Category: In the High Courts: Part A-Reported Decisions

Reassessment – Law applicable – Effect of amendment to sections 147 to 151 by Finance Act, 2021 and Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 – Credit Instruction No. 1 of 2022 has no binding force.

The assessment years under challenge are A.Y. 2013-14 to A.Y. 2017-18. The dispute pertains to the issue of notice under section 148 of the Income-tax Act, 1961 after 1st April, 2021 without following the new regime of tax for reopening of assessment applicable with effect from1st April, 2021. The assessees contended that re-opening of assessment for A. Y. 2013-14 and A.Y. 2014-15 could not be done since the maximum period prescribed in the pre-amended provisions had expired on 31st March, 2021 and therefore the notices issued between 1st April, 2021 to 30th June, 2021 for AYs. 2013-14 and 2014-15 were time barred. For the AYs. 2015-16 to 2017-18, the contention raised was regarding the monetary threshold and the other requirements prescribed under the new provisions of re-opening with effect from 1st April, 2021.

Various notices were challenged before the High Courts on the basis of the above and the High Courts took the view that the re-assessment notices issued after 01.04.2021 under the pre-existing provisions by applying extension of time with the help of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 were to be quashed and further held that the assessing authorities were at liberty to initiate re-assessment proceedings in accordance with the provisions of the Act.

The matters from various High Courts travelled to the Supreme Court and the Supreme Court held that the Department should not have issued notices under the unamended provisions and the notices issued after 01.04.2021 should have been issued under the substituted provisions of section 147 to 151 of the Act. However, in order to strike a balance, the Supreme Court directed that the notices issued under the unamended provisions of the Act shall be deemed to have been issued u/s. 148A as per the substituted provisions.

Pursuant to the Supreme Court decision, the CBDT issued directions regarding implementation of the judgment of the Supreme Court. Thereafter, the Department, in pursuance of the decision of the Supreme Court and the directions issued by the CBDT issued notices providing with the material or information on the basis of which re-opening was initiated and proceeded to pass orders u/s. 148A(d) of the Act holding that notice u/s. 148 should be issued.

These orders were challenged by filing writ petitions. The Allahabad High Court framed the following two questions for deciding the issues:

“(i)    Whether the reassessment proceedings initiated with the notice u/s. 148 (deemed to be notice u/s. 148A), issued between April 1, 2021 and June 30, 2021, can be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, (TOLA) 2020 up to March 30, 2021, and then the time limit prescribed in section 149(1)(b) (as substituted with effect from April 1, 2021) is to be counted by giving such relaxation, benefit of TOLA from March 30, 2020 onwards to the Revenue ?

(ii)    Whether in respect of the proceedings where the first proviso to section 149(1)(b) is attracted, benefit of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will be available to the Revenue, or in other words the relaxation law under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 would govern the time frame prescribed under the first proviso to section 149 as inserted by the Finance Act, 2021, in such cases ?”

The High Court held as under:

“i)    Sweeping amendments have been made in sections 147 to 151 of the Income-tax Act, 1961 by the Finance Act, 2021. The radical and reformative changes governing the procedure for reassessment proceedings in the substituted provisions are remedial and benevolent in nature. A comparison of pre and post amendment section 149 indicates that the period of notice for reassessment proceedings in the pre-amended section 149 was four years and six years. Whereas in the post-amendment section 149(1), the time limit within which notice for reassessment u/s. 148 can be issued is three years in clause (a) and can be extended upto ten years after the lapse of three years as per clause (b), but there is substantial change in the threshold requirements which have to be met by the Revenue before issuance of reassessment notice after the lapse of three years u/s. 149(1)(b). Nor has the only monetary threshold been substituted but the requirement of evidence to arrive at the opinion that the income escaped assessment has also been changed substantially. A heavy burden is cast upon the Revenue to meet the requirements of section 149(1)(b). The first proviso to section 149(1) provides that notice u/s. 148, in a case for the relevant assessment year beginning on or before April 1, 2021, cannot be issued, if such notice could not have been issued at the relevant point of time, on account of being beyond the time limit specified under the unamended provisions section 149(1)(b). The time limit in the unamended section 149(1)(b) of six years, thus, cannot be extended up to ten years under the amended section 149(1)(b), to initiate reassessment proceedings in view of the first proviso to sub-section (1) of section 149. In other words, the case for the relevant assessment year where the six year period has elapsed as per unamended 149(1)(b) cannot be reopened, after commencement of the Finance Act, 2021, with effect from April 1, 2021.

