Summary: The Supreme Court and various High Courts have recently addressed key issues regarding the reopening of assessments under Section 148 of the Income Tax Act, 1961, following amendments introduced by the Finance Act, 2021. In Ashish Agarwal (2022), the Supreme Court revived reassessment notices issued under the old regime, converting them into show-cause notices under the new procedure (Section 148A), balancing taxpayer rights and revenue interests. In Hexaware Technologies (2024), the Bombay HC invalidated notices issued by Jurisdictional Assessing Officers (JAOs), ruling that only Faceless Assessing Officers (FAOs) could issue them under Section 151A. In contrary to this judgement, in TKS Builders (2024), the Delhi HC upheld the validity of notices issued by JAOs, conflicting with the Bombay HC’s stance. In Rajeev Bansal (2024), the Supreme Court harmonized the Taxation and Other Laws (Relaxation and Amendment) Act, 2020, with the new reassessment regime, treating old notices as show-cause notices under Section 148A. Lastly, in Kanwaljeet Kaur (2025), the Delhi HC clarified the exclusion of COVID-19-related periods for computing limitation under Section 149, ensuring compliance with procedural timelines.
These judgments emphasize procedural fairness, adherence to statutory amendments, and the judiciary’s role in balancing taxpayer rights and revenue interests.
1. Ashish Agarwal (Civil Appeal Nos. 3005-3017, 3019-3020 of 2022) – Supreme Court – May 4, 2022
The Supreme Court of India, in this case addressed the issue of reassessment notices issued under Section 148 of the Income Tax Act, 1961 in light of the amendments introduced by the Finance Act, 2021.
Key Issues:
The validity of reassessment notices issued by the Income Tax Department after March 31, 2021, under the old regime (pre-2021 amendments), was challenged by taxpayers.
The issue involved is ‘as the old provisions for reassessment has 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?’
Assessee argued that such notices should have been issued under the amended reassessment procedure introduced by the Finance Act, 2021, which came into effect on April 1, 2021, through Sections 148A, 148, 149, and 151.
High Court’s Ruling:
Various High Courts (including Allahabad, Delhi, Rajasthan, and Bombay) had quashed these reassessment notices, holding that they were invalid as they did not comply with the new reassessment procedure introduced by the Finance Act, 2021.
Supreme Court’s Decision:
The Supreme Court partially concurred with the High Court’s view that the notices did not comply with the amended law. However, instead of completely nullifying the notices, the Court revived and converted them into show-cause notices under Section 148A(b) (as per the new procedure). This decision allowed the Income Tax Department to continue reassessment proceedings under the new law, ensuring that the Department retained its power to reassess cases without being hindered by procedural technicalities.
Significance of the Decision:
The ruling provided relief to the Income Tax Department, as nearly 90,000 reassessment notices issued under the old regime were at stake. It balanced taxpayer rights while ensuring that tax authorities did not suffer due to the transition from the old regime to the new one. The decision clarified that the new reassessment provisions (post-Finance Act, 2021) would apply prospectively, and any pending reassessment proceedings must be aligned with the new framework. This judgment is a landmark case in income tax reassessment law, setting a precedent for procedural fairness and the transition to new tax laws.
2. Hexaware Technologies Limited (Writ Petition No. 1778 of 2023) – Bombay HC – May 3, 2024
Issue involved:
In this case the Bombay High Court addressed the validity of a notice issued under Section 148 of the Income Tax Act, 1961.
The petitioner, Hexaware Technologies Limited, challenged the notice on the grounds that it was issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO), as mandated by Section 151A of the Act and the corresponding scheme.
The Bombay HC’s decision:
The court examined whether the JAO had the authority to issue the notice under Section 148, given the provisions of Section 151A, which outlines the procedure for faceless assessment and reassessment. The court concluded that, in accordance with Section 151A and the scheme formulated under it, only the FAO is authorized to issue such notices. Consequently, the notice issued by the JAO was deemed invalid and bad in law.
Significance:
This decision underscores the importance of adhering to the procedural requirements established under the faceless assessment and reassessment scheme, emphasizing that notices under Section 148 must be issued by the designated FAO to be legally valid.
3. Rajeev Bansal (Civil Appeal Nos. 8629, 8631 of 2024, and others) – Supreme Court- October 3, 2024
Issue Involved:
The issue involved in this case was with respect of reassessment proceedings initiated based on notices issued between April 1, 2021, and June 30, 2021, under Section 148 of the Income Tax Act. These notices were issued following the extension provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) for the completion of actions needed during the period from March 20, 2020, to March 31, 2021.
Background:
The Finance Act, 2021, effective from April 1, 2021, introduced significant changes to the reassessment procedure under the Income Tax Act, including the insertion of Section 148A, which mandates a preliminary inquiry before issuing a reassessment notice. Despite these amendments, the Income Tax Department issued numerous reassessment notices under the old provisions between April 1, 2021, and June 30, 2021. These notices were challenged in various High Courts, leading to their quashing on the grounds of non-compliance with the new procedural requirements.
