The CBDT has issued Instruction No. 01/2022, dated 11.5.2022, containing guidelines for implementation of the Supreme Court’s Judgement in the case of Union of India vs Ashish Agarwal (2022 SCC Online SC 543). It may be recalled that by this judgement the hon’ble Supreme Court has revived nearly 90000 notices issued under section 148 of the Income Tax Act. These notices were earlier quashed by different High Courts of India. Ever since the aforementioned CBDT instruction came in public domain, opinions have been circulating in the social media as well as other open forums expressing the view that the said CBDT instruction is not in accordance with the provisions of law. This article examines this issue.

Background :

The provisions relating to re-opening of assessment under the Income Tax Act, 1961 contained in section 147, 148, 149 & 151 of the Act have been substituted by a new provision by the Finance Act, 2021. The new provisions, effective from 1-4-2021, are contained in the same sections (147, 148, 149 & 151). Besides, a new section 148A which prescribes the procedure to be followed has been incorporated. As per the old provision as it existed till 31-3-2021 an assessment could be reopened  only if six years from the end of the AY to be reopened had not elapsed. In other words six years should not have elapsed from the end of the AY to be reopened to the date of issue of notice under section 148 of the I T Act. Thus on 31-3-2020 under the old provision, the AO could only re-open up to AY 2013-14 ( income escaping asstt. being more that 1 lakhs) and not beyond.  The old provisions however, got extinguished / obliterated on 31-3-2021. From 1-4-2021 the new provisions became operational under which assessments up to 10 years ( income escaping asstt. being more that 50 lakhs) could be re-opened. All notices under section 148 from 1-4-2021 were to be issued under the new provisions after following the procedure laid down.

Due to Covid pandemic and ensuing lockdown in a large number of cases despite having information indicating escapement of income, notices could not be issued under the old provisions to re-open AY 2013-14 and subsequent years by 31-3-2020. The Govt. therefore, passed Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020(TOLA) whereby the date of limitation for completion of any proceeding or issue of notice falling between 20-3-2020 to 31-3-2021 was extended to 30-6-2021. Thereafter, some 90000 notices were issued between 1-4-2021 to 30-6-2021, reopening assessments for AY 2013-14 and subsequent years. These notices,  though issued after 31-3-2021, were issued under the old provisions of reopening without following the procedure laid down in the newly inserted section 148A. As the new provision of reopening an assessment had already come into operation on 1-4-2021, the notices under section 148 ought to have been issued under the new provision and not under old provision which no longer existed after 31-3-2021.

Many assessees challenged these notices under section 148 on this ground in writ petitions before different High Courts. All High Courts except Chattisgarh, quashed the notices as unlawful on the ground that by substituting the provisions of the Act by means of the Finance Act, 2021 with effect from 1-4-2021, the old provisions were omitted from the statute book and replaced by fresh provisions with effect from 1-4-2021. In absence of any saving clause in either the Ordinance or the Enabling Act (TOLA) or the Finance Act 2021, there existed no presumption in favour of the old provision continuing to operate for any purpose, beyond 31-3-2021. Accordingly, any notice under old section 148 issued after 31-3-2021 was unlawful and void. The Calcutta High Court in the case of Bagaria Properties and Investment (P.) Ltd. v. Union of India, W.P.O. NOS. 244, 253 TO 256 OF 2021 & OTHS JANUARY 17, 2022 also declared the Explanation A(a) to the Notification No. 20 [S.O. 1432 (E) dated 31st March, 2021 issued under section 3(1) of the TOLA as ultra vires to the parent legislation. The said explanation which provided for issue of notice under the old provision of 148 beyond 31-3-2021, is reproduced below for ready reference.

Explanation.— For the removal of doubts, it is hereby clarified that for the purposes of issuance of notice under section 148 as per time-limit specified in section 149 or sanction under section 151 of the Income-tax Act, under this sub-clause, the provisions of section 148, section 149 and section 151 of the Income-tax Act, as the case may be, as they stood as on the 31st day of March 2021, before the commencement of the Finance Act, 2021, shall apply.

The High Court decisions were challenged by the Govt. by SLPs before the Supreme Court of India.  The Supreme Court of India decided all cases pending in courts or where this issue was involved, by a combined order using special powers under article 142 of the constitution of India. In this order in the case of Union of India vs Ashish Agarwal (2022 SCC Online SC 543), dated 4.5.2022 the hon’ble Supreme Court of India decided as under :

Therefore, we propose to modify the judgments and orders passed by the respective High Courts 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   01.04.2021   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 or not.

In short, the Supreme Court revived the notices quashed by High Courts by converting the notices issued under section 148 (old) to notice under section 148A of the new provision with a direction to continue the proceedings after following the procedure laid down under the new provisions.

The CBDT has issued Instruction No. 01/2022, dated 11.5.2022, containing guidelines for implementation of the above mentioned Supreme Court judgment. The CBDT instruction gave under mentioned guideline.

  • 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.

  • 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.

