The Finance Act 2021 revamped the existing reassessment provisions u/s 147 to 151 with effect from 01/04/2021. However numerous notice u/s 148 of unamended Act were issued post 31/03/2021. Since then there has been a hue and cry over the validity of re-assessment notices issued u/s 148 of the unamended Act (herein after referred to as the old law) post 01/04/2021. The legal stage was set with the decision of Hon’ble Chhattisgarh High Court (Single Member Bench) upholding the validity of such notices. The Hon’ble Allahabad High Court took a contrary view and quashed all the notices issued post 01/04/2021, under the old law. And subsequently, various High Court including the Delhi High Court, Rajasthan High Court, Bombay High Court, Madras High Court, Calcutta High Court followed the lead and quashed such notices issued under the old law.
The Revenue challenged the decision of Hon’ble Allahabad High Court before the Hon’ble Apex Court and surprisingly the Hon’ble Supreme Court modified the decision of various High Courts to uphold the re-assessment proceedings initiated post 01/04/2021 under the old law.
In this article we shall try to gauge what transpired throughout the legal journey of the issue from the High Court to Supreme Court in the case of Union of India Vs Ashish Agarwal and also consider the issue that may arise in giving effect to the order of Hon’ble Apex Court
Background
The reassessment proceedings are governed by the provision of section 147 to 151. The said provisions as they existed upto 31/03/2021 provided that in case where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may assesse or reassess such income and any other income which has escaped assessment u/s 147 of Income Tax Act 1961.
Further section 148 mandates that before making any assessment u/s 147 the Assessing Officer shall serve upon the assesse notice u/s 148 requiring the assesse to file his return of income within specified time. Further the Assessing Officer before issuing such notice was bound to record his reasons for doing so.
The time limit for issuing the notice u/s 148 is prescribed u/s 149
Numerous legal disputes arose in the existing reassessment provision. The few of which are enlisted herein below:-
i. Reason to believe not recorded or not properly recorded
ii. No new tangible material/information in the possession of the Assessing Officer
iii. Change of opinion
iv. Mandatory procedure laid down by the Hon’ble Supreme Court in GKN Driveshaft not followed
In an effort to overcome such issues and the persistent legal battle over the validity of the reassessment proceedings the Finance Act 2021 proposed to revamp the provision of section 147 to 151 by incorporating the procedure laid down in GKN Driveshaft within the provisions of Act (hereinafter referred to as new law). The said amendments have been made effective from 01/04/2021. And therefore post 31/03/2021 the reassessment proceedings for assessing the income escaping assessment could be carried out only under the provisions of the new law.
According to the new provisions of section 148, before making an assessment, reassessment, recomputation u/s 147, subject to provision of section 148A, the Assessing Officer shall issue notice u/s 148 along with the order u/s 148A(d) requiring the assesse to file a return of income in specified time. The proviso to said section further provides that no notice shall be issued unless there is information with Assessing Officer which suggests that the income chargeable to tax has escaped assessment.
Therefore before issuing the notice u/s 148 the Assessing Officer is required to follow the procedure laid out u/s 148A and pass an order u/s 148A(d). The Hon’ble Apex Court has briefly discussed the provision of section 148A and we may draw benefit from the same in understanding the said provisions. The relevant extract of the order of Apex Court is reproduced herewith
“However, by way of section 148A, the procedure has now been streamlined and simplified. It provides that before issuing any notice under section 148, the assessing officer shall
(i) conduct any enquiry, if required, with the approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(ii) provide an opportunity of being heard to the assessee, with the prior approval of specified authority;
(iii) consider the reply of the assesse furnished, if any, in response to the show cause notice referred to in clause (b); and
(iv) decide, on the basis of material available on record including reply of the assessee, as to whether or not it is a fit case to issue a notice under section 148 of the IT Act and
(v) the AO is required to pass a specific order within the time stipulated.”
