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HIGH COURT OF DELHI
JUDGMENT
RATNAGIRI GAS AND POWER PRIVATE LIMITED ..... Petitioner
Advocates who appeared in this case:
For the Petitioner : Mr Nischay Kantoor, Ms Soniya Dudeja &
Mr Sarthak Abrol, Advocates.
For the Respondents : Mr Sunil Agarwal, Mr Viplav Acharya, Ms
Priya Sarkar & Mr Utkarsh Tiwari, Advocates.
HON'BLE MR. JUSTICE TEJAS KARIA
1. The petitioner has filed the present petition under Article 226 of the Constitution of India, inter alia, impugning a notice dated 02.12.2022 [impugned notice] issued under Section 148 of the Income Tax Act, 1961 [the Act] in respect of the assessment year [AY] 2013-
14. Essentially, the petitioner is aggrieved by the initiation of reassessment proceedings for AY 2013-14, which were commenced by issuance of a notice dated 24.05.2021 under Section 148 of the Act. The said notice was subsequently deemed to be a notice under Section 148A(b) of the Act, in terms of the decision of the Supreme Court in Union of India & Ors. v. Ashish Aggarwal[1].
2. The petitioner also impugns the said notice as well as an order dated 02.12.2022 passed under Section 148A(d) of the Act, which was issued pursuant to the aforementioned notice dated 24.05.2021.
PREFATORY FACTS
3. The petitioner filed its return of income for AY 2013-14 on 29.11.2013, declaring a loss of ₹6,41,68,53,076/-. The petitioner’s return of income was selected for scrutiny and the Assessing Officer [AO] issued a notice under Section 143(2) of the Act. The AO also issued further notices during the course of the assessment proceedings, which were duly responded to by the petitioner.
4. The assessment proceedings culminated in an assessment order dated 21.03.2016 passed under Section 143(3) of the Act.
5. Thereafter, on 03.02.2017, the AO issued a notice under Section 154 read with Section 155 of the Act, inter alia, stating that there was a mistake apparent from the record, which was proposed to be rectified, and the petitioner was afforded an opportunity to be heard in that regard. According to the AO, an amount of ₹6,29,00,000/-, which was debited from the profit and loss account under the head ‘wages and salary’ was inadmissible expenditure as it did not pertain to the current period and 2022 SCC OnLine SC 543 was a prior period expense. The petitioner responded to the said notice on 16.02.2017 and 23.02.2017, inter alia, claiming that the liability had crystalized during the financial year [FY] 2012-13 relevant to AY 2013- 14 as the remuneration package of the employees of NTPC Limited, who were seconded to the petitioner, had been revised retrospectively with effect from 01.01.2007. The same had resulted in an extra cost, which although pertained to prior years was crystalized during the previous year relevant to AY 2013-14.
6. No adverse order was passed pursuant to the aforementioned notice dated 03.02.2017 issued under Section 154/155 of the Act. It is contended on behalf of the petitioner that it had received no further intimation with regard to the said proceedings.
7. On 24.05.2021, the AO issued a notice under Section 148 of the Act, under the regime as was in force prior to 31.03.2021 for reassessment of income that had escaped assessment (Sections 147-151 of the Act).
8. The petitioner assailed the notice dated 24.05.2021 by filing a writ petition under Article 226 of the Constitution of India [being W.P.(C) 9553/2021], inter alia, contending that the said notice was invalid as the procedure as prescribed under Section 148A of the Act was not followed. The petitioner canvased that it was impermissible to issue a notice after 31.03.2021 under the statutory regime that was in force prior to the said date. The Revenue sought to sustain the said notice on the basis of the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [TOLA] and the circulars issued by the Central Board of Direct Taxes [CBDT]. Several other such notices were also subject matter of challenge in various petitions filed before this court as well as various other High Courts.
