to June 30, 2021 u/s 148 of old income tax law were challenged by taxpayers across Country before different High Courts.
Recent decision of Delhi High Court
In the landmark judgment pronounced on December 15, 2021, in a batch of more than 1300 writ petitions filed by taxpayers, challenging legal validity of reassessment notices issued by Income tax department u/s 148 between time period of 01.04.2021 to 30.06.2021, Hon’ble Delhi High Court has accepted the claim of the taxpayers and quashed such reassessment notices issued by Income tax authorities u/s 148 of the Act, treating the same as illegal and contradictory to provisions of the Act as amended by Finance Act 2021.
The Hon’ble Delhi High Court held that the notification extending applicability of old reassessment provisions beyond 31st March 2021, is beyond the executive powers delegated to the Central Government. The High Court also opined that when Legislature has permitted reassessment to be made in accordance with the amended provisions, it had to be done in this manner only, or not at all.
Importance of this decision of Delhi High Court
The judgment of Delhi High Court affirms the similar view, taken by High Courts of Allahabad and Rajasthan earlier on the same issue. This judgment also underlines importance of evaluating legal validity of any notice received from Income tax department and taking appropriate course of action.
This judgment will not only provide relief to thousands of taxpayers, who have filed similar petitions before Hon’ble Delhi High Court, but will also have favourable impact for taxpayers, who have filed similar petitions before other High Courts across the country, viz. Bombay High Court, Gujarat High Court, Karnataka High Court, Calcutta High Court, etc.
Having said that, it will be interesting to see, whether Income tax department accepts this decision or challenges the same before Hon’ble Supreme Court. If the Income tax department proceeds to challenge this decision before Hon’ble Supreme Court, then litigation on this issue can be expected to continue for some more time, until Hon’ble Supreme Court takes its view and issue their judgment. It is also important to note that this judgment will be binding only on those taxpayers, who have challenged the reassessment notices before the High Court. In case of other taxpayers, who have not challenged the notices and continue to participate in reassessment proceedings initiated by income tax department, they may have to go through the long process of reassessment proceedings and appellate proceedings (if any adjustment is made by income tax department after conclusion of reassessment proceedings).
The legal validity of such extension and consequent issuance of notices to thousands of taxpayers was unwelcomed by taxpayers. Consequently, such reassessment notices issued between April 1 to 30 June 2021 u/s 148 of old income tax law were challenged by taxpayers across Country before different High Courts.
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