As per sub-section (1) of Section 149 of the amended Act, time limit for issuing notice under Section 148 of the Act is reduced to three years from the end of relevant assessment year unless the case falls under clause – (b) where the period available for issuing such notice is ten years. Clause – (b) applies to cases where 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 asset which has escaped assessment amounts to or is likely to amount to total of Rs.50 lakhs or more.
Much before the Finance Act 2021 was conceived the world was impacted by the COVID-19 pandemic from early 2020. Our nation was under a strict lockdown and it became impossible for individuals as well as the Government machinery to operate or to adhere to statutory time limits. In such circumstances in order to overcome the difficulties the Government introduced the ‘Taxation and Other Laws (Relaxation and Amendment of Provisions) Act 2020 (hereinafter referred to as Relaxation Act) to provide relief and extension of time barring dates in the light of the COVID -19 pandemic.
In pursuance to the power vested under section 3 of the Relaxation Act, 2020, the Central Government issued 4 Notifications inter alia extending the time lines prescribed under section 149 for issuance of reassessment notices under section 148 of the Income Tax Act, 1961. Accordingly the time limit for issuing notice u/s 148 under the old law was extended to 30/06/2021 by the Notification dated 27/04/2021
The Explanations to the Notifications dated 31st March, 2021 and 27th April, 2021 issued under section 3 of the Relaxation Act, 2020 also stipulated that the provisions, as they existed prior to the amendment by the Finance Act, 2021, shall apply to the reassessment proceedings initiated in the extended time limit upto 30/06/2021.
Deriving essence from the Explanation to the Notification the Revenue issued 90,000 notices post 31/03/2021 under the old law. Of such notices assesse filed writ petitions before various High Court in 9000 cases challenging the validity of such notices when the Finance Act had revamped the provisions of section 147 to 151 with effect from 01/04/2021
Issue
i. In the numerous writ petitions filed before various High Court, the assesse primarily challenged the validity of notice u/s 148 issued post 31/03/2021 without following the procedure laid out u/s 148Aof Income Tax Act 1961
ii. Further the assesse also challenged the validity of Explanation to clause (A)(a) of CBDT Notification No. 38/2021 dated 27/04/2021 deriving power from section 3(1) of the Relief Act.
The arguments of the assesse before the High Court
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Sr. No. |
Argument |
| 1. | The provisions pertaining to reassessment of income in the Act stood substituted by the new provisions with effect from 01/04/2021 as enacted by the Finance Act 2021. On such substitution the old provisions of reassessment stood repealed and replaced by the new provisions with effect from 01/04/2021.
Therefore the old provisions cease to exist as on 31/03/2021 as the Finance Act does not contain any saving clause to extend the life of old provisions. Even otherwise there is no indication express or implied that the legislature desired to retain the old provisions for the assessment year prior to 01/04/2021 Therefore reassessment proceedings taken up post 31/03/2021 must adhere to the amended provisions of Act |
| 2. | Insertion of new proviso and substitution of old has the effect of repealing the old provisions which shall cease to have applicability |
| 3. | The Relaxation Act authorized the Government to merely extend the time limits and did not include power to issue any explanation or clarification
The Relaxation Act only sought to extend the limitation to the old provisions , it could not and it did not resurrect the provisions that were already dead on 31/03/2021 Therefore notification dated 27/04/2021 is ultra vires the power of subordinate legislation |
| 4. | The Relaxation Act cannot save the old provisions u/s 147 to 151 nor can it give an overriding effect, since on the date of enactment of the Relaxation Act, the Finance Act 2021 was not even born. It was only through the Finance Act 2021 the provisions of old law could have been saved. |