Is CBDT instruction on issue of section 148 notice legally incorrect

The instructions mentioned above have given rise to conflicting opinions. Opinions are circulating in social media calling the instruction leagally incorrect. It is being argued that the instruction is not in accordance with the provisions of the Income Tax Act, 1961 as AY 2013-14 & 2014-15 can’t be reopened under the new provision in view of the first proviso to section 149(1). As regards AY 2016-17 & 2017-18, it is being argued that they are barred by limitation as three years have already elapsed on 31-3-2021 & therefore, no notice under section 148 can be issued under the new provision on or after 1-4-2021

A little analysis of the Supreme Court judgement, the new provisions of reopening read with the provisions of TOLA would show that the above interpretation is wholly erroneous and misleading. Here it is pertinent to keep in mind that TOLA still subsists and has not been struck down as some people are advocating. The Calcutta High Court in the case of Bagaria Properties and Investment (P.) Ltd. v. Union of India, W.P.O. NOS. 244, 253 TO 256 OF 2021 & OTHS JANUARY 17, 2022

has only declared the Explanation A(a) of the Notification No. 20 [S.O. 1432 (E) dated 31st March, 2021 issued under sec 3(1) of the TOLA as ultra vires to the parent legislation. The parent Act, TOLA is still valid and is very much in operation. It is applicable to the provisions of old section 148 till 30-3-2021 & from 1-4-2021 it is applicable to the new provisions. Accordingly, the time barring dates for AY 2013-14 & 2014-15 under the old provision falling on 31-3-2020 & 31-3-3021 got extended to 30-6-2021. As such, these two years are not hit by the first proviso to section 149(1) since by virtue of TOLA both the years could be reopened on 1-4-2021 under the old provision. The erroneous interpretation is emanating from not taking into account the operation of TOLA while examining the scope of reopening AY 2013-14 & 2014-15 as on 1-4-2021. It is to be kept in mind that after 31-3-2021, the old provisions ceased to exist and  all notices issued on or after 1-4-2021 ought to be under the new provision. As per the new provision, the AO can go back as far as ten years if income escaping assessment is more than 50 lakhs. Thus for  cases having income escaping assessment of 50 lakhs or more, AY 2013-14 & 2014-15 are well within the range of reopening. The only caveat to this is the first proviso to section 149(1) which is extracted below for ready reference.

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

From the above it is clear that if AY 2013-14 & 2014-15 could not be reopened under the old  149 (1) (b) on 31-3-2021; it can’t be opened even now under the new provision. As per old 149(1)(b) the time limit prescribed was 6 years and therefore, AY 2013-14 could be reopened only up to 31-3-2020 and AY 2014-15 up to 31-3-2021. Therefore, prima facia it appears that in terms of restriction placed by the first proviso to section 149(1) these two AYs can’t be reopened now (between 1-4-2021 to 30-6-2021). This is the basis of calling the CBDT instruction on these two AYs wrong. The fallacy in this argument is that it ignores the TOLA which is a subsisting Act duly passed by the parliament. As per TOLA all time barring dates for issue of notice under section 148 ( whether old or new ) got shifted to 30-6-2021. As such, AY 2013-14 & 2014-15 are not hit by the restriction imposed by the first proviso to section 149(1) and accordingly, very well be reopened under the new provision till 30-6-2021. Therefore, there is no so called legal infirmity in the instruction of the CBDT relating to direction to issue notice to reopen assessments for AYs 2013-14 & 2014-15 if income escaping assessment is 50 lakhs or more. The CBDT instruction duly deals with this aspect, unfortunately despite that, this erroneous view has  gained ground and may lead to avoidable litigation. As regards AY 2016-17 & 2017-18 again TOLA extends the three years time limit from 31- 3-2020 & 31-3-2021 to 30-6 2021 and therefore, these two AYs are also within the time limit prescribed

It is therefore clear that there is no legal infirmity in the CBDT instruction which is perfectly in accordance with the provisions of law. The contrary view discussed above which is in circulation for sometime is erroneous and misleading.

Author Bio

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Location: Kolkata, West Bengal, India
Member Since: 05 Aug 2021 | Total Posts: 3
The author belongs to the 1983 batch of the IRS. He served in the Income Tax department at various levels in various places throughout the country and retired from service in November, 2020 as Pr. Chief Commissioner of West Bengal & Sikkim. Views expressed are totally personal. View Full Profile

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10 Comments

  1. Rajat says:

    The author is a sarkari Babu & as usual logic means zilch for our babus & milords. “Time travel” / “bonafide mistake”

    Can he explain as to why 148 notices issued in July 22 after 148 A(d) orders will not be time barred for AY 14-15/15-16 as per SC judgement

    Personally I think it is all academic as I am certain they will go to their fav bench & get favorable ruling again

  2. sk says:

    A problem with this analysis is that it has not been answered whether TOLA can apply to Finance Bill 2021
    TOLA applies only to certain Acts which are detailed in the act itself and was passed in Sep 2020.
    I am not sure as to how by an administrative procedure TOLA is being made applicable to a new aw passed in March 2021.
    This would probably be the main source of litigation for cases below 50 lakhs in AYs 16 and 17.
    Being procedural in nature, It is better if the date applicability is resolved by the Honorable supreme court at the earliest to prevent needless litigation for both department and assesses

  3. SANJAY GOYAL says:

    sir,what if a notice received Before 1st of april,2021 for AY 2013-14
    and income escaping less then 50 lakh( as per IT Dep).