Supreme Court’s Decision:
The Supreme Court’s decision in Union of India vs. Rajeev Bansal harmonizes the application of TOLA with the stricter procedural mandates of the new reassessment regime.
The Supreme Court, referencing its earlier judgment in Union of India v. Ashish Agarwal (2022), acknowledged that the reassessment notices issued under the old regime post-April 1, 2021, were procedurally deficient. However, to balance the interests of the Revenue and the taxpayers, the Court exercised its powers under Article 142 of the Constitution to modify the notices. It directed that these notices be treated as show-cause notices under Section 148A(b) of the amended Act. This allowed the reassessment proceedings to continue under the new legal framework, ensuring procedural fairness and adherence to the amended provisions.
Significance:
This judgment reinforced the necessity for the Income Tax Department to comply with the procedural safeguards introduced by the Finance Act, 2021, particularly the conduct of a preliminary inquiry under Section 148A before issuing reassessment notices. It also underscored the Supreme Court’s commitment to ensuring that statutory authorities adhere to the due process of law while balancing the interests of tax administration and taxpayer rights.
The decision in Rajeev Bansal serves as a significant precedent in tax jurisprudence, emphasizing the importance of following procedural mandates in tax reassessment proceedings and the judiciary’s role in upholding the rule of law.
4. T K S Builders: (W.P.(C) 1968/2023 – Delhi HC – October 28, 2024
Issue involved:
In the consolidated judgment the Delhi High Court addressed the validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961.
The petitioners contended that such notices should be issued exclusively by the Faceless Assessment Officer (FAO) as mandated by Section 151A of the Act, rather than by the Jurisdictional Assessing Officer (JAO).
Delhi HC’s Decision:
The court examined the legislative framework governing faceless assessments, particularly Sections 144B and 151A, and the corresponding schemes and notifications. It was noted that while the faceless assessment scheme centralizes certain functions, the Jurisdictional Assessing Officer retains specific responsibilities, especially in the context of initiating reassessment proceedings.
The court concluded that the issuance of reassessment notices by the JAO does not contravene the faceless assessment scheme. It emphasized that the JAO is vested with the authority to issue such notices, and this process does not violate the provisions of Sections 144B and 151A. Consequently, the petitions challenging the validity of the reassessment notices on these grounds were dismissed.
Significance:
This decision is contrary decision to the decision of Bombay High Court’s decision in the case of Hexaware technology.
This decision clarifies that the initiation of reassessment proceedings by the Jurisdictional Assessing Officer is consistent with the statutory framework, and such actions are not invalidated by the faceless assessment provisions.
5. Kanwaljeet Kaur & Others (W.P.(C) 3908/2023 & CM APPL. 75406/2024)- Delhi HC – February 4, 2025
Issue Involved:
In this case, the Delhi High Court addressed the validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961, in light of the amendments introduced by the Finance Act, 2021.
Background:
The Finance Act, 2021, effective from April 1, 2021, introduced significant changes to the reassessment procedure under the Income Tax Act, including the insertion of Section 148A, which mandates a preliminary inquiry before issuing a reassessment notice. Despite these amendments, the Income Tax Department issued numerous reassessment notices under the old provisions between April 1, 2021, and June 30, 2021. These notices were challenged in various High Courts, leading to their quashing on the grounds of non-compliance with the new procedural requirements.
Delhi High Court’s Decision:
The Delhi High Court, referencing the Supreme Court’s decision in Union of India v. Rajeev Bansal, clarified the computation of the limitation period for issuing reassessment notices under Section 149 of the Income Tax Act. The Court held that the following periods should be excluded when calculating the limitation period:
1. March 20, 2020, to June 30, 2021: This period is to be excluded due to Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, which provided relaxations in timelines due to the COVID-19 pandemic.
2. Date of Issuance of Impugned Reassessment Notices to May 4, 2022: If the reassessment notices were issued between March 20, 2020, and June 30, 2021, the period up to the Supreme Court’s decision in Union of India v. Ashish Agarwal on May 4, 2022, should also be excluded, as per the third proviso to Section 149(1).
The Court emphasized that these exclusions are necessary to determine whether the reassessment notices are barred by the timelines prescribed under Section 149 of the Act.
Significance:
This judgment provides clarity on the computation of limitation periods for issuing reassessment notices, especially in the context of legislative amendments and judicial pronouncements. It underscores the importance of adhering to procedural timelines while also considering statutory relaxations and judicial directives that impact these timelines.
The decision serves as a significant precedent in tax jurisprudence, highlighting the judiciary’s role in interpreting statutory provisions in light of evolving legal frameworks and ensuring that both taxpayer rights and revenue interests are balanced.
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