Chhattisgarh High Court upholds validity of reassessment notice issued under the old law

Introduction:

In a recent order in Palak Khatuja v Union of India and others (WP(T) No. 149 of 2021) (Order), a single judge bench of the Hon’ble Chhattisgarh High Court (High Court) has upheld the validity of reassessment notice issued under the old law (ie, law existing prior to 1 April 2021).

Background:

Recent amendments made by the Finance Act, 2021 led to a paradigm shift in the reopening of past tax assessments inasmuch as the number of years for which tax assessments can be reopened has been changed from 5 or 7 years (depending upon quantum of escaped income) from the end of relevant financial year (FY) (17 years from the end of relevant FY in case of foreign assets) (Old Law) to 4 years from the end of relevant FY except in certain high stake matters (New Law). As a result, from 1 April 2021, the New Law empowered the income tax department (IT Department) to go back only till FY 2017-18 (other than high stake matters). Further, the New Law also requires the IT Department to follow prescribed procedures (like conducting enquiries, providing show cause notice to taxpayer before reopening the assessment, consider taxpayer’s reply, etc) before issuing reassessment notice.

Even though the New Law became effective from 1 April 2021, IT Department continued to issue reassessment notices under the Old Law even after 31 March 2021. For this purpose, it drew support from the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (Relaxation Act) read with certain notifications in terms of which the time limit for issuing reassessment notices under the Old Law was extended till 30 June 2021 (Date Extension).

This caused a conflicting position as the Date Extension sought to extend a repealed provision. Consequently, several taxpayers who were issued reassessment notices after 31 March 2021 under the Old Law challenged such notices and consequential reassessment proceedings in writ petitions before various high courts in the country. Please refer our ERGO dated 21 July 2021 in this regard.

Order:

In the instant case, Palak Khatuja (Taxpayer) was issued reassessment notice dated 30 June 2021 for FY 2014-15 under the Old Law. The Taxpayer challenged the validity of such reassessment notice primarily on the ground that as the reassessment notice was issued on 30 June 2021, prescribed procedures under the New Law which became effective from 01 April 2021, were not followed and thus, the reassessment notice was liable to be quashed. 

High Court rejected the arguments of the Taxpayer and upheld the validity of reassessment notice issued under the Old Law based on the following:

Comments

As per the Order, it seems that High Court’s attention towards interim orders passed by other high courts on this issue (wherein the operation of such similar reassessment notices and consequential proceedings were stayed) was perhaps not brought.

Challenges to such similar reassessment notices are pending for final adjudication before various high courts such as Hon’ble Bombay high court, Hon’ble Delhi high court, Hon’ble Calcutta high court, etc. Please refer our ERGO dated 21 July 2021 in this regard. Thus, it would be interesting to see if those courts will resonate with the reasoning of the single judge bench of the High Court. Further, since the concerned Order is passed by the single judge bench of the High Court, whether the Taxpayer will challenge this Order with the division bench or not should be observed closely.

One of the most important points for consideration on the subject is: whether the Date Extension to extend the validity of a repealed provision (ie, Old Law) is legally valid or not.

-         Sanjay Sanghvi (Partner), Raghav Kumar Bajaj (Principal Associate), Ujjval Gangwal (Senior Associate)

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