9. In Mon Mohan Kohli v. ACIT and Anr.[2] and other connected matters, this court sustained the challenge to notices impugned in the said petitions, which were issued under Section 148 of the Act without complying with the provisions of Section 148A of the Act. Some of the other High Courts also took a similar view and struck down notices that were issued under Section 148 of the Act after 31.03.2021 but under the unamended provisions relating to the re-assessment of income that had escaped assessment.
10. The Revenue appealed the decisions rendered by various High Courts to the Supreme Court of India. In Union of India & Ors. v. Ashish Agarwal[1] – which was one of such appeals arising from the decision of the Allahabad High Court – the Supreme Court delivered its decision on 04.05.2022, whereby it concurred with the view that the amended provisions which came into force after 31.03.2021 would be applicable to notices issued thereafter. However, the Supreme Court also issued certain directions in exercise of its powers under Article 142 of the Constitution of India. The Court directed that all notices that were issued under Section 148 of the Act after 01.04.2021 till the date of the Neutral Citation No.: 2021:DHC:4181-DB said decision (04.05.2022), including those that had been set aside by the High Courts, would be construed as show cause notices under Section 148A(b) of the Act. The Assessing Officers were directed to provide the information and material relied upon by the Revenue for issuance of such notices, to the respective assessees within a period of thirty days from the date of the decision so as to enable the respective assessees to respond to the same. The relevant extract of the said decision setting out the directions issued by the Court, is reproduced below:
01.04.2021 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 concerned Assessing Officers to hold any enquiry, if required.
28.4. The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the assessees concerned; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted).
28.5. All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.”
11. In compliance with the aforesaid directions, on 30.05.2022, the AO provided the material on the basis of which the re-assessment proceedings were initiated.
12. The petitioner responded to the said notice by filing a reply on 13.06.2022, inter alia, contending that initiation of the said proceedings was barred by limitation by virtue of the first proviso to Section 149(1)(b) of the Act. The petitioner, thereafter, filed a further response on merits on 30.06.2022.
13. The AO disregarded the objections raised by the petitioner and on 25.07.2022 passed an order under Section 148A(d) of the Act, holding that it was a fit case for issuance of notice under Section 148 of the Act. The said order was communicated to the petitioner along with the notice dated 25.07.2022 issued under Section 148 of the Act.
14. Aggrieved by the aforesaid order and notice dated 25.07.2022, the petitioner challenged the same by filing a writ petition [being W.P.(C) 13581/2022], inter alia, on the ground that the said order was passed without considering the petitioner’s responses, which were furnished on 13.06.2022 and 30.06.2022.
15. The said writ petition was allowed by an order dated 10.10.2022. This Court set aside both the order and notice dated 25.07.2022, and directed the AO to pass a fresh order within a period of eight weeks from date.
16. Pursuant to the said directions, on 02.12.2022, the AO passed a fresh order under Section 148A(d) of the Act reiterating its view that it was a fit case for issuance of notice under Section 148 of the Act after approval of respondent no.2 [PCCIT]. SUBMISSIONS
17. Mr Kantoor, the learned counsel appearing for the petitioner has assailed the re-assessment proceedings on, essentially, three fronts. First, he submitted that the impugned proceedings are barred by limitation. He referred to the first proviso of Section 149(1)(b) of the Act and submitted that no notice under Section 148 of the Act could be issued under the said Section as was in force prior to 31.03.2021 as there was no failure on the part of the petitioner to fully and truly disclose all material facts. Thus, the period of limitation within which reassessment proceedings could be initiated was four years from the end of the relevant assessment year, which expired on 31.03.2018. He also referred to the decision of Karnataka High Court in Azim Premji Trustee Company Pvt. Ltd. v. Deputy Commissioner of Income Tax Circle 4(1)(1) Bangalore and Ors.[3] in support of his contention. He also referred to the decision of this court in the case of Brahm Datt v. Assistant Commissioner of Income Tax and Ors.[4] and on the strength of the said decisions contended that in cases where the period of limitation for reopening the assessment had expired, the subsequent statutory amendments could not be construed as permitting reopening of such concluded assessments unless provided expressly or by necessary intendment.
