The Curious Case of Missing First Proviso to Section 149 & Miscounting of 3 Years, in CBDT Instruction on SC Judgement


By Mayank Mohanka, FCA, Partner S M Mohanka & Associates & Founder Director, TaxAaram India Pvt Ltd

Executive Summary

This Article tries to highlight certain glaring discrepancies in the CBDT Instruction No. 1/2022 dated 11.5.2022 containing Implementation Guidelines of SC Judgement on Validity of Reassessment Notices, in the UOI vs. Ashish Agarwal Case.
A bare perusal of the directions, given in para 6.2 of the said CBDT Instruction, makes it amply clear, that the underlying inference and the consequential manner of dealing with the impugned reassessment notices, is evidently in contravention and violation of the applicable time barring limitation periods of issuance of reassessment notices, on or after 1.4.2021, categorically and expressly mandated in section 149 of the Income Tax Act, as per the Finance Act, 2021.
Interestingly, the CBDT Instruction is completely silent on the applicability of the First Proviso to Section 149 of the Income Tax Act, and as such its interpretation for AYs 2013-14 and AY 2014-15, definitely needs reconsideration and correction.
Further, the simple mathematical calculation of counting of three years, from the end of relevant assessment year, seems to be miscalculated in the said CBDT Instruction, as it has been directed that AY 2016-17 and AY 2017-18, falls within a period of three years, as on 1.4.2021.
Interestingly, as per the said CBDT Instruction, AY 2016-17 + 3 Years = 2021-22 and not Year 2019-20 and AY 2017-18 + 3 Years = Year 2021-22 and not Year 2020-21.

CBDT has issued Instruction No. 01/2022, dated 11.5.2022, containing Guidelines for Implementation of SC Judgement in the case of ‘Union of India vs Ashish Agarwal (2022 SCC Online SC 543), dated 4.5.2022.

In the said Instruction, CBDT has prescribed a uniform procedure to be adopted for implementing the SC judgement, where extended reassessment notices have been issued, irrespective of the fact, whether such notices have been challenged or not.

Para 6.2 of the said CBDT Instruction, perhaps, constitutes the core of this Instruction, as it specifies the manner, in which, the impugned re-assessment notices, are to be dealt with by the respective assessing authorities, and it provides that:

(i) AY 2013-14, AY 2014-15 and AY 2015-16: Fresh Notice u/s 148 can be issued in these cases, with the approval of the specified authority, only if the assessing officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of an asset, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more, for that year.

(ii) AY 2016-17, AY 2017-18: Fresh Notice u/s 148 can be issued in these cases, with the approval of the specified authority, since they are within a period of three years from the end of the relevant assessment years.

Wide Gap in CBDT’s Instruction’s Interpretation of Limitation Period specified in section 149:

A bare perusal of the above directions, given in para 6.2 of the CBDT Instruction, makes it amply clear, that the underlying inference and the consequential manner of dealing with the impugned reassessment notices, is evidently in contravention and violation of the applicable time barring limitation periods of issuance of reassessment notices, on or after 1.4.2021, categorically and expressly mandated in section 149 of the Income Tax Act, as per the Finance Act, 2021.

For ready reference, the express legislative provisions of section 149 of the Income Tax Act, as per the Finance Act 2021, are being reproduced, as under:
“[Time limit for notice.

149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year:

Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021.”

Therefore, it is duly evident and crystal clear from the above legislative provisions as contained in section 149 of the Income Tax Act, 1961, that w.e.f. 1.4.2021:

i) notice u/s 148 is to be issued, on or after 1.4.2021, within a period of three years, from the end of the relevant assessment year, if the amount of alleged escape income is less than or equal to Rs. 50 lakhs, in an assessment year. [section 149(1)(a)]

ii) notice for reassessment u/s 148 could be issued after three years and uptill ten years if the Assessing Officer has in possession, books of accounts/documents/evidence which reveal that income chargeable to tax, exceeding fifty lakh rupees, in an assessment year, represented in the form of an asset, has escaped assessment. [section 149(1)(b)]

However, First Proviso to Section 149 of the Income Tax Act, as per the Finance Act, 2021, clearly, categorically and expressly mandates that:

No notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021.

Thus, in effect, as per the Grandfathering provisions of First Proviso to section 149 of the Income Tax Act, as per the Finance Act, 2021, no Notice u/s 148 can be issued, for the assessment years 2013-14 and 2014-15, on or after 1.4.2021, even if the amount of alleged escaped income, in any of such assessment years is in excess of Rs. 50 lakhs.

Interestingly, the CBDT Instruction is completely silent on the applicability of the First Proviso to Section 149 of the Income Tax Act, and as such its interpretation for AYs 2013-14 and AY 2014-15, definitely needs reconsideration and correction.
Further, as per clear provisions as contained in Section 149(1)(a) of the Act, notice u/s 148 has to be issued within a period of three years, from the end of the relevant assessment year.