| 5. | To validate the CBDT Notification would be to resurrect and enforce an dead law contrary to statutory law in force on the date of issuance of such Notification dated 27/04/2022. Clearly that would be a legislative overreach by delegate and therefore ultra vires the Constitution of India |
| 6. | The decision of Chhattisgarh High Court in case of Palak Khatuja – WP No. 149 of 2021 does not lay down the correct law. The Hon’ble High Court applied a wrong test to look at the Notification issued under the Relaxation Act to interpret the principal legislation in the Finance Act 2021 |
| 7. | It is true that the Ordinance was enforced arising from the spread of the COVID-19 pandemic and the circumstances emerging therefrom, yet it would be over simplistic to ignore the provision of either the Relaxation Act or the Finance Act 2021 and to read & interpret the provisions of Finance Act 2021 as inoperative in the view of those circumstances
Practicality of life may never be a good guiding principle to interpret any law less so taxation laws which must be interpreted of their own language and scheme |
| 8. | The non-obstante clause in section 3(1) of Relief Act is only in context of completion or compliance of an action. It can only be applied to a proceedings that was already in existence when the said clause confronted the Act as amended by Finance Act 2021, on 01/04/2021
In all petitions the reassessment notice were issued after 01/04/2021, it can never be said that there were any reassessment proceedings pending on the date when the non-obstante clause may be applied |
| 9. | The Finance Act 2021 was enacted post the Relaxation Act. Therefore the parliament while enacting the Finance Act 2021 was fully aware of the impact of the new provisions for reassessment of income.
Different dates were prescribed in the Finance Act 2021 for enforcing different provisions. The section 2 to 88 were enforced with effect from 01/04/2021 whereas the section 54 of Finance Act 2021 enforced the provisions of section 194Q with effect from 01/07/2021. Therefore the Legislature was conscious of realities and in its own wisdom the Parliament chose to substitute the provisions of section 147 to 150 and introduced section 148A with effect from 01/04/2021. |
| 10. | Under the taxing statutes there is no scope for intendment. If two views are possible the one favouring the assesse should be followed |
The arguments of the Revenue before the High Court
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1. |
Substitution of old provisions shall not obliterate the previous set of statutory provisions . The old provisions would continue to have effect for past period i.e. assessments upto 31/03/2021 |
| 2. | The present situation of COVID-19 pandemic is a unprecedent situation calling for extraordinary measures. The extensions under Relaxation Act 2020 were give for the benefit of both the Revenue and the assesse.
The CBDT therefore in exercise of its powers under the Relaxation Act issued the necessary explanation which clarify and makes explicit what otherwise is implicit in the Act |
| 3. | There always exists a presumption in favor of constitutionality of the law and that no enacted law may be struck down on a simple reasoning of it being arbitrary or unreasonable. Strict application of the rule must be ensured while dealing with the tax legislation |
| 4. | Section 3(1) of the Relaxation Act has a non-obstante clause which clearly overrides any period of limitation or any disability arising from such period of limitation |
| 5. | If any ambiguity exits in enforcement of the Finance Act 2021 it must be examined and the law may be interpreted applying the mischief rule.
The mischief being unforeseen and difficult circumstances arising from the spread of COVID19 pandemic |
| 6. | The limitation under the Income Tax Act 1961 had been extended by the Relaxation Act much prior to introduction of the Finance Act 2021. It is only the extension which was given final push by the Notification dated 27/04/2021 as it became necessary on account of second wave of COVID19 pandemic
Therefore the mischief that existed stands addressed and remedied and no prejudice has been caused to petitioners |
| 7. | The Explanation to clause (A)(a) to Notification No. 20 of 2021 dated 31/03/2021 and clause A(b) to Notification No. 38 dated 27/04/2021 are only clarificatory in nature.