ii)    The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 is an enactment to extend timelines only from April 1, 2021 onwards. Consequently, from April 1, 2021 onwards all references to issuance of notice contained in the 2020 Act must be read as reference to the substituted provisions only. In the case of Ashish Agarwal, the Supreme Court invoked its power under article 142 of the Constitution. From a careful reading of the judgment of the Supreme Court, there is no doubt that the view taken by the court in Ashok Agarwal on the legal principles and the reasoning for quashing the notices u/s. 148 of the unamended Income-tax Act, issued after April 1, 2021 had been affirmed in toto. The result is that all notices issued under the unamended Income-tax Act were deemed to have been issued u/s. 148A of the Income-tax Act as substituted by the Finance Act, 2021 and construed to be show-cause notices in terms of section 148A(b) of the Income-tax Act. The inquiry as required u/s. 148A(b) was to be completed by the officers and after passing orders in terms of section 148A(d) in respect of the assessee, notice u/s. 148 could be issued after following the procedure as required u/s. 148A. As a one time measure, the requirement of conducting an inquiry with the approval of specified authority at the stage of section 148A(a) was dispensed with.

iii)    In the 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 the 2020 Act cannot apply. In other words, the obligations upon the Revenue under clause (b) of sub-section (1) of amended section 149 cannot be relaxed. The defences available to the assessee in view of the first proviso to section 149(1) cannot be taken away. The notifications issued by the Central Government in exercise of powers u/s. 3(1) of the 2020 Act cannot infuse life in the unamended provisions of section 149 by this way. As held by the Supreme Court, all defences which may be available to the assessee including those available u/s. 149 of the Income-tax Act and all rights and contentions which may be available to the assessee and revenue under the Finance Act, 2021 shall continue to be available to assessment proceedings initiated from April 1, 2021 onwards.

iv)    Clause 6.2 of the directions issued by the CBDT pursuant to the Supreme Court decision deals with the cases of the A. Ys. 2013-14 to 2017-18 and are based on the misreading of the judgment of the Supreme court. Terming reassessment notices issued on or after April 1, 2021 and ending with June 30, 2021 as “extended reassessment notices”, within the time extended by the 2020 Act and various notifications issued thereunder is an effort of the Revenue to overreach the judgment of the court in Ashok Kumar Agarwal as affirmed by the Supreme Court in Ashish Agarwal. In any case, the Central Board of Direct Taxes Instruction No. 1 of 2022 dated May 11, 2022 ([2022] 444 ITR (St.) 43), issued in exercise of its power u/s. 119 of the Income-tax Act, as per the Revenue’s own stand, is only a guiding instruction issued for effective implementation of the judgment of the Supreme Court in Ashish Agarwal. The instructions issued in the third bullet to clause 6.1 and clause 6.2 (i) and (i), being in teeth of the decision of the Supreme Court have no binding force.

v)    The reassessment proceedings initiated with the notice u/s. 148 (deemed to be notice u/s. 148A), issued between April 1, 2021 and June 30, 2021, could not be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation And Amendment of Certain Provisions) Act, 2020 up to March 30, 2021, and the time limit prescribed in section 149(1)(b) (as substituted with effect from April 1,2021) could not be counted by giving such relaxation from March 30, 2020 onwards to the Revenue.

(vi)    In respect of the proceedings where the first proviso to section 149(1)(6) is attracted, the benefit of the 2020 Act would not be available to the Revenue, or in other words, the relaxation law under the 2020 Act would not govern the time frame prescribed under the first proviso to section 149 as inserted by the Finance Act, 2021, in such cases.

(vii)    That the reassessment notices issued to the assessee in this bunch of writ petitions, on or after April 1, 2021 for different assessment years (the A. Ys. 2013-14 to 2017-18), had to be dealt with, accordingly, by the Revenue.”

19 Keenara Industries Pvt. Ltd vs. ITO
[2023] 453 ITR 51 (Guj)
A. Ys.: 2013-14 and 2014-15
Date of order: 7th February 2023

Sections. 147 to 151 of ITA 1961 and Art. 226 of Constitution of IndiaReassessment – Notice – Limitation – Effect of Amendment to Sections 147 to 151 by Finance Act, 2021 and Taxation and Other Laws (Relaxation and amendment of Certain provisions) Act, 2020 and notification issued under it – CBDT Instruction No. 1 of 2022 could not override provisions of law or decision of Supreme Court – Order passed under section 148A(d) and notice issued under section 148 on 26.07.2022 for A. Ys. 2013-14 and 2014-15 – Barred by limitation:

During the period between 1st April, 2021 to 30th June, 2021, the Department had issued a notice under section 148 of the Income-tax Act, 1961 for A. Y. 2013-14 and A.Y. 2014-15 under the old provisions of the Act despite the fact that new regime of re-opening of provisions had come into force. This was challenged and the matter eventually travelled to the Apex Court, which vide its judgment dated 4th May, 2022 in case of Union of India & Ors. vs. Ashish Agarwal (2022) 444 ITR 1 (SC) adjudicated the issue as to the validity of such reopening notices issued across the nation and gave certain directions to the Department. Consequent to the aforesaid decision of the Supreme Court, the assessing officer issued show cause notice under section 148A(b) and supplied the relevant material on the basis of which the case was sought to be re-opened. Thereafter, on July 26, 2022, the AO passed order under section 148A(d) and issued the consequent notice under section. 148 dated 22nd July, 2022.

The assessee filed a writ petition and challenged the validity of the order under section 148A(d) and the notice under section 148 both dated 26th July, 2022. The Gujarat High Court allowed the writ petition and held as under:

“i)    Under the new scheme of reassessment as contained in the Finance Act, 2021 the time limit for issuance of notices u/s. 148 of the Act under the substituted provision of section 149 of the Act have been substantially modified. Clause (a) of sub-section (1) of section 149 of the Act makes the originally prevailing four year period to three years, whereas clause (b) has extended the previously prevailing limit of six years to ten years in cases where income chargeable to tax has escaped assessment amounting to Rs. 50 lakhs or more. While enacting the Finance Act, 2021, Parliament was aware of the existing statutory laws both under the Act as amended by the Finance Act, 2021 as also the Ordinance and the 2020 Act and notification issued thereunder. However, the new scheme for reassessment which was made effective from April, 1, 2021 does not have any saving clause. The notification dated March 31, 2021 came to be issued before the amended provision of re-opening came into force and thus, the notification was applicable to the unamended provision of reopening. The unamended provisions of re-opening ceased to exist from April 1, 2021, the extension by notification could have no applicability. Notification dated April 27, 2021 was in continuity of the earlier notification dated March 31, 2021 as the unamended provisions of reopening ceased to exist on April 1, 2021. No notification can extend the limitation of the repealed Act.

ii)    In Ashish Agarwal’s case, the Supreme Court, after detailed consideration of provisions of law and extensive submissions made by both the sides, held that the new provision substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with the specific aim and protect the right and interest of the assessee as well as being in public interest, respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to the past assessment year provided u/s. 148 of the Act notice has been issued on or after April 1, 2021. The Supreme Court was in complete agreement with the view taken by various High Courts in holding so. At the same time, being concerned about the revenue being remediless as this judgment would result into absence of reassessment proceedings, the Supreme Court permitted the respective notices u/s. 148 of the Act to be deemed to have been issued u/s. 148A of the Act as substituted by the Finance Act, 2021 and to be treated as the show cause notice in terms of section 148A(b) of the Act.

iii)    The test to determine the validity of notice issued after March 31, 2021 is that they should be permissible under the Finance Act, 2021. The Central Board of Direct Taxes Instructions No. 1 of 2022 dated May 11, 2022 ([2022] 444 ITR (St.) 43) surely cannot override the provisions of law or the decision of the Supreme Court.