This clearly implies, that any Notice u/s 148, if it is being issued, on or after 1.4.2021, then it can’t be issued for AY 2017-18 and prior assessment years, if the amount of alleged escaped income is less than or equal to Rs. 50 lakhs, in that year.
To understand it in simple manner, let us suppose that a Notice u/s 148 has to be issued for AY 2017-18, within a time period of three years, from the end of the relevant assessment year, i.e. AY 2017-18. So, clearly, these three years would be Year 2018-19, Year 2019-20 and Year 20120-21. So, notice u/s 148 has to be issued on or before 31.3.2021, for AY 2017-18. However, all such impugned Notices under unamended section 148 have been issued on or after 1.4.2021, i.e., after the mandated limitation period of 31.3.2021, in our present example.

This simple mathematical calculation of counting of three years, seems to be miscalculated in the said CBDT Instruction, as it has been directed that AY 2016-17 and AY 2017-18, falls within a period of three years, as on 1.4.2021.

Interestingly, as per the said CBDT Instruction, AY 2016-17 + 3 Years = 2021-22 and not Year 2019-20 and AY 2017-18 + 3 Years = Year 2021-22 and not Year 2020-21.

Contrary to what has been interpreted in the said CBDT Instruction, the undisputed and clear picture, which emerges is as under:

1.Reassessment Notices for AYs 2013-14 and 2014-15 shall be considered as invalid by virtue of First Proviso to Section 149.

2. Notices for AYs 2015-16, 2016-17 & 2017-18 shall survive only if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in each of such assessment year, and the assessing authority is having in its possession, books of accounts or other documents or evidence, which reveal that such income in the form of an asset, has escaped assessment.

Concluding Remarks

Therefore, in view of this wide gap of interpretation of the time barring limitation period of issuance of reassessment notices in section 149 of the Income Tax Act, in the said CBDT Instruction No. 01/2022 dated 11.5.2022 and the clear, unambiguous and undisputed time limits explained and discussed supra, the pandora box of unnecessary litigations has again been opened up, as such a faulty interpretation of the applicable limitation period, is amenable to be again challenged before the appropriate appellate forums.

Summing up with a poetic spirit:

Interestingly, to Reduce Litigations, these Legislative Amendments, were Strived,

Ironically, increased Litigations, are now to be Contrived.

About the Author: Sh. Mayank Mohanka is a seasoned Tax Practitioner, a Fellow Member of the Institute of Chartered Accountants of India and a Bachelor of Commerce, in Honours Degree from Shree Ram College of Commerce (SRCC), Delhi University. He is a Senior Partner in a Noida based established and reputed CA Firm, M/s S M Mohanka & Associates. He is the Founder Director in M/s TaxAaram India Pvt Ltd, and has recently launched his unique Start-up Venture taxaaram.com, India’s first digital platform offering painless, seamless and cost-effective professional e-services in relation to faceless assessments, appeals and other statutory e-compliances. He has a 16+ years of rich and profound experience in the field of Taxation (Direct & Indirect), and Advisory. He makes Representations for a widely diversified cross section of industries including Power Sector, Banking & Finance, Real Estate, Food Processing, Infrastructure, Manufacturing, Education and Information Technology, before Authority for Advance Rulings, ITAT, Education Boards and other appropriate forums. He has authored ‘Best Seller’ Professional Books titled “Faceless Assessment, Appeals & Penalty Ready Reckoner with Real Time Case Studies” and “Case Studies & Procedures under Direct tax Vivad se Vishwas Act, 2020”, with Taxmann Publications, and the Book ‘SUPER 21’, treasuring his real-life winning representations on Income Tax, GST, PF, ESI, IBC & Banking Regulation Act, in his professional practice. He has also to his credit 100 distinguished, informative, useful and practically oriented published articles in reputed journals, sites and platforms including CaclubIndia, and Taxmann, on wide ranging subjects including Income Tax, GST, PF, ESI, IBC, Corporate Laws, Education Acts & FEMA. He can be contacted at 9999981515 or mayankmohanka@gmail.com.

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Posted on: May 12th, 2022


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10 comments on “The Curious Case of Missing First Proviso to Section 149 & Miscounting of 3 Years, in CBDT Instruction on SC Judgement
  1. One More Value Addition by Author Mayank Mohanka, in this Article:
    “Interestingly, in justification of prescribing the specified timelines in para 6.2, the said CBDT Instruction, self servingly interprets that the decision of the hon’ble SC, read with the time extension provided by TOLA, will allow such impugned reassessment notices to travel back in time to their original date, when such notices, were to be issued, and then new section 149 of the Act, is to be applied at that point.
    However, it is a matter of fact, that no such mention or even whisper of such reassessment notices travelling back in time, with TOLA extensions, has been made in the hon’ble SC judgement. In fact, the very basis or edifice of this presumptuous interpretation that TOLA Extensions will hold good simultaneously with the amended provisions of section 149 as per the Finance Act 2021, has no factual and legal basis or merit.