The explanation do not create any new law and do not in any way offend the existing law. Hence the argument that the delegated power has been exercised in excess of delegation made in erroneous and unfounded |
The decision of Hon’ble Allahabad High Court in case of Ashok Kumar Agarwal – WP No. 524 of 2021
The Hon’ble High Court after considering the arguments of the assesse and revenue found favor with the assesse. The Hon’ble High Court prominently held as under
i. In case a new provision has been put in place of a pre-existing provisions, the earlier provision cannot survive, except for things done or already undertaken to be done or things expressly saved to be done.
ii. The revenue authorities could intiate reassessment proceedings on or after 01/04/2021 only in accordance with the substituted law and not the old law
iii. In the Relaxation Act and the Finance Act there is absence of any express provisions or a provision to delegate the function to save applicability of provisions of 147,148,149 or 151 of the Act that existed up to 31/03/2021. The Relaxation Act is an enactment to extend the time line only. Therefore from 01/04/2021 onwards all references to issuance of notice contained in the Relaxation Act must be read as reference to the substituted provisions only
iv. Both under the old law and the new law enforced from 01/04/2021 the proceedings must arise only upon jurisdiction being validly assumed by the assessing authority. As all the notices issued u/s 148 were issued after the enforcement date of 01/04/2021, no jurisdiction has been assumed by the assessing authority and therefore no extension could be made u/s 3(1) of the Relief Act read with the Notifications issued thereunder
v. The word ‘notwithstanding’ creating the non obstante clause does not govern the entire scope of Section 3(1) of the Relaxation Act. It is confined to and may be employed only with reference to the second part of section 3(1) of Relief Act i.e. to protect proceedings already under way & pending as on 31/03/2021
vi. In absence of any specific delegation made to allow the delegate of Parliament to indefinitely extend such limitation, would be to allow the validity of an enacted law i.e. Finance Act 2021 to be defeated by a purely colourable exercise of power by the delegate of Parliament
vii. The extension under the Relaxation Act and the Notifications thereunder were made in the light of the COVID19 pandemic however once the matter reaches Court, it is the legislation and its language and interpretation offered to that language as may primarily be decisive to govern the outcome of proceedings. To read practicality in enacted law is dangerous. Also it would involve legislation by Court an idea and exercise we carefully tread away from.
viii. Where the plain legislative action exists wherein the Parliament has substituted the old law regarding reassessment proceedings with new provisions wef 01/04/2021 the mischief rule has no application
The decision of the Hon’ble Supreme Court
The revenue preferred an appeal before the Hon’ble Supreme Court against the Order of Hon’ble Allahabad High Court (supra). The revenue before the Hon’ble Apex Court stated that it was contemplating to prefer an appeal against similar judgement and order of various High Court. The Hon’ble Apex Court observed that since the issue involved in all the appeal is very same and to avoid multiplicity of appeal and to reduce burden of Court, the Apex Court shall exercise of power under Article 142 of the Constitution of India. Therefore the present order shall govern all other judgement and order passed by various High Court
The Hon’ble Apex Court in its decision primarily observed that the new provision substituted by the Finance Act 2021 are remedial and benevolent provisions and therefore the High Court was right in giving the benefit of new provisions in respect of proceedings relating to past assessment year where the notice u/s 148 has been issued on or after 01/04/2021
The Hon’ble Supreme Court held that the judgement of the High Court would result in no reassessment proceedings at all even if same are permissible under the Finance Act 2021. The revenue cannot be made remediless and object of reassessment proceedings cannot be frustrated.
The Apex Court further held that the Revenue was supposed to issued the reassessment notice post 01/04/2021 in accordance to the newly substituted provisions. However there was genuine non application of amendment as the officers of the Revenue were under bonafide belief that the amendments may not yet have been enforced and issued the notices under the old law. Therefore some leeway must be shown in that regard.
The High Court should have passed an order construing the notices issued under the old law as those issued u/s 148A of the Income Tax Act 1961 and permit the Revenue to proceed with reassessment proceedings as per the substituted provisions of section 147 to 151 as per the Finance Act 2021
Such an order according to the Hon’ble Supreme Court strikes balance between the rights of the Revenues as well as the respective assesse. Accordingly the Hon’ble Apex Court passed the following order
i) The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be showcause notices in terms of section 148A(b). The assessing officer shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the showcause notices within two weeks thereafter
(ii) The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a onetime measure visàvis those notices which have been issued under section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts.
Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required
(iii) The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted);
(iv) All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.
On perusal of the Order it may be observed, the Hon’ble Apex Court held that the reassessment of income post 01/04/2021 could be done only under the new provision of section 147 to 151. However since the officer of revenue under a bonafide belief issued 90,000 notices to the assesse believing that the time limit for issuing notice under the unamended law is extended beyond 31/03/2021 by the Relaxation Act and the Notifications issued thereunder, the Apex Court sought to provide remedy to the revenue by putting life into the notices issued under the unamended Act which otherwise died on 31/03/2021.
Accordingly the Hon’ble Apex Court has held that the notice u/s 148 issued under unamended Act and which are subject matter of the writ petitions shall be deemed to be the notice u/s 148A(b). Accordingly the notice u/s 148 takes a new breath under the provision of section 148A(b)
Further the Assessing Officer has to provide all the material relied upon by him to the assesse within 30 days from the date of the order i.e. from 04/05/2022. Thereafter the assesse shall file its response to the same within two weeks thereafter.
The Assessing Officer shall then pass an order u/s 148A(d) and following the procedure as required u/s 148A issue a notice u/s 148 to the assesse
It is pertinent to note that the Hon’ble Apex Court further held that the assesse shall be eligible to take all defences available to the assesse under the Finance Act 2021 and including the ones u/s 149 of Income Tax Act 1961
Probable difficulties in complying with the direction of Hon’ble Supreme Court
We may evidently pursue some prominent issues when the direction of Hon’ble Apex Court are to be complied with. Some of such issues are discussed herein below:-
i. The provision of section 148 of the amended Act provide that no notice 148 could be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in case of the assesse for relevant assessment year.
The Explanation 1 to section 148 defines ‘information which suggests income chargeable to tax has escaped assessment’ for the purpose of section 148 and 148A. The same is reproduced herewith for quick perusal
Explanation 1.—For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—
(i) any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;
(ii) any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.
On perusal of the above Explanation it is evident that term ‘information’ is relevant for issuing notice u/s 148 as well as 148A(b). The said term has been exhaustively defined to arise from two sources only. Firstly, it includes any information flagged in case of assesse for relevant assessment year in accordance with the risk management strategy formulated by the Board. Secondly, it includes final audit objection raised by the CAG.
As far as the first clause is concerned it may be observed that
– The Board has to formulate a risk management strategy (RSM)
– and the Board also has to flag the information as per RSM
The notice u/s 148 under the unamended Act were issued in compliance with the provision of old law i.e. on the basis of reasons recorded by the Assessing Officer. Admittedly RSM has not been defined but as suggested by the language of Explanation – 1 it has to be separately formulated by the Board and the Board has to flag the said information.
Therefore the question arises as to how the precondition of formulating RSM and flagging information by the Board shall be met even if the Notice u/s 148 is deemed to be a notice u/s 148A(b) in accordance with the direction of the Hon’ble Apex Court.
As for the final audit objection of the CAG is concerned, at the outset it may be noted that audit objection as a reason to reopen an assessment is inconsistent with the decision of Hon’ble Supreme Court in the case of Indian and Eastern Newspaper Society. Vide the amended Act it has been defined to be valid source of information. Therefore in light of the decision of Hon’ble Apex Court the assesse shall also be assessed on basis of audit objection which otherwise would have been invalid under the old law.
ii. Section 149 provides the time limit for re-opening assessment u/s 147 of Income Tax Act 1961. The amended provision of section allow reopening the assessment for a period of 3 years from the end of relevant assessment year except for cases covered under clause (b) where the assessment could be reopened for a period of 10 years where the income escaping assessment is 50 lakhs or more.
Further attention is drawn to first proviso to the said section
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 as per the said proviso an assessment year prior to 01/04/2021 cannot be reopened, if notice u/s 148 could not be issued for such assessment year being beyond the time limit specified under provision of section 149(1)(b) of old law.