iv)    The Assessing Officer had issued the reassessment notices on or after April 1, 2021 under the erstwhile sections 148 to 151 of the Act relying on Notification No. 20 of 2021 dated March 31, 2021 ([2021] 432 ITR (ST.) 141) and Notification No. 38 of 2021 dated April 2021 dated April 27, 2021 ([2021] 434 ITR (St.) 11), which extended the applicability of those provisions as they stood on March 31, 2021 before the commencement of the Finance Act, 2021 beyond the period of March 31, 2021. Since as per the scheme prescribed under the first proviso to the amended section 149 of the Act, six years had already elapsed from the end of the relevant assessment years the notices issued u/s. 148 of the Income-tax Act, as well as the order dated July 26, 2022, passed u/s. 148A(d) for the A. Ys. 2013-14 and 2014-15 were barred by limitation.”

Reassessment — Notice under section 148 — Sanction of prescribed authority — One of two reasons recorded already considered by Principal Commissioner in revision and proceedings dropped accepting assessee’s explanation — Sanction for notice under section 148 given without application of mind — Notice not valid: Sections 147, 148, 151 and 263 of ITA 1961: A. Y. 2012-13:

For the A. Y. 2012-13 the AO issued a notice under section 148 of the Income-tax Act, 1961. The assessee filed writ petition and challenged the notice. The Bombay High Court allowed the petition and held as under:

“i)    The sanctioning authority u/s. 151 of the Income-tax Act, 1961 is duty bound to apply his or her mind to grant or not to grant approval to the proposal put up before him to issue notice u/s. 148 to reopen an assessment u/s. 147 to the material relied upon by the Assessing Officer for reopening the assessment. Such power cannot be exercised casually in a routine and perfunctory manner.

ii)    One of the reasons recorded for reopening the assessment u/s. 147 of the Income-tax Act, 1961 being the claim for deduction of the diminution in the value of investment in a subsidiary, had already been considered by the Principal Commissioner, who in his revision order u/s. 263 had dropped the proceedings initiated accepting the reply of the assessee and rejecting the audit objection. The Principal Commissioner had accorded the approval u/s. 151 which showed non-application of mind by the Principal Commissioner while according approval for reassessment without considering all documents including his own earlier order passed dropping proceedings u/s. 263.

iii)    The notice u/s. 148 and the order passed on the objections of the assessee were quashed and set aside.”

Reassessment – Notice after four years – Sanction of prescribed authority – Limitation – Extension of time limit under provisions of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 applicable only in situations arising out of amendment by Finance Act, 2021 – Sanction not obtained from appropriate authority – Notices quashed:

Several notices under section 148 of the Income-tax Act, 1961 for re-opening of assessment issued prior to 1st April, 2021, that is prior to amendment by the Finance Act 2021, were issued beyond the period of four years and were time barred in terms of the first proviso to section 147 of the Act. Further, the sanction for issuing such notices was obtained from the Joint Commissioner whereas the appropriate authority to record satisfaction was the Chief Commissioner of Income-tax/Commissioner of Income-tax.

The assesses filed writ petitions challenging the validity of such notices.

The Department contended that in view of the notifications issued by the Central Government in terms of provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the said limits stood extended.

The Orissa High Court allowed the writ petitions and held as under:

“i)    The contention of the Department that in view of the notifications issued by the Central Government in terms of the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 time limits stood extended was untenable since the notifications were issued to deal with the situation arising from the amendment to 1961 Act by the 2021 Act with effect from April 1, 2021 whereas the notices issued u/s. 148 under challenge were issued prior to April 1, 2021.

ii)    It had been stated that the notices had been issued after obtaining the necessary satisfaction of the joint Commissioner whereas the officer authorized to accord necessary satisfaction was the Chief Commissioner or Commissioner.

iii)    The notices u/s. 148 are quashed.”

16 Footcandles Film Pvt Ltd vs. ITO
[2023] 453 ITR 402 (Bom)
A. Y.: 2010-11
Date of order 28th November, 2022

Section 279 of ITA 1961Offences and prosecution – Compounding of offences – No limitation laid down under section 279 – Power of CBDT to issue directions to Income-tax authorities for proper compounding of offences – CBDT has no power to lay down time limit – Guidelines of CBDT prescribing limitation – Not valid.