    • Mahendra jain says:

      Excellent comments of on CBDT circular VIS A VIS SC ORDER
      one query please
      Our case is related to ay 16-17 notice 148 recd on 1-4-2021 though notice digitally signed on 31-03-2021 . Assessment completed on 31-03-2022. Escape income more than 50 lacs
      For LTG FROM SHARES SOLD THROUGH STOCK EXCHANGE DURING Fy 15-16.
      Wether in our case deemed notice 148 A applicable as per SC since assessment has been completed and is it time barred as condition of assets is not full filled

      • Under section 148, the requirement is of Issuance of Notice and not of Serving it to the Assessee. However, the Hon’ble Madhya Pradesh High Court has recently held that merely digitally signing the Notice does not constitutes Issuance of Notice. A Digitally Signed Notice is said to be issued only when it is uploaded in the registered e-filing account of the assessee or it has been mailed to the assessee, as in e-Proceedings, the issuance of notice will usually coincide with its receipt by the assessee. Thus, if you have received the said Notice on 1.4.2021 in your registered e-filing account, or in your email, then you may take the plea of benefit of applicability of the SC Judgement in UOI vs Ashish Agarwal.

  2. Mahendra jain says:

    Sir Thank you so much for your instant response. God bless you. One last query please
    1 as per cbdt circular, since the assessment order is already passed for AY 16-17 ,will Dept send us 148A along with info and materials and if they don’t then what remedy we have
    2 since our case is related to LTG from sale of shares through stock exchange, are we exempt from the conditions as it is not represented by ASSETS as such.
    Pls guide us . Very kind of you .

  3. Mahendra jain says:

    Ps – sir we come under the category of 50 lacs and above

  4. vijay says:

    SIR WHAT WILL HAPPEN TO CASES WERE AO PASSED REASSESSMENT ORDER BEFORE THIS SC JUDGEMENT AND ASSESSEE IS IN APPEAL 9ESACAPEMENT LESS THAN 50 LACS FOR AY 2013-14 TO AY 2015-16. AND ASSESSEE HAS FILED APPEAL BEFORE CIT APPEAL. CAN WE FILE RECTIFICATION APPLICATION UNDER SECTION 154 OR TAKE ADDITIONAL GROUND TO QUASH THE SAID REASSESSMENT ORDER

  5. PARAS CHHAJED says:

    “रस्सी जल गई पर बल नहीं गया ”
    ‘The rope got burnt but the force did not.’

    Order of Honourable Supreme Court is mis-interpreted by CBDT to save skins of its officials and start a new era of litigations.

    Affected assessees to again approach Hoourable High Courts for justice.

    CBDT should get advise from the ASG who appeared before the Honourable Supreme Court on behalf of revenue.

    The advocates appearing on behalf of assessees and the ASG made consencus and agreedly requested the Court to issue order under article 142 of the Constitution. They must not have agreed for reassessment proceedings for AY 2013-14, 2014-15 to continue whcih cannot be taken now. They also must not have agreed to validity of TOLA notifications beyond 31st March 2021.

    The officers sit on the so called informaiton for years together based on which they have to take action for reassessment and they wake up only at fag end of the limitation period. They have issued notices for AY 13-14, 14-15 etc in 2021 whereas the information was with them for quite long time. It is not that they carried out inquries before issue of such notices as in fact, they do not do any home work in true sense .

    CBDT ought to have accepted the order of the Honourble Supreme Court in letter ans spirit and not the way it wanted to interpret and implement.

    Almost all legal experts have common opinion that the instruciton of CBDT is not in harmony with the order and intent of the Honourable Court.

    CBDT should give up its wrong stand and reconsider the legal aspects of its instruction and must issue a fresh instruction in true sense to avoid long legal battle and save the assessees from undeu harassment.

    Professional association, tax payers associations should challenge the instruction in writ to get quicker justice in the larger interest of tax payers and tax profesinals saving from unnecessary and unwaranted harassments.

    The author has really made a marvelous attempt for which he deserves a salute.

  6. ashok dhariwal says:

    Mayank ji my question is that my case was reopend due to client code modification by broker on NSEL platform(Commodity Exchange) for A.Y.2014-15. Notice issued in April 2021. The escapment of income due to client code modification was Rs.1.48 crores.Whether notice can be issued in view of CBDT instruction no 1 and can the amount of Rs.1.48 crores be considered as represent to assets as specified in section 149(1)(b)

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