Analyzing Re-assessments under the Income Tax Act, 1961, in light of Supreme Court decisions in case(s) of Ashish Agarwal and Rajeev Bansal
Summary: Reassessments under the Income Tax Act, 1961 are designed to tax additional income overlooked during the original assessment. Before March 31, 2021, notices for reopening assessments were limited to four to six years, contingent on the amount of escaped income. Post-April 1, 2021, these limits were revised to three years without monetary thresholds, extending up to ten years for income exceeding ₹50 lakh. The COVID-19 pandemic prompted the enactment of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), which extended various deadlines, including those for issuing notices under section 148. The Supreme Court’s decision in Ashish Agarwal vs Union of India deemed notices issued during a transitional period as valid under the amended framework, necessitating the Revenue to provide taxpayers with relevant information for responses. In Union of India & Ors vs Rajeev Bansal, the Supreme Court ruled that reassessment notices from April 1, 2021, to June 30, 2021, could utilize the extended deadlines under TOLA, however, emphasised the need for compliance with the new regime’s provisions. Thus, the recent Supreme Court decisions underscore the shifting landscape of income tax reassessments and the procedural requirements for both taxpayers and authorities.
Analyzing Re-assessments under the Income Tax Act, 1961, in light of Supreme Court decisions in the case(s) of Ashish Agarwal and Rajeev Bansal
1. Introduction:
1.1 The purpose of a Reassessment is to assess additional income of a taxpayer that was overlooked during the original assessment. Such escaped income can only be taxed through a reopened assessment, and the revenue authorities are required to provide a reasonable opportunity for the taxpayer to address this before the income is taxed.
2. Time limit for issuance of notice under section 148 of the Income Tax Act to reopen the assessment of taxpayers:
2.1 Old Regime – Prior to March 31, 2021: Reopening assessments were subject to specific time limits as per sections 149 and 151, which included timelines of 4 years and 6 years, years. An assessing officer could reopen any case within 4 years of the relevant assessment year. For cases falling between 4 and 6 years, notices could only be issued if the escaped income exceeded ₹1 lakh. [Assessments upto 16 years could only be reopened if income related to assets located outside India had escaped assessment]
2.2 Present Regime – Post March 31, 2021: After April 1, 2021, as per the amended provisions of section 149/151, the timelines for issuing notices under section 148 were modified to 3 years, beyond 3 years and upto 10 years. Notices can be issued within 3 years of the end of the relevant assessment year without any monetary limits. Beyond 3 years, the escaped income must exceed ₹50 lakh for a notice to be issued. Additionally, the government has introduced a procedure with reference to section 148A of the IT Act to reopen assessments based only on credible evidence/materials indicating escaped income after providing necessary opportunity to the tax payer
2.3 Future Regime from 01.09.2024 – Reopening time limits have been changed again in the Budget 2024
| Revised Time and Monetary limits | |
| 3 years and 3 months have elapsed from the end of the relevant assessment year | if the income escapement is likely to be less than 50 lakhs. |
| Beyond 3 years and 3 months but unto 5 years and three months | if the income escapement is likely to be more than 50 lakhs. |
3. COVID Pandemic Period during the Financial Year 2020-21:
3.1 During the financial year 2020-21, the COVID pandemic hindered the department’s ability to complete core functions such completion of scrutiny assessments, issuance of statutory notices etc, within the deadlines set by the Income Tax Act. To address this, the government enacted the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (commonly referred to as TOLA) on September 29, 2020, through an ordinance, which later received presidential assent. TOLA extended various deadlines until June 30, 2021. One such extension was for the issuance of notices under section 148 of the Income Tax Act through various notifications. As mentioned earlier, in cases where timelines could not be met due to lockdowns or partial lockdowns related to COVID-19, the revenue authorities extended the deadline for issuing notices under Section 148 for the assessment years 2013-14 to 2017-18 until June 30, 2021, through the enactment of TOLA by using a travel back theory with reference to unamended sections of 149/151 of the I.T Act. Otherwise, there was a risk of losing substantial revenue in cases where income that had escaped taxation could not be brought to tax at all.
4. Therefore, the assessments were reopened for AYs 2013-14 to 2017-18 by issuance of notices under section 148 of the Income Tax Act as per time limits prescribed prior to April 1, 2021 in conjunction with TOLA, basing on the following notifications:
| Ordinance/Notification | Date of enactment/issue | Remarks |
| Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020 (No. 2 of 2020) | 31.03.2020 | Issuance of notices extended upto 30.6.2020 |
| Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020 (No.38 of 2020) | 29.09.2020 | Issuance of notices extended upto 31.03.2021 |
| Notification in S.O 1432(E)– The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020 | 31.3.2021 | Issuance of notices extended upto 30.04.2021 |
|
Notification in S.O 1703(E) – The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020) |
27.04.2021 | Issuance of notices extended upto 30.6.2021 |
4.1 Reassessment notices issued up to March 31, 2021, as per the old provisions could have survived the test of appeal as they were within the statutory time limits of unamended provisions of section 149 and 151 of the I.T Act.