By order dated 14th January, 2020, the Magistrate Court convicted the assessee under section 248(2) of the Code of Criminal Procedure for the offence punishable under section 276B read with section 278B of the Income-tax Act, 1961 whereby the fine of Rs. 10,000 and rigorous imprisonment for one year were imposed. The assessee filed a criminal appeal before the Sessions Court which was pending adjudication. The assessee then filed application for compounding of offence under section 279(2) of the Act along with application for condonation of delay in filing of compounding application. The assessee’s request for compounding application was rejected.

The assessee filed a writ petition and challenged the order. The assessee, inter alia, contended before the High Court that provisions of section 279(2) do not impose any bar on the authorities to consider the compounding application even when the Magistrate Court had convicted the assessee and the appeal against the Magistrate Court’s order was pending before the Sessions Court. Section 279(2) allows compounding of offence either before or after the institution of proceedings and the word ‘proceedings’ encompasses all the stages of criminal proceedings.

The Department relied upon CBDT Circular No. 25 of 2019 and Circular No. 1 of 2020 to contend that the Circular provides that no application for compounding can be filed after the end of twelve months from the end of the month in which prosecution complaint has been filed and does not permit the authorities to grant such an application beyond the periods specified in the aforesaid circulars.

The Bombay High Court allowed the writ petition and held as under:

“i)    Offences can be compounded under the provisions of section 279(2) of the Act. The Explanation to section 279(6) provides power to the Board to issue orders, instructions or directions under the Act to other Income-tax authorities for proper composition of offences under the section. The Explanation does not empower the Board to limit the power vested in the authority u/s. 279(2) for the purpose of considering an application for compounding of offence specified in section 279(1). The orders, instructions or directions issued by the CBDT u/s. 119 of the Act or pursuant to the power given under the Explanation will not limit the power of the authorities specified u/s. 279(2) in considering such an application, much less place fetters on the powers of such authorities in the form of a period of limitation.

ii)    The guidelines contained in the CBDT guidelines dated June 14, 2019 could not curtail the powers of the authorities under the provisions of section 279(2). The guidelines in the circular of 2019 set out “Eligibility Conditions for Compounding”. The guidelines, inter alia, state that no application for compounding can be filed after the end of twelve months from the end of the month in which prosecution complaint has been filed in the Court. Guidelines further prescribe that the person seeking compounding of the offence is required to give an undertaking to withdraw any appeals that may have been filed by him relating to the offences sought to be compounded. Guidelines also contain powers to relax the time period prescribed as aforesaid and refers to situations where there is pendency of an appeal.

iii)    A conjoint reading of these provisions leaves one with no manner of doubt that the condition specified regarding the time limit of twelve months is not a rule of limitation, but is only a guideline to the authority while considering the application for compounding. It in no matter takes away the jurisdiction of the authority u/s. 279(2) of the Act to consider the application for compounding on its own merits and decide it. Guidelines also provide the basis on which the application can be rejected. It prescribes the offences which are generally not to be compounded. Clause (vii) refers to offences under any law other than the direct tax laws.

iv)    In the present case the assesses had categorically averred that they had not been convicted under any other law other than direct taxes laws, nor was it the case of the Revenue that the assessee had been convicted under such law other than direct taxes laws. The assessee had deposited the tax deducted at source due, though beyond time limit set down, but before any demand notice was raised or any show-cause notice was issued. The tax deducted at source was deposited along with penal interest thereon. Detailed reason for not depositing it within the time stipulated under the law had been filed in the reply to the show-cause notice issued earlier. Though the assesses had been convicted, a proceeding in the form of an appeal was pending before the sessions court, which was yet to be disposed of, and in which there was an order of suspension of sentence imposed on the second assessee.

v)    Under these circumstances, the findings arrived at in the order dated June 1, 2021, that the application for compounding of offence, u/s. 279 of the Act, was filed beyond twelve months, as prescribed under the CBDT guidelines dated June 14, 2019, were contrary to the provisions of section 279(2). The authorities had failed to exercise jurisdiction vested in it while deciding the application on the merits and consideration of the grounds set out when the application for compounding of offence was filed before it. On this count, the order dated June 1, 2021 is quashed and set aside.

vi)    Consequently, we remand the application, under the provisions of section 279(2) of the Income-tax Act, of the petitioners back to respondent No. 3 to consider afresh on its own merits.

vii)    Respondent No. 3 shall dispose of the application of the petitioners preferably within a period of thirty days from the date of receipt of this judgment.

viii)    Until disposal of the application of the petitioners for compounding of offence, under sub-section (2) of section 279 of the Income-tax Act, 1961, by respondent No. 3, the proceedings, being Criminal Appeal No. 127 of 2020, along with Criminal Miscellaneous Application No. 407 of 2020, pending before the City Sessions Court, Greater Mumbai, shall remain stayed.”