18. Second, he submitted that the proceedings under Section 148 of the Act could not be initiated during the pendency of the rectification proceedings. He also referred to the decision of the Supreme Court in S.M. Overseas (P.) Ltd. v. Commissioner of Income Tax[5] in support of his contention.
19. Third, he submitted that there was no escapement of income as the expenditure, which was alleged to be prior period expenditure, was rightly booked during the previous year in question (FY 2012-13) as the same was crystalized during the said period. Writ Petition No.15910/2022, decided on 28.10.2022 W.P.(C) 1109/2016, decided on 06.12.2018 (2023) 450 ITR 1 (SC)
REASONS AND CONCLUSION
20. The statutory regime for assessment or re-assessment of income that had escaped assessment under the Act was substantially amended with the substitution/amendment of provisions under Sections 147-151 of the Act by virtue of the Finance Act, 2021.
21. Section 149(1) of the Act as in force at the material time is out below: “Time limit for notice.
149. (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. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.”
22. It is apparent from the above that the period for which assessments could be reopened was reduced to three years, except in cases where the conditions as stipulated in Clause (b) of Section 149(1) of the Act were satisfied.
23. The finance minister in the Budget Speech for presenting the Budget for the year 2021-22 on 01.02.2021 had stated as under: “Reduction in Time for Income Tax Proceedings
153. Honourable Speaker, presently, an assessment can be re-opened up to 6 years and in serious tax fraud cases for up to 10 years. As a result, taxpayers have to remain under uncertainty for a long time.
154. I therefore propose to reduce this time-limit for reopening of assessment to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of ₹50 lakh or more in a year, can the assessment be re-opened up to 10 years. Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.”
24. It is apparent from the above that the rationale for substituting Section 149(1) of the Act was to reduce the time period for reopening assessments from six years to three years, except in cases of serious tax evasion where there is evidence of concealment of income of ₹50 lakh or more. In such cases, it was proposed that the time limit for reopening the assessments would extend to ten years after approval of the PCCIT.
25. Thus, the first and foremost question to be addressed is whether the conditions as specified under Section 149(1)(b) of the Act are satisfied. As is apparent from the plain language of the said clause that, essentially, three conditions are required to be satisfied. First, that the Assessing Officer has in his possession books of account or other documents or evidence, which reveal that the income chargeable to tax has escaped assessment. Second, that the said evidence is to the effect that the income chargeable to tax that has escaped assessment is represented in the form of an asset. And third, that the amount of income that has escaped assessment is or is likely to amount to ₹50 lakhs or more.
26. Explanation to Section 149(1) of the Act further explains that for the purposes of Clause (b) of Sub-section (1) of Section 149 of the Act, the expression ‘asset’ would include immovable property, being land or building or both, shares and securities, loans and advances and deposits in bank.
27. If we now examine the reasons for re-opening of the assessment as set out in the order passed under Section 148A(d) of the Act, we find that there is no evidence to support that the income, which has allegedly escaped assessment is represented in the form of an asset.
28. The suggestion that the petitioner’s income had escaped assessment is founded on the premise that the petitioner has booked expenses under the head ‘wages and salaries’, which are in excess of the expenses incurred during the relevant previous year (FY 2012-13). Note 21 to the Financial Statement for the said period furnished by the petitioner expressly indicates that an expenditure of ₹9.14 crores, which was debited to the account under the head Salaries and Wages, included ₹2.85 crores relating to the current year and ₹6.29 crores for the earlier years based on a debit note issued from NTPC. The relevant extract of Note 21 to the final accounts for FY 2012-13 is set out below: “Note No.21 to the Financial Statements ₹ in crore For the period ended 31st March 2013 31st March 2012