Delhi High Court quashed: Reassessment notices issued under old Income Tax regime after March 31

Delhi High Court quashed: Reassessment notices issued under old Income Tax regime after March 31

The parliament was acquainted of the pandemic when it passed the Finance Act. Hence, the Court said that government cannot mention COVID-19 as a ground to say that new provisions should not operate during the period of April-June 2021.

The Delhi High Court on Wednesday quashed all the re-assessment notices issued by the Income Tax Department after March 31 2021. It was under the old regime of Section 148 of the Income Tax Act [Mon Mohan Kohli v Assistant Commissioner of Income Tax and Anr].

A Bench of Justices Manmohan and Navin Chawla held that reassessment notices issued after March 31 ought to have fulfilled with the provisions of Finance Act 2021. It has overhauled the provisions of governing beginning and conducting reassessment proceedings under Section 147-153 of the Income Tax Act.

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

The Court was dealing with around 1,350 petitions challenging the re-assessment notices issued after March 31 2021 under Section 148 of the Income Tax Act. The petitions sought the Court's consideration if the government can make or change laws of the land by way of explanations. Without authority from the legislature, and whether the executive can hinder the implementation of laws made by the legislature.

The petitioners argued that as the Finance Act, 2021, had substituted the earlier Sections 147, 148, 149 & 151 of the Income Tax Act, 1961, with the new provisions, hence, the earlier provisions could not be banked on.

They submitted that once the parliament had exercised its powers of legislation then any action, like the issuance of the notifications on March 31, 2021 and April 27, 2021, were contrary to this legislation and bad in law as the same fell foul of the doctrine of 'occupied field' and ultra vires of the Income Tax Act.

However, the government counsel had argued that Section 3(1) of Relaxation Act, 2020, creates a legal fiction by virtue of which the Revenue Department was permitted to raise Section 148 of the Income Tax Act as it existed prior to March 31, during the lengthy period between April 1, 2021 and June 30, 2021.

The counsel said that the Revenue Department had the "power" in cases where the restriction for issuance of notice was expiring between March 20, 2020 and March 31, 2021 [later modified to April 30, 2021], to take "such action" like the issuance of Notice under Section 148, on or before June 30, 2021.

It was submitted that if there was a conflict between the two statutes, then the Relaxation Act would dominate the Finance Act. It is not only on the ground of being a special law but because Section 3(1) of Relaxation Act contains a non-obstante clause giving the enacting part of Section 3(1) an intervening effect over the Income Tax Act.

The Bench held that Section 3(1) of the Relaxation Act allows the government or the executive to outspread only the time limits. But it does not delegate the power to legislate on provisions to be followed for an initiation of re-assessment proceedings.

"In fact, the Relaxation Act does not give power to the Government to extend the erstwhile Sections 147 to 151 beyond 31st March, 2021 and/or defer the operation of substituted provisions enacted by the Finance Act, 2021. Consequently, the impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 are not conditional legislation and are beyond the power delegated to the Government as well as ultra vires the parent statute i.e. the Relaxation Act," the Court said.

The Bench held that the government cannot depend on the COVID-19 pandemic to say that new provisions of the Income Tax should not operate during the period from April 1 to 30 June 2021. Since Parliament was fully conscious of the pandemic when it passed the Finance Act 2021.

"Consequently, this Court is of the view that the Executive/ Respondents/ Revenue cannot use the administrative power to issue notifications under Section 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021. This Court is also W.P.(C) 6176/2021 & connected matters Page 106 of 106 of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of Income Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation," the Court ruled.