Assessment pursuant to revision order – Appeal to the Appellate Tribunal – Pending appeal before the Appellate Tribunal against the revision order, AO issued notice for assessment pursuant to revision order – Assessee directed to co-operate with AO – But demand, if any, to be kept in abeyance till the disposal of appeal by the Tribunal.

For A.Y. 2016-17, the assessment order was passed under section 143(3) of the Income-tax Act, 1961. Subsequently, the Commissioner passed a revision order under section 263 of the Act. The assessee preferred an appeal before the Tribunal against the revision order. Pending appeal before the Tribunal, the AO initiated the assessment pursuant to revision order and required the assessee to furnish the submissions along with the necessary evidence/documents in respect of the findings given in the revision order.

The assessee filed a writ petition and contended that the appeal is pending before the ITAT against the order passed in revision under section 263 of the Act, since there is no provision to seek for stay of further proceedings pursuant to the order under appeal, the assessing authority has issued this communication dated 6th February, 2022. By doing this, they want to complete the proceedings, and once they complete the proceedings, they may further go ahead with issuance of demand notice. Hence, the assessee’s appeal which is pending for consideration would become infructuous and therefore, till the disposal of the appeal, the assessing authority may be precluded from proceeding further pursuant to the notice dated 6th February, 2022.

The Madras High Court disposed the writ petition with directions as under:

“i)    Once an appeal has been filed against the revision order u/s. 263 wherein the date has been fixed for hearing before the Tribunal, the assessing authority could wait till such time.

ii)    The assessing authority could proceed with the assessment proceedings pursuant to the date fixed for hearing before the Tribunal on the basis of the order passed by the Commissioner and the assessee should co-operate by filing reply or the documents sought for.

iii)    Once the order has been passed by the assessing authority, and it is adverse to the assessee, no further proceedings, including the notice of demand should be made by the Assessing Officer till the disposal of appeal which was pending before the Tribunal and for which hearing has been fixed.

iv)    Depending upon the outcome of the Tribunal order it was open to the Assessing Officer to proceed against the assessee in accordance with law.”

Revision — Powers of Commissioner u/s 264 — Commissioner can give relief to an assessee who has committed mistake

The petitioner is a private limited company. The assessee was entitled to the benefit of article 10 of the India – Kuwait Double Taxation Avoidance Agreement. However, for the A.Y. 2016-17, the assessee, by mistake, did not claim the said benefit both in the original return and the revised return. After passing of the assessment order u/s 143(3), the assessee realized the mistake and found that the assessee had paid an excess tax of Rs.84,61,650. The assessee, therefore, made an application to the Principal Commissioner of Income Tax u/s 264 requesting to revise the assessment order, correct the mistake and direct the Assessing Officer to grant a refund of the said amount of Rs.84,61,650.

The Principal Commissioner of Income Tax rejected the application, holding it to be untenable primarily on the ground that the assessee had not claimed at the time of filing the original return of income and the revised return of income. The Principal Commissioner held that there was no apparent error on the record in the said assessment order, which warranted exercise of jurisdiction u/s 264.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) Section 264 of the Income-tax Act, 1961, does not limit the power of the Commissioner to correct errors committed by the sub-ordinate authorities and can even be exercised where errors are committed by the assessee. There is nothing in section 264 which places any restriction on the Commissioner’s revisional power to give relief to the assessee in a case where the assessee detects mistakes after the assessment is completed.

ii) The very foundation of the application u/s. 264 was that the assessee had inadvertently failed to claim the benefit of article 10 of the Double Taxation Avoidance Agreement between India and Kuwait, under which the dividend distribution was taxed at a lower rate. The Commissioner had the power to consider the claim u/s. 264. The rejection of the application for revision was not valid.

iii) The impugned order dated 31st March, 2021 stands quashed and set aside. The revision application stands restored to the file of respondent No. 1 and remitted back for de novo consideration.”

