Landmark SC Judgment on Section 148 notices which is in Favour of both Assessee & Revenue

Landmark Judgment by Supreme Court on notices issued u/s 148 which is in Favour of both Assessee and Revenue

This article is on Judgment dated 4^th May 2022, by Hon’ble Supreme Court of India in the case of Union of India Vs Ashish Agarwal (Supreme Court of India), vide Civil Appeal No. 3005/2022 and various other appeals in similar matter filed before the Hon’ble Court.

Key Highlights –

1. This order will affect more than 90,000 assesses which is happening 1^st time in history of Income Tax Department.

2. These 90,000 notices involve more than thousand crores of taxes.

3. This judgement mainly involves notices related to Assessment Years from AY 2013-14 to AY 2017-18.

4. It has takeaways for both Assessee and Revenue.

Problem Involved –

Whether old provisions for reassessment have been substituted by Finance Act, 2021 and such old provisions are not applicable on or after 01.04.2021? Whether the Central Government with the delegated power is empowered to issue such Notification extending the time limit for issue of notice even on or after 01.04.2021 under the old provisions?

Key Points in favour of Assessee: –

1. Assessee has the defence u/s 149 of The Income Tax Act, 1961 available under The Finance Act, 2021. As per the 1^st proviso of the section 149 notices related to AY 2014-15 and earlier years it got time barred and no notice could have been issued on or after 1^st April 2021. In simple words major chunk of notices are related to AY 2013-14 and AY 2014-15 for which department is not in a position to take it forward for reassessment proceedings.

2. For notices related to AY 2015-16 to AY 2017-18, all cases where income escaped assessment is less than Rs 50 lakhs and not represented in the form of asset will be out of ambit of litigation as per defence available u/s 149 of The Income Tax Act, 1961 stated under The Finance Act, 2021. Out of remaining notices related to AY 2015-16 to AY 2017-18 big chunk of notices will get relief because of non-fulfilment of twin conditions of Rs 50 lakhs and Asset criteria.

3. For remaining notices assessee will get the information, material, opportunity and two weeks’ time to present their case as per provisions of section 148A(b) and where department agrees to Assessee’s submission, there they will pass an order u/s 148A(d) stating that it is not a fit case to issue notice u/s 148.

4. For cases where addition has already been made and order has been passed by the Assessing Officer, there assessee may take plea before the appellate authorities for setting aside the order for de novo and to follow appropriate procedure as held by SC.

5. Where Assessing Officer is not in a position to establish that it is in a possession of an information, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment, then all such Notices can be challenged by assessee as it will be one of defences available with assessee under provisions of section 148 stated in the Finance Act 2021.

6. In case assessee is aggrieved by the 148A(d) order and feels that his submission was not dealt properly, then assessee can go for writ before HC against this impugned order issued u/s 148A(d).

Key Points in favour of Revenue: –

1. There were many notices which were issued between 1^st April 2021 to 30^th June 2021 which also has the ingredients of falling as per the provisions of section 147 to 151 of the IT Act as per the Finance Act 2021 but department got stuck because of HC order and now all those notices will become active and department can proceed accordingly.

2. All such notices of AY 2015-16 to AY 2017-18 related to point one herein above will be back in action and within 30 days from 4^th May 2022 department will provide information and material relied by revenue in this regard.

3. Department need not take any prior approval of the specified authority under section 148A(a) of the Act for conducting enquiry in respect of information in possession of department. This requirement is dispensed with for these notices only.

4. To reduce unnecessary litigation Income Tax Department can get rid of unfit cases which are not at all fit case for proceeding u/s 148 by passing speaking order u/s 148A(d).

Conclusion: –

1. This judgment will solve the biggest income tax litigation if CBDT comes out with clear circular stating steps to be followed by Assessing Officers. CBDT need to clearly lay down the principles that all such notices who fulfils the conditions of section 147 to 151 of the IT Act as per the Finance Act 2021 only those notices should be taken forward for further proceedings.

2. SC has passed the order under Article 142 of the constitution to make the order applicable all over India. It has also responded to the orders passed by various High Courts and to pending judgments to reduce the repetitive appeals.

3. Overall, this judgment is more beneficial to assessee as compared to revenue.

Above is Author’s interpretation which may differ with revenue authorities. Author is a practicing Chartered Accountant and for any query can be reached at [email protected]