4.2 However, notices issued between April 1, 2021, and June 30, 2021, based on the old provisions using the travel-back concept were challenged on the grounds that new procedures, time limits, sanctions for issuing notices, and the faceless procedure for reopened assessments were introduced in the Act effective April 1, 2021, under sections 148A, 149, 151, and 151A, respectively. In such scenario, the notices issued during this period should have adhered to the amended provisions of these sections of the Income Tax Act. Taxpayers contended that the notices issued during this time were invalid
5. Ashish Agarwal Vs Union of India[1]
5.1 As there were conflicting decisions of High Courts, this issue was taken to the Supreme Court. Consequently, the Supreme Court ruled in the case of Ashish Agarwal vs Union of India in Civil Appeal No. 3005/2022 dated 4.5.2022 stating that:.
“10. In view of the above and for the reasons stated above, the present Appeals are ALLOWED IN PART. The impugned common judgments and orders passed by the High Court of Judicature at Allahabad in W.T. No. 524/2021 and other allied tax appeals/petitions, is/are hereby modified and substituted as under: ¬
(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 show-cause 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 31 the Revenue, so that the assesees can reply to the show-cause 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 one time measure visˆ-vis 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.
11. The present order shall be applicable PAN INDIA and all judgments and orders passed by different High Courts on the issue and under which similar notices which were issued after 01.04.2021 issued under section 148 of the Act are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent. The present order is passed in exercise of powers under Article 142 of the Constitution of India so as to avoid any further appeals by the Revenue on the very issue by challenging similar judgments and orders, with a view not to burden this Court with approximately 9000 appeals. We also observe that present order shall also govern the pending writ petitions, pending before various High Courts in which similar notices under Section 148 of the Act issued after 01.04.2021 are under challenge.
12. The impugned common judgments and orders passed by the High Court of Allahabad and the similar judgments and orders passed by various High Courts, more particularly, the respective judgments and orders passed by the various High Courts particulars of which are mentioned hereinabove, shall stand modified/substituted to the aforesaid extent only. All these appeals are accordingly partly allowed to the aforesaid extent. In the facts of the case, there shall be no order as to costs”
5.2 In summary, the Supreme Court held that after exercising powers under Article 142, the notices issued under Section 148 by the Revenue from April 1, 2021, to June 30, 2021, under the unamended provisions, are deemed to be notices issued under Section 148A of the IT Act. These notices are to be construed as show-cause notices under Section 148A(b). The Assessing Officer is directed to provide the necessary information available to the taxpayer within 30 days and allow them two weeks to respond. Subsequently, the Assessing Officers shall pass an order under Section 148A(d) of the IT Act, followed by the issuance of a notice under Section 148. Accordingly, the Revenue followed the Supreme Court’s order and completed the process of issuing notices under Section 148, and reopened assessments were completed as per the extended time limits.
6. Union of India & Ors Vs Rajeev Bansal[3]
6.1 Consequent to the Ashish Agarwal case, the Allahabad High Court , in the case of Rajeev Bansal Vs Union of India in Writ Tax Appeal No. 1086 of 2022 dated 22.02.2023 rendered a judgment stating that there was no specific clause in the Finance Act 2021 to preserve the provisions of TOLA, which grants an extended time limit under the unamended provisions for reassessment notices issued during the period from April 1, 2021, to June 30, 2021. As such, the notices issued between April 1, 2021, and June 30, 2021, would not be eligible for the benefits of TOLA. The matter subsequently went to the Supreme Court
6.2 The Supreme Court observed that in the case of Ashish Agarwal (supra), it was tasked with determining whether the Revenue was correct in issuing reassessment notices under the old regime when the new, more favourable regime was already in effect. The Court had concluded that all reassessment notices issued after April 1, 2021, should comply with the new regime. However, it interpreted the notices issued under Section 148 of the old regime as if they were issued under Section 148A(b) of the new regime. However, the Ashish Agarwal (supra) case did not address whether the reassessment notices were issued within the time limits set by the Income Tax Act and the relaxations under TOLA. Consequently the SC held that
| “114. In view of the above discussion, we conclude that:
