CBDT recently notified a new E-Assessment Scheme to reduce interaction between assesses and assessing officers. It has also been announced that over 58,000 notices have been issued under this new scheme, notified on Sep 12, 2019, in respect of AY 2018-19.
Authors, Dindayal Dhandaria & Naveen Kumar Dhandaria (Chartered Accountants), in this article In this article, the authors examine the validity of this scheme when the ratio of a recent Mad HC decision in the case of Vedanta Ltd is applied. In this case, the assessee succeeded in contending that the new scheme u/s.144C of assessments by a Dispute Resolution Panel was a substantive change and not a procedural change. The authors also cite the apex court’s decision in Dhadi Sahu (which was cited while deciding the Vedanta case) to the effect that “where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum". As a result, the authors feel that the Vedanta case ratio casts a shadow on the validity of the assessment proceedings initiated under the Scheme for Assessment Year 2018-19.
Validity of "e-Assessment Scheme, 2019”
By virtue of powers available under sections 143(3A) and (3B) of the Income Tax Act, 1961, (“the Act”) the Central Board of Direct Taxes notified a new scheme for electronic and faceless assessments and for this purpose, it issued two notifications nos. 3264(E) and 3265(E) on 12th September, 2019 to be called “E-assessment Scheme, 2019” (hereinafter referred to as “the Scheme”).
It is reported that 58,322 cases pertaining to Assessment Year 2018-19 have been selected for scrutiny and notices under section 143(2) of the Act have been issued under the Scheme.
In this article, the validity of the impugned notices is examined in the light of the recent judgment of the Hon’ble Madras High Court in the case of Vedanta Limited v. ACIT reported in [TS-1203-HC-2019 MAD (TP)].
In Vedanta’s case (supra), one of the issues before the Hon’ble Madras High Court can be stated as:
“Whether an amended law can be applied to any proceeding that is pending as on the date of amendment notwithstanding that such amended law was not operative on the first day of the relevant assessment year”.
In this connection, it is useful to refer to the decision of the Hon’ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. vs. State of Kerala [TS-5074-SC-1965-O], wherein it has been held that:
“Now, it is well-settled that the IT Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.” [Para 6 of the Order] (Emphasis supplied)
Notwithstanding the above judgment, the Income Tax Department argued that the amendment being procedural, it applied to the proceedings pending as on the date of amendment.
HIGHLIGHTS OF THE VEDANTA CASE
The issue in Vedanta’s case (supra) arose in the context of section 144C of the Act relating to “Dispute Resolution Panel”. While holding that the amended law did not apply to any proceeding pending on the date of amendment, the Hon’ble Madras High Court considered the procedural or substantive nature of the amendment and, after narrating the amendments or changes brought about in section 144C of the Act, held that:
“Thus, by virtue of insertion of Section 144C, the legislature has put in place a distinct, scheme of assessment in regard to a specified class of assessees.” (Para 23 of the Order)
Elaborating further, the High Court stated in para 24 that:
“The question as to whether the amendment or change brought about by Section 144C is merely procedural or substantive would stand answered by the narration of the Scheme of assessment, as I have noticed above. No doubt, Section 144C prescribes a procedure for assessment. But can it be called a mere shift in procedure? I believe not as that would be an oversimplification of the matter. The procedure inserted is substantive, in that it offers a scheme of assessment to a distinct class of assessees, that is, those assessees whose assessments involve the issues of Transfer Pricing and determination of Arms Length Price. The provisions of Section 144C do not, thus merely prescribe procedure but a substantive exercise in assessment.” (Emphasis supplied)
Reference was made to the judgment of the Supreme Court in the case of R. Sharadamma (1996) 8 SCC 388) after considering an earlier judgment of the Supreme Court in the case of Commissioner of Income Tax vs. Dhadi Sahu [TS-5045-SC-1992-O], wherein it was observed that:
“It is also true that no litigant has any vested right in the matter of procedural law but, where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. The right becomes vested when the proceedings are initiated in the Tribunal or the court of first instance and, unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue in spite of the change of jurisdiction of the different Tribunals or Forums.”
On the basis of above, the Madras High Court held that:
“26. Thus, where there is a change in the form of assessment itself, such change is not a mere deviation in procedure but a substantive shift in the manner of framing an assessment. A substantive right has enured to the parties by virtue of the introduction of Section 144C, that, bearing in mind the settled position that the law applicable on the first day of assessment year be reckoned as the applicable law for assessment for that year, leads one to the inescapable conclusion that the provisions of Section 144C can be held to be applicable only prospectively, from AY 2011-12 only”. (Emphasis supplied)
APPLICATION OF VEDANTA’S CASE RATIO TO THE SCHEME
Needless to say, the Scheme was not in existence on the first day of the Assessment Year 2018-19 for which notices under section 143(2) of the Act have been issued under the Scheme. Undoubtedly, the assessment proceedings for this year were pending on the date of notification of the Scheme and so, the issue which arose in Vedanta’s case, viz. “Whether an amended law can be applied to any proceeding that is pending as on the date of amendment notwithstanding that such amended law was not operative on the first day of the relevant assessment year”, also arises in cases under the Scheme.
If it be so, the question that remains to be examined is whether the changes made by the Scheme are procedural or substantive. The Madras High Court held the changes to be of substantive nature on the following reasoning:
1. Section 144C puts in place a distinct, a new scheme of assessment in regard to a specified class of assessees.
2. A change in the forum of assessment itself is not a mere deviation in procedure, but a substantive shift in the manner of framing an assessment.
Let us examine whether the above reasoning applies to the Scheme.
1. Notification No. 3265(E) provides that certain existing provisions of the Act (as many as 24) shall apply to the assessment made in accordance with the Scheme subject the “Exceptions, Modifications and Adaptations” made by the Notification. For cases selected for scrutiny under the Scheme, notices under section 143(2) of the Act shall be issued by Assistant Commissioner of Income Tax (e-Verification), Delhi. For cases not selected for scrutiny under the Scheme, the jurisdictional Assessing Officer will continue to issue/ serve notices under section 143(2) of the Act. National e-Assessment Centre shall exercise the powers and functions of assessment concurrently with Regional e-Assessment Centres and various Units under it. The jurisdictional Assessing Officer will be entrusted with “post-assessment” functions, e.g., demand and collection of taxes, penal proceedings, rectifications, etc.
In this way, the Scheme puts in place a distinct, a scheme of assessment in regard to a specified class of assessees and the first reasoning stated above applies to it.
2. The existing provisions of sections 120, 124 and 127 of the Act have been subjected to Exceptions, Modifications and Adaptations, for the purposes of the Scheme. Persons who are not described as “Assessing Officers” by section 2(7A) of the Act will act as “Assessing Officers”, concurrently, under the Scheme. The jurisdiction will no longer depend on the location of the assessee or such other criteria envisaged in section 127 of the Act.
Thus, there is a change in forum of assessment and the second reasoning stated above also applied to the Scheme.
Section 144C of the Act was inserted by the Finance (No. 2) Act, 2009 with effect from 1st April, 2009, the Madras High Court reached an inescapable conclusion that the provisions of Section 144C can be held to be applicable only prospectively, from AY 2009-10 only. Because of similarity between the provisions of section 144C and the Scheme, this judgment casts a shadow on the validity of the assessment proceedings initiated under the Scheme for Assessment Year 2018-19 and also on proceedings for Assessment Year 2019-20, as and when the same be initiated.