Facts of the Case

The petitioners challenged reassessment notices issued by the Income Tax Department under the unamended Section 148 of the Income Tax Act after the enforcement of the Finance Act, 2021, which introduced an entirely new reassessment framework.

The grievance of the petitioners was that after 1st April 2021, reassessment proceedings could only be initiated under the newly introduced statutory mechanism, particularly Section 148A, which mandates prior inquiry and opportunity of hearing.

The Revenue, however, issued notices under the old provisions by relying upon the extended limitation under TOLA.

The Court examined whether such notices were legally sustainable after the substitution of the reassessment provisions by the Finance Act, 2021 

Issues Involved

  1. Whether reassessment notices issued after 01.04.2021 under old Section 148 are legally valid?
  2. Whether TOLA extends only limitation or also preserves the old reassessment mechanism?
  3. Whether the newly inserted Section 148A is mandatory before issuance of reassessment notice?
  4. Whether Section 6 of the General Clauses Act saves the old provisions?

Petitioner’s Arguments

  • The impugned notices were issued under provisions that had already ceased to operate after substitution by the Finance Act, 2021.
  • The new statutory regime under Sections 147 to 151 became effective from 01.04.2021 and was mandatory.
  • Section 148A introduced substantive procedural safeguards including inquiry and opportunity of hearing.
  • TOLA merely extends limitation and cannot revive repealed/substituted provisions.
  • Notices under the old regime violate legislative intent and statutory mandate.

Respondent’s Arguments

  • Revenue argued that by virtue of TOLA, the limitation period for issuance of reassessment notices stood extended.
  • It was contended that the old reassessment regime continued for the purpose of notices issued within extended limitation.
  • Reliance was placed upon Section 6 of the General Clauses Act to contend that existing rights and proceedings remained protected.
  • The Department argued that reassessment notices were validly issued under the pre-amended provisions.

Court Findings / Court Order

The Delhi High Court held prima facie that:

1. New Law Governs from 01.04.2021

Once the Finance Act, 2021 came into force, the reassessment mechanism stood substituted and the new provisions became operative.

2. Old Notices Prima Facie Unsustainable

Notices issued after 01.04.2021 under old Section 148 appeared prima facie contrary to law.

3. TOLA Cannot Override New Statutory Scheme

Extension of limitation under TOLA does not mean continuation of the old reassessment procedure.

4. Mandatory Compliance with Section 148A

Before issuance of notice under Section 148, the procedure under Section 148A must be followed.

Interim Protection Granted

The Court restrained the Revenue from proceeding further pursuant to the impugned reassessment notices until the next hearing.

Important Clarification by the Court

  • Extension of limitation and continuation of procedural law are distinct concepts.
  • A substituted provision replaces the earlier provision completely unless specifically saved.
  • Section 148A compliance is not optional after Finance Act, 2021.
  • TOLA cannot be used as a mechanism to bypass newly introduced taxpayer safeguards.

Sections Involved

  • Section 147 – Income escaping assessment
  • Section 148 – Issue of notice where income has escaped assessment
  • Section 148A – Conducting inquiry before issuance of notice
  • Section 149 – Time limit for notice
  • Section 151 – Sanction for issue of notice
  • Section 6, General Clauses Act, 1897
  • Finance Act, 2021
  • Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:4493-DB/MMH02092021CW93302021_163051.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools