I. Preliminary issue of parties before the HC
1. The preliminary issue was whether the notice issued u/s. 148 on June 31, 2022 for AY 2014-15 during the pendency of reassessment proceedings pursuant to an earlier notice u/s. 148 dated May 21, 2021 and the directions given by the Hon’ble Supreme Court in its judgment in Union of India vs. Ashish Agarwal dt. May 04, 2022 is barred by limitation.
2. The Assessee contended that
i) Notice issued on June 31, 2022 is invalid, since it was beyond the time limit specified under unamended section 149(1)(b) i.e. March 31, 2021.
ii) Validity of the said notice must be tested based on amended provisions.
iii) Notifications extending the time limits for issuing notices and judgement in case of Ashish Agarwal (supra) have no application in the present case as first proviso to amended Section 149(1) puts a fetter on issuing notice u/s. 148 beyond the stipulated period.
3. The Revenue contended that:
i) Initial Notice dt. May 21, 2021 was issued within the time limit extended by the notifications under the TOLA.
ii) Final notice dt. June 31, 2022 was issued in compliance with directions given in Ashish Agarwal (supra) case. Sanction was granted by authority u/s 151 since the said notice was beyond 3 years.
iii) First proviso to the amended section 149(1) is not applicable as the time to issue notice under unamended section 148 is extended by the foregoing notifications, upto June 30, 2021.
iv) Following time frames are to be excluded for calculating the period of limitation as per the fifth proviso of amended section 149(1):
● Time between the date of issue of notice u/s. 148A(b) i.e May 24, 2022 and date granted to file response i.e. June 8, 2022.
● Time between the date of issue of second notice issued suo-moto by AO i.e. June 28, 2022 and date granted to file response i.e. July 8, 2022.
● Time frame between the date granted to file first response 1 i.e. June 8, 2022 and date of issue of second notice i.e. June 28, 2022.
● Time frame between date of issue of initial notice dt. May 21, 2021 and date of judgement of Ashish Agarwal i.e. May 4, 2022.
II. Summary of HC decision:
1. HC upheld assessee’s contention and held that the validity of a notice must be judged based on the law existing as on date of issue of notice u/s. 148 which in the present case is July 31, 2022, by which time the Finance Act, 2021 is already on the statute. Accordingly, no notice u/s. 148 could be issued for AY 2014-15 based on first proviso to amended Section 149.
2. Fifth proviso to section 149(1)(b) cannot be applied in a case where the first proviso applies. Even if fifth proviso is to be applied, only the time frame between date of issue of notice u/s. 148A(b) i.e May 24, 2022 and date granted to file response i.e. June 8, 2022 which aggregate to 27 days, can be excluded and accordingly, notice issued u/s. 148 on July 31, 2022 is barred by limitation.
III. Our Comments:
1. The Hon’ble Supreme Court in Ashish Agarwal case only deemed first notice issued under section 148 to be a show cause notice u/s. 148A(b) and left all defences available to assessee u/s. 149.
2. Section 3(1) of TOLA enables CG to issue notification to extend time limit provided in specified Acts but not to postpone applicability of the amended provisions.
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