a. After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions; b. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021; c. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under Section 148; d. TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval; e. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval; f. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021; g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and h. The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside; 115. The judgments of the High Courts rendered in Union of India v. Rajeev Bansal, 165 Keenara Industries Pvt. Ltd. v. ITO, Surat, 166 J M Financial and Investment Consultancy Services Pvt. Ltd. v. ACIT, 167 Siemens Financial Services Pvt. Ltd. v. DCIT, 168 Geeta Agarwal v. ITO, 169 Ambika Iron and Steel Pvt Ltd v. PCIT, 170 Twylight Infrastructure Pvt Ltd v. ITO, 171 Ganesh Dass Khanna v. ITO, 172 and other judgments of the High Courts which relied on these judgments, are set aside to the extent of the observations made in this judgment. 116. The appeals filed by the Revenue are accordingly allowed. The appeals filed by the assesses will be governed by reasons discussed in this judgment. 117. The transfer petitions are disposed of. 118. Pending application(s), if any, stand disposed of. |
7. Conclusions:-
7.1 The issue arises from the fact that the revenue began issuing reassessment notices from April 2021 up to June 30, 2021, in accordance with the time limits and sanctions available under the unamended provisions of Sections 149 and 151 of the Income Tax Act (I.T. Act), based on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA), which permitted the issuance of notices until June 30, 2021. However, taxpayers challenged the reassessment notices issued between April 1, 2021, and June 30, 2021, arguing that these did not comply with either the new procedures established by the Finance Act 2021 under Section 148A or the time limits and sanctions outlined in Sections 149 and 151 of the amended provisions. The matter escalated to the Supreme Court. In the Ashish Agarwal case, the Supreme Court ruled that notices issued under Section 148 by the revenue between April 1, 2021, and June 30, 2021, under the unamended provisions, are deemed to be notices issued under Section 148A of the I.T. Act, as specified in the Finance Act 2021. These notices are to be interpreted as show-cause notices under Section 148A(b) of the new regime. The Assessing Officer is directed to provide the necessary information to the taxpayer within 30 days and allow them two weeks to respond before issuance of reassessment notices.
7.2 Taxpayers partially disagreed with the Supreme Court’s decision in the Ashish Agarwal case and challenged the validity of the notices. This matter also went to the Supreme Court. Consequently, the Supreme Court issued an order in the case of Union of India & Ors vs. Rajeev Bansal, which is discussed below.
7.3 The Supreme Court resolved the litigation regarding the issuance of notices under Section 148 during the period from April 1, 2021, to June 30, 2021. The Court clearly stated that actions such as the issuance of notices under Section 148, which were pending between March 20, 2020, and March 31, 2021 (the pandemic period), could be completed applying the extended time limits provided by TOLA until June 30, 2021.
7.3 However, the Supreme Court held that Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuing a reassessment notice under Section 148 and does not extend to obtaining sanctions from higher authorities. The Court observed that under the amended provisions, cases exceeding three years could only be reopened in situations where the income that has escaped assessment exceeds ₹50 lakhs. Furthermore, the power to sanction the issuance of reassessment notices has been delegated to high-level authorities, such as the Principal Chief Commissioner of Income Tax (Pr.CCIT) or Chief Commissioner of Income Tax (CCIT), under Section 151(ii) of the I.T. Act. This provision is, therefore, beneficial for taxpayers. Since sanction is a condition precedent for issuing a notice, the Supreme Court formulated the following tests for the validity of reassessment notices issued by the revenue:
| The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval
In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval |
7.4 For the assessment years 2016-2017 and 2017-2018, the three-year period under the amended regime expired on March 31, 2020, and March 31, 2021, respectively. The extended period available was until June 30, 2021. Therefore, approvals obtained in June/July 2022 (Post Ashish Agarwal case) from the PCIT under Section 151(i) instead of PrCCIT under section 151(ii) may result in invalid notices.
7.5 For the assessment year 2015-16, the Supreme Court noted that the reassessment for this year falls outside the provisions of TOLA, which the revenue conceded.
7.6 For the assessment years 2013-14 and 2014-15, the reassessment notices remain valid as TOLA applies. Thus, reassessment notices issued between April 1, 2021, and June 30, 2021, are within the allowed time frame.
7.7 The Supreme Court ruled that the directions in the Ashish Agarwal case apply to all ninety thousand reassessment notices issued under the old regime between April 1, 2021, and June 30, 2021.
7.8 Period of stay to be reckoned from the period during which the show-cause notices are considered stayed is from their issuance date, between April 1, 2021, and June 30, 2021, until the assessing officers provide the relevant information and materials to the taxpayers, as directed by the Court in the Ashish Agarwal case. This includes an additional two-week period allowed for assessees to respond to the show-cause notices.
7.9 Furthermore, the Supreme Court observed that assessing officers must issue the reassessment notices under Section 148 of the new regime within the time limits specified by the Income Tax Act in conjunction with TOLA and any notices issued after the surviving period are deemed time-barred and must be annulled.
[3] Union of India and Ors vs Rajeev Bansal in Civil Appeal No. 8629 of 2024 dated 03.10.2024
[i] Author’s Note:- This article is intended for tax awareness and for academic purposes only
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