An Appeal to Regularize Income Tax Reassessment Proceedings

As per Section 147 of Income Tax Act, 1961, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of  sections 148 to 153, assess or reassess  such  income  and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned.

Provided  that where an assessment under sub­section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub­section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his  assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:

Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has  escaped assessment.

Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

 Explanation 2.—For the  purposes  of  this  section,  the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—

a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income­tax;

b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;

c) where an assessment has been made, but—

i) income chargeable to tax has been underassessed; or

ii) such income has been assessed at too low a rate; or

iii) such income has been made the subject of excessive relief under this Act; or

iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;

ca)  where a return of income has not been furnished by the assessee or a return of income has been  furnished by  him and on the basis of information or document received from the prescribed income­ tax authority, under sub­section (2) of section 133C, it is noticed by the Assessing Officer that the income  of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

 (d)  where a person is found to have any asset (including  financial interest in any entity) located outside India.

Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for  such  issue have not been included in the reasons recorded under sub­ section (2) of section 148.

 Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Issue of Notice

Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee  a  notice  requiring  him  to  furnish within such period, as  may  be  specified  in  the  notice,  a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth  such  other  particulars  as  may  be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as  if  such  return  were  a  return required to be furnished under section 139:

Provided that in a case—

a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and

b) subsequently a notice has been served under sub­section (2) of section 143 after the expiry of twelve months specified in the proviso to subsection (2) of section 143, as it stood immediately before the  amendment  of  said  sub­section  by the Finance Act, 2002 (20 of 2002)  but  before  the expiry of    the time limit for making the assessment, re­assessment or recomputation as specified in sub­section (2) of section 153, every such notice referred to in this clause shall be deemed  to be a valid notice:

Provided further that in a case—

a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and

b) subsequently a notice has been served under clause (ii) of sub­section (2) of section 143 after the expiry of  twelve months specified in the proviso to clause (ii) of sub­section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub­section (2) of section 153, every such notice referred to in this clause  shall  be  deemed  to  be  a  valid

Explanation.—For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005  in response to a notice served under this section.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

Time Limit for Notice

No notice under section 148 shall 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;

c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped

Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of this sub­ section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.

The provisions of sub­section (1) as to the issue of notice shall be subject to the provisions of section 151.

If the person on whom a notice under section 148 is to be served is a person treated  as  the  agent  of  a  nonresident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of  such  non­resident,  the  notice shall not be issued after the expiry of a  period  of  six  years  from the end of the relevant assessment year.

Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub­sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day  of April, 2012.

Sanction for Issue of notice

As per the provisions of Sec 151 of Income Tax Act, 1961-

(1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it    is a fit case for the issue of such notice.

(2) In a case other than a case falling under sub­section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of  such notice.

(3)  For the purposes of sub­section (1) and sub­section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint  Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about  fitness of a case for the issue of notice under section 148, need not issue such notice himself.”

Amendments via Finance Act, 2021

Introduction of Sec 148A:

Section 148A of the IT Act is a new provision which is in the nature of a condition precedent.

It provides that the Assessing Officer shall, before issuing any notice under section 148,—

a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

b) provide an opportunity of being heard to  the  assessee, with the prior approval  of  specified  authority,  by  serving upon him a notice  to  show  cause  within  such  time,  as  may be specified in the notice, being not less  than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which  suggests  that income chargeable to  tax has escaped  assessment in his case  for the relevant assessment year and results of, enquiry conducted, if  any, as per clause    (a);

c) consider the reply of assessee furnished, if  any,  in response to the show­cause notice referred to in clause (b);

d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice  under  section  148,  by  passing  an  order, with the prior approval of specified authority, within  one month from  the end of  the month in which the reply  referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month  in which time or extended time allowed to furnish a reply as per   clause (b) expires:

Provided that the provisions of this section shall not apply in  a case where—

a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or

b)the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in  a  search under section 132 or requisitioned under  section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

c)the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee.

Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.”  

By way of section 148A, the procedure laid down in case  of  GKN Driveshafts (India) Ltd has now been streamlined and simplified, wherein 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 assessee furnished, if any, in response to the show­cause 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.

At every stage, the prior approval of the specified authority is required, even for conducting the enquiry as per section 148A(a).

Only  in  a case where, the assessing officer is  of  the  opinion  that before any notice is issued under section 148A(b) and an opportunity is to be given to the assessee, there is a requirement of conducting any enquiry, the assessing officer may do so and conduct any enquiry , however, with the prior approval of the  specified  authority,  with  respect  to the information which suggests  that the  income chargeable to tax has escaped assessment.

Re-opening of cases:

The reopening was permissible for a maximum period up to six years and in some cases beyond even six years leading to uncertainty for a considerable time.

To simplify the tax administration, ease compliances and reduce litigation, under the substituted provisions of the IT Act vide Finance Act, 2021, no notice under section 148 of the IT Act can be issued without following the procedure prescribed under section 148A of the IT Act.

Along with the notice under section 148 of the IT Act, the assessing officer (AO) is required to serve the order passed under section 148A of the IT Act.

Amendment to Sec 149:

The substituted section 149 of the IT Act has reduced the permissible time limit  for  issuance  of  such  a  notice  to three years and only in exceptional cases ten years.

Amendment to Sec 151(A):

In sub­section (1) of section 151A of the Income Tax Act, in the opening portion, after the words and figures “issuance of notice under section 148”, the words, figures and letter “or conducting of enquiries or issuance of show­ cause notice or passing of order under section 148A” are inserted.

Extension of Time Limits by CG for issuance of Reassessment Notices

In pursuance to the power vested under section 3 of the Relaxation Act, 2020, the Central Government issued following Notifications extending the time lines prescribed under section 149 for issuance of reassessment notices  under  section  148  of  the  Income Tax Act, 1961:

The Explanations to the Notifications issued stipulated  that  the  provisions, as they existed prior to the amendment by the Finance Act,2021,shall apply to the reassessment proceedings  initiated thereunder.

 UOI vs. Ashish Agarwal  (Civil Appeal No. 3005/2022-SC)

In the aforesaid case, Revenue   issued approximately 90,000 reassessment notices to the respective assessees under the former provisions of  sections  148  to 151 thereof by relying on explanations in the Notifications dated 31^st March, 2021 and 27^th April, 2021, despite the amendment of the provisions of sections 147 to 151 of the Income Tax Act, 1961 by the Finance Act, 2021 which came into force on 1^st April, 2021.

The same  gave rise to numerous litigations and the reopening were challenged on the following grounds:

(1) no valid “reason to believe”

(2) no tangible/reliable material/information in possession of the assessing officer  leading to formation of belief that income has escaped assessment,

(3) no enquiry being conducted by the assessing officer prior to the issuance of notice; and reopening is based on change of opinion of the assessing officer and

(4) lastly the mandatory procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives laid down by this Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and ors; (2003) 1 SCC 72, has not been followed.

The said reassessment notices were the subject matter of writ  petitions before the various High  Courts.  The  respective High Courts have held that all the respective reassessment notices issued under the erstwhile sections  148  to  151  of   the  Income Tax Act, 1961, are bad in law as the reassessment notices issued after 01.04.2021 are  governed by the substituted sections 147 to 151 of  the  Income Tax Act, 1961, substituted by the Finance Act, 2021.

Consequently, the respective High Courts have set aside all the reassessment notices issued under section 148 of the Income Tax Act, 1961 wherever assailed.

The common  judgment and  order  passed by the  High Court of  Allahabad is the subject matter of the present appeal. However, the High Court of Delhi in its  common  judgment  and  order dated 15.12.2021 while quashing the respective reassessment notices has also observed that if the law permits the revenue to take further steps in the  matter  they shall be at liberty to do so.

With a view of Revenue cannot be made remediless, maintaining a balance between the rights of the Revenue as well as the respective assesses and avoiding filing of further appeals before the Supreme Court and burden this Court with approximately 9000 appeals against  the  similar  judgments  and  orders  passed by the various High  Courts, it has been appealed to modify the judgments and orders  passed by the respective High Courts in exercise of powers under Article 142 of the Constitution of India as under: ­

(i) The respective impugned section 148 notices  issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be show­cause notices in terms of section  148A(b). The respective assessing officers shall within thirty days from today provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter;

(ii) The requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a one­time measure vis­à­vis those notices which have been issued under Section 148 of the unamended Act from 04.2021 till date, including those which have been quashed by the High Courts;

(iii) The assessing officers shall thereafter  pass an  order in terms of section 148A(d) after following the due procedure as required under section 148A(b) in respect of each of the concerned assessees;

(iv) All the defences which may be available to the assessee under section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021 are kept open and/or shall continue to be available and;

(v) The present order shall substitute/modify respective judgments and orders passed by the respective High Courts quashing the similar notices issued under unamended section 148 of the IT Act irrespective of whether they have been assailed before this Court.

The aforesaid order can be passed by holding that the present order shall govern, not only the impugned judgments and orders passed by the High Court of Judicature at Allahabad, but  shall  also  be  made  applicable in respect of the similar writ petitions pending before or judgments and orders passed by various High Courts across the country and therefore the order shall be made applicable to PAN INDIA.

Conclusion

Thus, the new provisions substituted by the Finance  Act, 2021 being reformatory and benevolent in nature and substituted with an objective to protect  the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit  of  new  provisions  shall  be made available even in respect  of  the  proceedings  relating      to past assessment years, provided section 148 notice has   been issued on or after 1^st April, 2021.

However, at the same time, the judgments of the several High Courts has resulted in no reassessment proceedings.

Due to a bonafide mistake and in view of subsequent extension of time vide various notifications, Revenue cannot be made to suffer and the purpose of reassessment proceedings cannot be frustrated.

There appears to be genuine non­ application of the amendments as the officers of the Revenue may have been under a bonafide belief that the amendments may not yet have been enforced.

Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.

The proposed order shall be made applicable PAN India and all judgements and orders passed by different High Courts on the issue and under which similar notices were issued after 01.04.2021 under section 148 of the Act, which are set aside, shall be governed and stand modified to the aforesaid extent.