The provision of old law are reproduced herewith for quick perusal
149. (1) No notice under section 148shall be issued for the relevant assessment year,—
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;
Therefore as per the provision of section as it existed upto 31/03/2021 an assessment year could be reopened for six assessment year from the end of relevant assessment year. The amended provision of law come inti effect from 01/04/2021. As per the provision of old law post 31/03/2021 the revenue could issue notice u/s 148 for A.Y. 2015-16 onwards. Consequently no notice u/s 148 could be issued for A.Y. 2013-14 & 2014-15 under the amended provision of law.
Further for reopening assessment year 2015-16, 2016-17 & 2017-18, it has to be shown that the income escaping assessment in form of assets ( expenditure, entry in book of account from 01/04/2022) exceeds Rs. 50 lakhs.
iii. The provision of the amended Act i.e. provisions u/s 148 to 151 have been drafted in a manner to operate in sync. In light of the order of Hon’ble Apex Court deeming the notice u/s 148 of unamended Act as notice u/s 148A(b) the operation of provisions are disturbed since the notice u/s148A(b) is issued in A.Y. 2021-22 and the notice u/s 148 is issued in A.Y. 2022-23. Therefore it opens a pandoras box for litigation on ground if the amended provision as per Finance Act 2022 shall govern the present cases or the unamended provisions.
Information as per Explanation 1
As discussed earlier under the amended Act no notice u/s 148 may be issued unless there is information that suggests that income chargeable to tax has escaped assessment. The said term has been defined in Explanation no. 1 to section 148.
Now vide Finance Act 2022 the term has been amended to expand the scope of information. The said amendmemt is applicable from 01/04/2022.
The definition of information is relevant for both the section i.e. notice u/s 148 as well as Notice u/s 148A(b). However in the light of the order of Apex Court the notice u/s 148A(b) i.e. deemed notice u/s 148 under unamended Act has been issued in any case prior to 30/06/2021 i.e. A.Y. 2021-22. Whereas the notice u/s 148 shall be issued subsequent to following the procedure u/s 148A from the date of order of Hon’ble Apex Court. i.e. A.Y. 2022-23.
Therefore question arises as to whether the definition of information as per the amended Act shall be applicable to the present set of cases?
However in my mind the said amendment shall not apply to the present cases. Since according to the order of Hon’ble Apex Court the notice u/s 148 has been deemed to be notice u/s 148A(b). The term information is equally applicable to notice issued u/s 148A(b) as evident from plain reading of the Explanation 1 itself. Therefore the said Explanation shall be applied at the point of time when the Notice u/s 148A(b) was issued. In the present set of cases the notice u/s 148A(b) (as deemed by order of Apex Court) has been issued between 01/04/2021 to 30/06/2021 i.e. prior to 31/03/2022. Consequently the definition of term information as amended by Finance Act 2022 shall not apply to the present cases. However we shall have to wait for the judicial interpretation on the said issue
Approval for issuing notice u/s 148
The Finance Act 2022 introduced a proviso to section 148 wef 01/04/2022 dispensing the requirement of obtaining approval before issue of notice u/s 148 where the order u/s 148A(d) has been passed with approval of specified authority stating that it is a fit case for re-opening.
Again the question arises as to whether the amended provision of law shall be applicable to the present cases or the Assessing Officer will have to obtain approval of the specified authority before issuing notice u/s 148?
Time limit for issuing notice u/s 149
Further it may be noted that Section 149 provides time limit for issue of notice u/s 148. The relevant extract of provision is repordcued herewith
149. (1) No notice under section 148shall 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 …….
Provided further……
Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded:
On perusal of above provision it is evident the the notice u/s 148 cannot be issued after expiry of 3 years/10years from end of relevant assessment year . The section provides for time limit of issuing notice u/s 148 and not 148A(b).
