Union of India & Ors. v. Rajeev Bansal

Judgment / Order of the Supreme Court

Judgment

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 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

* Ed. Note: Pagination as per the original Judgment.

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1Copy pinpoint1. 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

2Copy pinpoint2. 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 officer4 to reopen assessment 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

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officer to serve a notice on the assessee requiring them to submit a return of their income.6

3Copy pinpoint3. Section 1497 prescribed the following time limits for issuing a notice under Section 148 for an assessment year:

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(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.

4Copy pinpoint4. 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 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

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.] 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 [2002] Supp. (4) S.C.R. 359 [5]. It reads:

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required to furnish reasons for reopening assessments and give an opportunity of hearing to the assessee.

5Copy pinpoint5. 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 timelimits prescribed under Section 149; (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 thereafter empowered to issue anotice of reassessment under Section 148.

ii. TOLA

6Copy pinpoint6. 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

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of Certain Provisions) Ordinance 202016 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 Central 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 Actstill 31 March 2021.17

7Copy pinpoint7. 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 31st day of March, 2021, or such other date after 31st day of March, 2021, as the Central Government may, by notification, specify in this behalf:”

16 “TOLA Ordinance” 17 CBDT, Notification No. 35 of 2020, dated 24 June 2020. 18 Section 1(2), TOLA. [It reads: “(2) Save as otherwise provided, it shall be deemed to have come into force on the 31st day of March, 2020.”]

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8Copy pinpoint8. 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.

9Copy pinpoint9. 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

10Copy pinpoint10. 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. 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.

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(ii) Section 148A20 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 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. 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);

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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

(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.”] 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.

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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 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 specifies the following authorities for Section 148 and 148A: (i) Principal Commissioner or Principal Director23 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.

11Copy pinpoint11. 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 directed the assessing officers to apply the

(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.] 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, as the case may be, as they stood as on the 31st day of March 2021, before the commencement of the Finance Act, 2021, shall apply.”]

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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

12Copy pinpoint12. 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

13Copy pinpoint13. 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 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 Revenue 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. This Court issued the following directions:

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 [2022] 3 SCR 638 : (2023) 1 SCC 617

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“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. 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

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the assessees concerned and Revenue under the Finance Act, 2021 and in law shall continue to be available.”

14Copy pinpoint14. On 11 May 2022, the Central Board of Direct Taxes issued an Instruction30 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 Instruction 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.

15Copy pinpoint15. Paragraph 6.2 of the Instruction 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.”

30 Instruction No. 01/2022 dt. 11 May 2022

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16Copy pinpoint16. 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.

17Copy pinpoint17. 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

18Copy pinpoint18. 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.

C. Submissions

19Copy pinpoint19. Mr N Venkataraman, learned Additional Solicitor General of India, made the following submissions on behalf of the Revenue: a. Parliament enacted TOLA as a free-standing legislation to provide relief and relaxation to both the assesses and the Revenue 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;

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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 149of 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, 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 2013-2014, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018 will be within the period of limitation as explained in the tabulation below: Assessment Within 3 Expiry of Within six Expiry of Year Years Limitation Years Limitation (1) (2) read with (4) read with TOLA for TOLA for (2) (3) (4) (5) 2013-2014 31.03.2017 TOLA not 31.03.2020 30.06.2021 applicable 2014-2015 31.03.2018 TOLA not 31.03.2021 30.06.2021 applicable 2015-2016 31.03.2019 TOLA not 31.03.2022 TOLA not applicable 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

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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 Revenue 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 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).

20Copy pinpoint20. 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 timelimits. 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

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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: 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 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;

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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

21Copy pinpoint21. 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 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

22Copy pinpoint22. 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.36In a taxing statute, the charging

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] 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]

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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

23Copy pinpoint23. 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 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

24Copy pinpoint24. 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 revenue. An assessing officer must

37 CIT v. B C Srinivasa Setty (1981) 2 SCC 460 [10] 38 Thomas Cooley, The Law of Taxation (4th 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]

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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

25Copy pinpoint25. 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 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

26Copy pinpoint26. 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 rights48 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

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] 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 [1977] 1 SCR 207 : (1976) 4 SCC 435

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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 should be deemed not to have exercised it in a proper and judicious manner.”

27Copy pinpoint27. 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

28Copy pinpoint28. 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 of the

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”

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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 operation is not controlled by the commencement clause.”

55 R K Upadhyaya v. Shanabhai Patel (1987) 3 SCC 96 [2] 56 [1963] Supp. 2 SCR 92 : 1962 SCC OnLine SC 73

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29Copy pinpoint29. 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 Revenue 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

30Copy pinpoint30. 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 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.

57 [1964] 8 SCR 72 : 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] 63 Tata Chemicals Ltd. v. Commissioner of Customs (2015) 11 SCC 628 [18] 64 1960 SCC OnLine SC 55 [1961] 2 SCR 760 [6]

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31Copy pinpoint31. 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

32Copy pinpoint32. 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 assessing officers to reassess is limited and based on the fulfilment of certain preconditions.69

iii. Principles of strict interpretation and workability

33Copy pinpoint33. The dominant purpose in interpreting a taxingstatute 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

65 [1971] 3 SCR 442 : (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] 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]

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