Can The Amendment To S. 153A, Which Extended Limitation For Reopening Assessments To 10 years, Be Resorted For Reopening Proceedings Which Were Barred By Limitation?

The Finance Act, 2017 has amended section 153A of the Income-tax Act to empower an assessing officer to issue notice to an assessee beyond 6 assessment years but not beyond ten assessment years. CA Rohit Kapoor has dealt with the important question whether the extended period of limitation for reopening assessment could be resorted to for reopening proceedings which were already barred by limitation on the date of the amendment made by the Finance Act 2017 (01-04-2017). He has cited numerous judicial precedents in his analysis

Preamble

Section 153A, 153B and 153C were introduced by Finance Act 2003 with effect from 1st June 2003. There have been continuous amendments in section by the legislature from time to time and various judicial verdicts have been used to legalize the provision of this section. The Section 153A of the Act, inter alia, provides that in case of any person, if search is initiated under section 132 or books of account, other documents etc. are requisitioned under section 132A, the Assessing Officer shall issue notice requiring him to furnish a return of income in respect of each assessment year falling within six assessment years immediately preceding assessment year relevant to previous year in which such search is conducted or requisition is made "specified assessment years". The Finance Act, 2017 has made amendment in section 153A to empower an assessing officer to issue notice to an assessee beyond 6 assessment years but not beyond ten assessment years. In this article attempt is made to address the issue whether extended period of limitation for reopening assessment , could be resorted for reopening proceedings which were barred by limitation on the date of the amendment made by Finance act 2017 (01-04-2017)

1) Whether perceptive of opening of proceedings for 10 A.Y preceding the year in which search is conducted is well-founded as per the provisions of section 153A.

The Reason for amendment made in section 153A/153C as made by Finance Act 2017 due to "The existing provisions of clause (c) of the section 197 of the Income disclosure Scheme 2016. The said clause was omitted by finance act 2017 w.r.e.f.01-06-2016 and in order to protect the interest of the revenue the Finance Act, 2017 has made amendment in section 153A to empower an assessing officer to issue notice to an assessee in whose case tangible evidence(s) is/are found during search or seizure or in requisition, which is represented in form of undisclosed investment in any asset, pertaining to an assessment year beyond 6 assessment years but not beyond ten assessment years (referred as "relevant assessment years"), to furnish return of income in respect of relevant assessment years. The finance act 2017 has extended the period beyond 6 assessment years by making amendment in clauses (a) and (b). Therefore, it is obligatory to know the portrayal of word “relevant assessment year” which have been explained by inserting the explanation 1 to section 153A by Finance Act 2017 which read as under: –

Explanation 1

For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made.

The above explanation is being interpreted by considering an illustration , that the search was conducted on the assessee on  24.05.2017. In this case the years to be covered under section 153A will be A.Y. 2009-10 to A.Y. 2017-18. As the language emphasizes 10 years from end of the assessment year relevant to the previous year in which search is conducted. Therefore, the year of search shall be included together with for scheming period of  10 years. In practice it has been spotted that the AO are issuing the notice for A.Y. 2008-09 by interpreting the ten years preceding the assessment year relevant to the previous year in which search is conducted. The same is not correct and the assessment framed under section 153A for A.Y. 2008-09 will become lethal as the notice issued for A.Y 2008-09 is non jurisdictional.

2) Legality of assessment framed U/s 153A for the years in respect of which limitation had already expired before the date the amendment became effective.