In the present cases the notice u/s 148 under the unamended Act issued prior to 30/06/2021 has been deemed to be notice u/s 148A(b), whereas the Assessing Officer is to issue the notice u/s 148 post 04/05/2022 i.e A.Y. 2022-23 after complying with direction of the Apex Court. Therefore again a question arises as to whether the time limit is to be computed form A.Y. 2021-22 or 2022-23.
Admittedly the proviso provides exclusion of period during which extension u/s 148A(b) was granted or the stay order was granted to the assesse. But it would again need a deeming fiction to interpret the time period between issue of notice u/s 148A(b) upto issue of notice u/s 148 as extension of time period u/s 148A(b) or stay of Court to calculate the time limit from A.Y. 2021-22
‘Asset’ under section 149
On perusal of clause ‘b’ to sub-section (1) to section 149 it may be observed that the assessment of assesse could be reopened for a period of 10 years where the income escaping assessments, represented in form of ‘asset’ is likely to amount to 50 lakhs or more.
However vide Finance Act 2022, the scope of 149(1)(b) has been expanded to include income escaping assessment in form of expenditure and entries in books of account in addition to assets. The said amendment is effective from 01/04/202. Therefore again the question arises as to would the said amendment provision apply to present cases?
iv. Another important question that arises is whether the direction of Hon’ble Supreme Court shall apply to cases where notice u/s 148 has been issued post 31/03/2021 but no writ has been filed by the assesse?
v. Under the provisions of Section 148A(b) an assesse may seek extension of time to file a response to the notice u/s 148A(b). In the light of the order of Hon’ble Apex Court fixing the time for filing a reply to two weeks, it is not known whether the assesse shall be granted an extended time to file response
vi. In majority cases the assesse has already complied and filed return of income (under protest) in response to notice u/s 148. Would that return be considered non-est? and the assesse will have to file a return of income again? And in case in the subsequent return if the assesse disclosed additional income would that be considered while levying penalty?
vii. In case where the assesse has already been provided with the reasons for issuing notice u/s 148 and the assesse has raised the objection pointing out defects in the information available with the Assessing Officer. The Assessing Officer may have a second run at bettering the material available with him on the basis of objections raised by the assesse. How would such possibilities be taken care of?
viii. Is the Assessing Officer mandatorily required to provide the material that he has relied upon within 30 days, even if the same has been provided earlier by the Assessing Officer?
ix. In certain cases the reassessment u/s 148 has been initiated on the basis of information received in course of search at third party place. However the provision of section 148A are not applicable to cases where the information is received in course of search or requisition. Also provision of section 148 provide that it shall be deemed that the Assessing Officer has information to reopen the assessment in case of search and survey. How would such cases be dealt with?
x. Following from the earlier issue, under the old law the Assessing Officer was required to record satisfaction even in case where information was received from search action in case of other assesse. In light of order of Hon’ble Supreme Court the Assessing Officer would have an open chance at assessing the income of assesse without undergoing the judicial scrutiny as to whether the assessment should have been completed u/s 153C or 148?
xi. The notice u/s 148 issued under the unamended Act were issued after obtaining the sanction of specified authority u/s 151 as it existed then, Now in light of the order of Apex Court the Assessing Officer has to follow the procedure u/s 148 and pass an order u/s 148A(d).
As per the provision of amended law the Assessing Officer has to obtain the approval of specified authority prior to passing the order u/s 148A(d). There will be many cases where the specified authority granting approval under the old law and the new provision shall be one and the same. Therefore the possibility of approval being an empty formality without application of mind on the part of the specified authority, being biased with their own approval earlier, cannot be denied.
Conclusion:
The Hon’ble Apex Court in the spirit of law and to avoid the invalidation of 90,000 reassessment notice passed an Order striking a balance. In order to do so the Hon’ble Apex Court directed that the notice u/s 148 under the unamended Act be construed as the notice u/s 148A(b). However there are number of issues that may arise while giving effect to the order of Hon’ble Apex Court and therefore a clarification in some form needs to be rendered in order to avoid future litigation.
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