Introduction
The Supreme Court of India, in its landmark judgments of Union of India v. Ashish Agarwal [2022] and Union of India v. Rajeev Bansal [2024] (SC), has provided significant clarity on the reassessment procedures under the Income Tax Act, particularly in light of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
These rulings address complex issues relating to the validity of reassessment notices issued before and after the amendments to the reassessment regime.
In this article I will discuss the key implications of these judgments, the controversies they address, and the areas that still remain unresolved.
Reassessment Notices and the Transition from Old to New Regime of assessments
Don’t confuse it with income tax regimes, there were changes in procedure of assessment and section 148 was introduced via Finance Bill 2021. The primary issue in both Ashish Agarwal and Rajeev Bansal cases was the validity of reassessment notices issued under the old Section 148 regime after the amendments introduced by the Finance Act, 2021. The court clarified that reassessment notices issued between April 1, 2021, and June 30, 2021, should be treated as deemed notices under the new Section 148A.
What are the clarifications given by court in the case of Ashish Agarwal?
The notices issued under the old Section 148 should be treated as if they were issued under the new regime, post-April 1, 2021. As well as the new provisions, including Section 148A, apply retrospectively to reassessment notices issued during the transition period, ensuring procedural safeguards for the assessees.
Note: Section 148A of the Income Tax Act is that section which empowers taxpayers to provide an explanation to the income tax department regarding any income that escaped assessment. While it safeguards the rights of taxpayers, it also grants the assessing officer the authority to reopen cases.
This transition was crucial because it provided legal cover to reassessment proceedings initiated under the old regime, preventing a mass invalidation of such notices.
What is the Role of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 or we can say TOLA in Extending Time Limits?
In the case of Rajeev Bansal, the Supreme Court further explored the interaction between TOLA and the amended reassessment provisions. TOLA was enacted in 2020 to extend deadlines and provide relief in various statutory matters due to the COVID-19 pandemic.
Hence, Section 3(1) of TOLA was held to override Section 149 of the Income Tax Act, 1961, but only to the extent of relaxing the time limit for issuance of reassessment notices, Notices originally issued between April 1, 2021, and June 30, 2021, were deemed to be valid under TOLA if the assessing officer followed the procedures laid down by the Supreme Court in Ashish Agarwal’s case. Specifically, time was excluded for periods during which notices were stayed, and additional time was granted for assessees to respond to show cause notices.
Example Clarification by the Supreme Court:
The court illustrated how the reassessment period should be computed in practice, suppose a notice was issued on 1 May 2021 under the old regime for a relevant assessment year, because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days i.e. from 1 May 2021 to 30 June 2021 for issuing a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, court explained the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022
Let’s discuss the Implications of this judgement for Different Assessment Years (AYs)
The Supreme Court’s rulings had varying implications for different assessment years:
AY 2013-14 and 2014-15: For these years, TOLA extended the time limits for issuing reassessment notices. As a result, if the new regime’s timelines were adhered, the reassessment notices which were originally issued between April 1, 2021, and June 30, 2021, were considered valid.
AY 2015-16: The revenue department conceded that reassessment notices for AY 2015-16 issued after April 1, 2021, would be invalid, as they fell outside the period prescribed as per TOLA. Hence, any kind of proceedings for this assessment year would be barred by limitation.
AY 2016-17 and 2017-18: The court ruled that the time limit for granting approval under Section 151 which I have explained below was extended by TOLA. However, in these cases, the approvals were obtained in the month of June-July in the year 2022, which was beyond the extended period provided by TOLA. Therefore, reassessment notices for these years were deemed invalid.
Invalid approvals under Section 151:
Section 151 deals with the power to call for information. The Commissioner or an officer authorised by him may, by an order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner, as may be specified therein
In these cases, one of the critical procedural lapses noted by the court was the invalid approval process under Section 151. For reassessments beyond three years from the relevant assessment year, the approval of a higher authority (such as the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax) is required. The Supreme Court reaffirmed that non-compliance with this requirement rendered the reassessment notices invalid.
For example, the Bombay High Court in Vodafone Idea Ltd. v. DCIT [2024] and subsequent cases, held that reassessment notices issued for AY 2018-19 with the approval of a lower authority were invalid. The court’s decision in Rajeev Bansal supported this position, emphasizing the need for strict compliance with the time limits and approval hierarchy under Section 151.
What is the impact of this judgement on completed assessments
One unresolved issue relates to reassessment proceedings that were completed before the decision in Ashish Agarwal’s case. In some cases, assessments were completed based on reassessment notices issued under the old regime but after the case of Ashish Agarwal, the Revenue reopened such completed assessments, which led to further disputes.
For instance, in Arun Khanna v. ITO [2024], the Delhi High Court held that reopening a completed assessment based on the same set of allegations was impermissible. The court clarified that Ashish Agarwal’s case did not authorize the reopening of assessments that had already attained finality. This remains a contentious issue, as the Supreme Court did not directly address it in Rajeev Bansal’s case.
What are the pending issues before the courts?
While the Supreme Court rulings in Ashish Agarwal and Rajeev Bansal cases provided significant clarity, some issues remain unresolved and are currently pending adjudication such as validity of notices issued by junior assessing officers (JAOs) as in the case of Bombay high court in Hexaware Technologies Ltd. v. ACIT [2024] held that notices issued by JAOs under Section 148 without proper authorization were invalid. This issue is pending before the Supreme court and secondly notices issued without document identification number (DIN) i.e. many reassessment notices were issued manually without a DIN, violating CBDT Circular No. 19 of 2019. The bombay high court also ruled such notices invalid, and the matter is still awaiting final resolution by the supreme court.
Conclusion
The Supreme Court’s judgments in Ashish Agarwal and Rajeev Bansal case have major implications for the reassessment regime under the Income Tax Act. While they clarify many procedural issues, such as the applicability of TOLA and the transition to the new regime, certain matters, especially those relating to completed assessments and procedural lapses remain unresolved.
These cases underscore the importance of strict adherence to statutory procedures and the role of judicial oversight in ensuring fairness in reassessment proceedings. Future decisions from the courts will likely provide further guidance on these outstanding issues, shaping the reassessment landscape for years to come.
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