The period of six years has been extended to nine years by finance act 2017 (as explained in Para 1), therefore scepticism is raised that what will be the fate for those assessment years in respect of which limitation had already expired/ lapsed before the date the amendment became effective. For instance, the search is conducted on 24.05.2017 and the AO has issued the notice under section 153A on 10.04.2018 for A.Y. 2009-10 to A.Y. 2017-18.The question then was, whether the AO can make an assessment under the amended provision for those year when the period prescribed for issue of notice for such assessment had before the amended Act came into force expired? Indisputably the period for issue of notice of assessment under the unamended section 153A had expired, as it then stood, and there was no provision for extending the period beyond 6 years preceding the year in which search was concluded. The power to issue notice U/s 153A for A.Y. 2009-10 to 2011-12 expired on 01-4-2017 under the unamended provision of Section 153A.The AO commenced a proceeding under section 153A for A.Y. 2009-10 to A.Y. 2011-12 on 24.05.2017, by applying amended section and not otherwise. The assessment made under section 153A for A.Y. 2009-10 and A.Y. 2010-11 can be challenged in the court on the ground that the subsequent amendment cannot seek to enhance or extend limitation for reopening assessment for those assessment years in respect of which limitation had already expired/ lapsed before the date the amendment became effective. The subject assessment years i.e. A.Y 2009-10 and 2010-11 could not have been reopened beyond 31/03/2017 even in terms of provisions of section 149.

a) Rule of Strict Construction

Fiscal statute, more particularly a provision such as the present one regulating period of limitation must receive strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality.

b) The application of the amended Act is subject to the principle that, unless otherwise provided, if the right to act under the earlier statute has come to an end, it could not be revived by the subsequent amendment which extended the period of limitation. The right to issue a notice under the earlier Act came to an end before the new Act came into force. There was undoubtedly no determinable point of time between the expiry of the earlier Act and the commencement of the new Act; but that would not, affect the application of rule of strict construction.

c) Once the period of limitation ends, by virtue of the provisions of the Act, it is not open to the revenue, to revisit such issues that are final. Therefore, matters that attain finality under existing law due to bar of limitation cannot be reopened for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment made in section 153A by finance act 2017 cannot be used to re-open those matters that attain finality.

d) On a proper construction of the provisions of section 153A and keeping in view the fourth proviso to section 153A,the effect of its operation i.e. 01-4-2017, cannot be given retrospective effect for assessments which have already become final due to bar of limitation prior to 1-4-2017. Taxing provision imposing a liability is governed by normal presumption that it is not retrospective and settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot, in the absence of clear contrary intendment expressed therein, be given greater retrospectively than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Therefore, amendment to section 153A by Finance Act, 2017, which extended limitation for reopening assessment to 9 years, could not be resorted for reopening proceedings concluded before amendment became effective. This same view has been held by various courts while explaining the extended limitation for initiation of assessment proceedings under section 149 and section 150 of Income Tax Act 1961.

1K. M. Sharma v. ITO [2002] 122 Taxman 426/254 ITR 772 (SC)

1Brahm Dattv.Assistant Commissioner of Income-tax 100 taxmann.com 324

1S.S. Gadgil v. Lal & Co. [1964] 53 ITR 231 (SC)

1C.B. Richards Ellis Moritius Ltd. v. Asstt. DIT [2012] 21 taxmann.com 535(Delhi)

1Govinddas v. ITO [1976] 103 ITR 123 (SC)

1CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC)

1[2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC) (para 18)

e) However, the department can argue that the  same ratio can’t be made applicable to the assessment A.Y. 2011-12 as the period of limitation u/s 149 has not expired as on date of amendment, i.e. 1st April 2017. The limitation period for issue of notice u/s 148 was getting barred on 31/03/2018 and reopening was legitimate on the date of amendment, i.e. 01st April, 2017. Moreover, if the provisions of section 153A are applied, then the matter was barred by limitation for A.Y. 2011-12 also. Therefore, it is very difficult to conclude that the A.Y. 2011-12 can be challenged on the ground of limitation or not.

Conclusion

From the above discussion, it can be stated that assessment proceedings framed u/s 153A can be challenged in the court on the ground that subsequent amendment cannot seek to enhance or extend limitation for opening assessment for those years in respect of which limitation has already been expired on the date when amendment became effective. Moreover, the said issue is full of litigation and yet to pass the test of judiciary.