  4. Dinesh Agrawal says:

    Dear all,
    The article by ld. Author (Mr. Viswanath Jha ) is quite engrossing but is legally flawed. Honorable Delhi and Allahabad High court , whose views were affirmed by Hon’ble Supreme Court, held that (1) after 01-04-2021 only new law will be operative. (ii) Explanations to notifications no. 20/38 are ultra-virus to the TOLA (iii) The notifications no. 20 /38 will be applicable to notices u/s 148 issued prior to 01-04-21.
    As per Hon;ble supreme Court in Ashish agrawal’s case, notices issued u/s 148 of old law will be deemed as notices u/s 148A and NOT the notices u/s 148 under new law..
    First Proviso to section 149 provides that what cannot be done under old law, i.e if no notice u/s 148 can be issued under old law (section 149(1)(b)) for an Assessment year then , such notice under new law also cannot be issued. Ie. what cannot be done under old law, cannot also be done under new law. Further TOLA does not provide any extension of time line by itself. It is notifications issued under TOLA, which provide extended limitation.
    For AYR 2013-14 or 2014-15, notice under section 148 under old law could be issued upto 31-03- 2021 (after allowing extension of limitation due to notifications issued earlier under TOLA )
    Notifications no 20/38 are partially declared ultra virus. Whether other part in the notifications can be held valid.. Notifications 20/38 held valid for notices issued before 01-04-2021. If they are deemed to be invalid for actual issue of notices after 01-04-2021, u/s 148 for earlier years, can they be deemed to be valid for permitting to consider issue of notices for the purposes of first proviso to section 149(1) of new law. If notifications no. 20/38 cannot be applied for issue of 148 notices after 01-04-2021, they also cannot be applied for deemed issue for the purposes of first proviso to section 149(1)(b) of new law.
    Actual issue of notices u.s 148 under new law will take place in FYr 2022-23. Even if it is assumed that notifications 20/38 are applicable for first proviso of section 149(1), But the life of these notifications come to an end on 30-06-2021. No extension of time can be assumed under old law after 30-06-2021. Hence no notice u/s 148 under old law for AYR 2013-14 or 2014-15 can be issued after 01-07-2021. Hence normal limitation u/s 149(1)(b) of old law will be applicable. For these two years no notice u/s 148 can be issued under old law after 01-07-2021.Hence for comparison for the application of first proviso, normal limitation under old law without being affected by notifications will apply. And hence these two AYRs are time barred..

  5. rahul says:

    @sagarjain you are absolutl correct. section 149 talks about notice of 148 and not a show cause notice 148A.
    @bandu NRIs are harrased, purchase cant be taken as income . section 155G allows NRI not to file ITR under consitions which most of the NRI meets. also mere non filing of ITR was a a rean under old 147 regime explanation 2 which doesn’t exists in the new law. which year they are talking about? as in case it if is AY16-17, 17-18 then it comes under extended perios and section b of u/s 149 will apply where the AO should have a clear document , evidence that reveals the income that has escaped assessment. I wish th epresent govt is watching this torture.

  6. Pritam Beria says:

    The gross error that is being committed in the discussion above is equating section 148A to section 148. Under the new law any notice u/s 148 can be issued subsequent to compliances of all the requirements of 148A. What the Hon’ble SC has done is deemed the notice issued u/s 148 as Show Cause Notice u/s 148A(b). Notice u/s 148 will be issued on or after passing of order u/s 148A(d) and Limitations as envisaged u/s 149 will be applicable on that date. Secondly no dates have been prescribed u/s 148A and hence question of extension of date by way of TOLA does not arise.

  7. bandu says:

    I am OCI/NRI who work in USA and registered an under construction flat and made my down-payment which is a lot less than 50lakh. I still got a Show cause notice to explain “payment?” of over 80Lakh (which is worth of the flat). It appears that IT have gotten information from the registrar about flat’s worth but the notice is incorrect as I did not make a full payment. After I explained that I made my down payment which is a lot less then 50 lakh from my income working in USA (which is not offered to tax in India as per Section 5(2)) for many years, I still get 148 notice saying I did not respond to an earlier show cause. This is purely harassment. I hope someone from finance ministry reads this. Many NRI/OCI are being harassed.

  8. Sagar Jain says:

    My submission to the writer is whether old 148 notices after direction of Hon’ble Supreme Court for deeming the same as issued u/s 148A, the new 148 will be issued or not ? If issued will the TOLA applies to these new 148 notices after an order u/s 148A(1)(b).

  9. rahul says:

    Your analysis and understanding of section 149 , first proviso is totally flawed.
    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.

    ”Any time” and ”That time” is the date when any notice is issued after 1st April2021. so if at ”that time ” if the notice couldnt have been issued as per the old law then this cant be opened ever. See rajasthan high court decision , Madras high court decion section 148 in 2022. Please read the section and provisio again. simply put AY 15-16 was supposed to be time barred on 31st March2022 as per old law and it will be then time barred on that day and cant be opened now.

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