Revision — Powers of Commissioner u/s 263 — Declaration under Income Declaration Scheme, 2016 — Declaration accepted and consequent assessment — Such assessment cannot be set aside in proceedings u/s 263

The assessee is an individual. For the A.Y. 2014-15, the assessment was completed u/s 143(3) of the Income-tax Act, 1961 by an order dated 6th May, 2016. After the assessment was completed, the assessee availed of the benefit of the Income Declaration Scheme, 2016 (IDS). The Principal Commissioner accepted the declaration.

Thereafter, the Principal Commissioner invoked the provisions of section 263 and passed an order revising the assessment order. The Tribunal quashed the revision order holding it to be without jurisdiction.

On appeal by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and held as under:

“i) The Income Declaration Scheme, 2016 was introduced by Chapter IX of the Finance Act, 2016 ([2016] 384 ITR (St.) 1). Chapter IX of the Finance Act, 2016 is a complete code by itself. It provides an opportunity to an assessee to offer income, which was not disclosed earlier, to tax. Chapter IX provides for a special procedure for disclosure and charging income to tax. It lays down the procedure for disclosure of such income ; the rate of Income-tax and the penalty to be levied thereupon and the manner of making such payment. Under the Scheme the competent authority has been vested with the power to accept the declaration made by the assessee and such power to be exercised only upon being satisfied with such disclosure. It is also open to such authority not to accept such declaration. But once accepted, it attains finality. The scheme does not empower or authorise the competent authority to reopen or revise a decision taken on such declaration. It is well settled that a statutory authority has to function within the limits of the jurisdiction vested with him under the statute. Thus, once the declaration is accepted by the Principal Commissioner such authority is estopped from taking any steps which would in effect amount to reopening or revising the decision already taken on such declaration.

ii) The Principal Commissioner had invoked his power u/s. 263 in respect of an item of income which was declared in terms of the Scheme. All particulars were available before the Principal Commissioner in respect of such income and the Principal Commissioner upon being satisfied, had accepted such declaration. All materials were available before the Principal Commissioner when the declaration made u/s. 183 of the Finance Act, 2016 were considered and accepted. Therefore, the assumption of jurisdiction by the Principal Commissioner u/s. 263 of the Act was wholly without jurisdiction.”

Recovery of tax:— (i) Provisional attachment of property — Effect of s. 281B — Power of provisional attachment must not be exercised in an arbitrary manner — Revenue must prove that an order of provisional attachment was justified — Recovery proceedings against assignee of partner’s share in firm — Provisional attachment of property of firm — Not valid; (ii) Firm — Assignment of share of partner to third person — Difference between assignment of share and formation of sub-partnership — Recovery proceedings against assignee — Provisional attachment of property of firm — Not valid

In proceedings against an individual AS, to whom one of the partners of the assessee-firm had assigned part of her interest in the firm, property standing in the name of the assessee-firm was provisionally attached on the ground that AS had paid cash consideration to the partner and thereby, derived 2.5 per cent share in the profit from the partner.

On a writ petition to quash the order of provisional attachment, the Gujarat High Court held as under:

“i) A plain reading of section 281B of the Income-tax Act, 1961 would make it clear that it provides for provisional attachment of property belonging to the assessee for a period of six months from the date of such attachment unless extended, but excluding the period of stay of assessment proceedings, if any. These are drastic powers permitting the Assessing Officer to attach any property of an assessee even before the completion of assessment or reassessment. These powers are thus in the nature of attachment before judgment. They have provisional applicability and in terms of sub-section (2) of section 281B of the Act, a limited life. Such powers must, therefore, be exercised in appropriate cases for proper reasons. Such powers cannot be exercised merely by repeating the phraseology used in the section and recording the opinion of the officer passing such order that he was satisfied for the purpose of protecting the interests of the Revenue, it was necessary so to do.

ii) The plain language of the provisions of section 281B is plain and simple. It provides for the attachment of the property of the assessee only and of no one else.

iii) A fine distinction was drawn by the Supreme Court in the case of Sunil J. Kinariwala [2003] 259 ITR 10 (SC) between a case where a partner of a firm assigns his or her share in favour of a third person and a case where a partner constitutes a sub-partnership with his or her share in the main partnership. Whereas in the former case, in view of section 29(1) of the Partnership Act, the assignee gets no right or interest in the main partnership except to receive that part of the profits of the firm referable to the assignment and to the assets in the event of dissolution of the firm, in the latter case, the sub-partnership acquires a special interest in the main partnership.

iv) The case on hand indisputably was not one of a sub-partnership though in view of section 29(1) of the Partnership Act, AS as an assignee may become entitled to receive the assigned share in the profits from the firm, not as a sub-partner because no sub-partnership came into existence, but as an assignee to the share of profit of the assignor-partner. The subject land not being the property of AS, was not open to provisional attachment. Even if the Department’s case that there was some interest of AS involved in the land in question, that would not make the subject land of the ownership of AS. The provisional attachment of the subject land u/s. 281B of the Act at the instance of the Revenue was not sustainable in law.

v) For all the forgoing reasons, this writ-application succeeds and is hereby allowed. The impugned order of provisional attachment dated 29th May, 2021 to the extent it includes the subject land, is hereby quashed and set aside. If on the basis of the provisional attachment order, any entries have been mutated in the revenue records, the same shall now also stand corrected.”

Reassessment — Notice u/s 148:— (i) Duty of AO — Consideration of assessee’s objections to reopening of assessment is not mechanical ritual but quasi-judicial function — Order disposing of objections should deal with each objection and give proper reasons for conclusions — AO is bound to provide documents requested by assessee — Matter remanded to AO; (i) Recording of reasons — Reasons recorded furnished to assessee containing omission and was not actual reasons submitted to competent authority for approval — Matter remanded to AO with directions

The assessee was a non-banking financial company. In compliance with clause 3(2) of the Reserve Bank of India Act, 1934, the assessee recognised the income from non-performing assets only when it was realized and did not offer it to tax on an accrual basis but on actual receipt basis. For the A.Y. 2013-14, the assessee received a notice u/s 148 of the Income-tax Act, 1961 stating that there were reasons to believe that income chargeable to tax for the assessment year had escaped assessment within the meaning of section 147. The assessee filed its objections. Thereafter, the assessee was furnished the reasons recorded for reopening the assessment. In its objections to the reopening, the assessee also requested the Assessing Officer to provide photocopies of documents evidencing the request sent by the Assessing Officer to the competent authority for obtaining approval u/s 151(1) and documents evidencing the approval. The Assessing Officer rejected the objections raised by the assessee without referring to any of the objections raised or judgments cited by the assessee.

The assessee filed a writ petition and challenged the notice and the reopening. The Bombay High Court allowed the writ petition and held as under:

“i) The exercise of considering the assessee’s objections to the reopening of an assessment u/s. 147 of the Income-tax Act, 1961 is not a mechanical ritual but a quasi-judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. The Assessing Officer is duty bound to provide all the documents requested by the assessee and his reluctance to provide those documents only would make the court draw adverse inference against the department.

ii) The Assessing Officer was duty bound to deal with all the submissions made by the assessee in its objections raised for reopening of the assessment u/s. 147 and not just brush aside uncomfortable objections. The Assessing Officer instead of providing the requested documents had dismissed the assessee’s request stating that it was an administrative matter and all correspondence had been made through the system. There was omission in reasons recorded furnished to the assessee and these were not the actual reasons submitted to the competent authority for approval u/s. 151 to issue notice u/s. 148.

iii) The order rejecting the assessee’s objections for reopening the assessment was quashed and set aside. The matter was remanded for de novo consideration. The Assessing Officer was directed to grant a personal hearing to the assessee and provide the assessee with a list of judgments and orders of the court or Tribunal relied on by him to enable the assessee to deal with or distinguish those judgments or orders in the personal hearing. The court also directed that the Assessing Officer should also consider all the earlier submissions of the assessee while considering the assessee’s objections and give proper reasons for his conclusion.”