Income Tax Reassessment procedure in respect of notices issued under old section 147/148 after Supreme Court’s verdict in the case of Union of India Vs. Ashish Agrawal
Background:
Honorable Supreme Court, vide its judgment dated 4th May 2022 (2022 SCC Online SC 543), in the case of Union of India Vs. Ashish Agrawal has adjudicated on the validity of the reassessment notices issued by the AOs under the un-amended section 147/148 during the period 1st April 2021 to 30th June 2021.
In order to implement the aforesaid judgment of Honorable Supreme Court in uniform manner, the Central Board of Direct Taxes (CBDT) in terms of its Income Tax Instruction No. 01/2022 dated 11th May 2022 in exercise of its power under section 119 of the Income Tax Act, 1961 has issued its directions for implementation of the SC judgment.
In this write-up, we have discussed the fate of the reassessment notices issued u/s un-amended section 147/148 of Income Tax Act, 1961 in view of recent Supreme Court’s verdict along with the reassessment procedures to be followed by the AOs in view of CBDT instruction.
Reformative changes introduced by Finance Act, 2021:
The Finance Act, 2021 introduced reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings w.e.f. 1st April 2021.
Under the substituted provisions, no notice under section 148 can be issued without following the procedure prescribed under section 148A.
By way of section 148A, the procedure of reassessment has now been streamlined. It provides that 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 show-cause 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 and
(v) the Assessing Officer is required to pass a specific order within the time stipulated.
Furthermore, the Finance Act had also restricted the period for reopening of assessments to 3 years instead of the erstwhile period of 6 years except where the escaped income in the form of assets amounts to Rs. 50 lakh or more where the cases can now be reopened till 10 years.
Extension of time for issuing reassessment notices under un-amended section 147/148 & challenge thereof before various high courts:
In pursuance to the power vested under section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the Central Government by way of several notifications inter-alia extended the time lines prescribed under section 149 for issuance of reassessment notices under un-amended section 148 of the Income-tax Act, 1961 till 30th June 2021.
Accordingly several thousands of reassessment notices were issued by the AOs under un-amended section 148 of Income Tax Act, 1961 during the period 1st April 2021 to 30th June 2021.
The said reassessment notices were the subject matter of writ petitions before the various High Courts. The respective High Courts (except the Chhattisgarh HC) 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 1-4-2021 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.
Honorable Supreme Court’s landmark Judgment:
Against the order passed by the High Court of Allahabad, revenue was in appeal before the Honorable Supreme Court.
The Honorable Supreme Court upheld the view of the respective High Courts that the said notices ought not to have been issued under the un-amended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021 and has given its verdict as under:
- 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.
- However, at the same time, the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act.
- The revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated.
- Therefore, instead of quashing and setting aside the reassessment notices issued under the un-amended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under un-amended act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A.
- The Revenue must be 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 Honorable Supreme Court by exercising its power under Article-142 of the Constitution of India has modified/ substituted the judgments and orders passed by the respective High Courts as under:
- 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 show-cause notices in terms of section 148A(b);
- The respective AOs shall within 30 days provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within 2 weeks thereafter;
- The requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a one-time measure;
- The AOs 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 assesses;
- 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 AOs under the Finance Act, 2021 are kept open and/or shall continue to be available.
Implementation of the above Judgment of Honorable Supreme Court:
In order to implement the aforesaid judgment of Honorable Supreme Court in uniform manner across the country, CBDT in terms of its Instruction No. 01/2022 dated 11th May 2022 has issued its directions as under:
1. Scope of the Supreme Court’s judgment:
CBDT clarified that the Supreme Court’s decision will apply to all cases where extended reassessment notices have been issued irrespective of the fact whether such notices have been challenged or not.
2. Implementation of new section 149 to check the identify the cases where fresh notices under section 148 can be issued on or after 1st April 2021:
| Relevant Assessment Year | CBDT’s Clarification |
| For AY 2013-14, 2014-15 & 2015-16 | Fresh notice u/s 148 can be issued only in cases where the AO has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to Rs. 50 lakh or more for that year.
Prior approval of Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General is required. |
| For AY 2016-17 & 2017-18 |
Fresh notice u/s 148 can be issued in all cases irrespective of any monetary limit. Prior approval of the Principal Commissioner or Principal Director or Commissioner or Director is required. |
3. Providing of information and material relied upon by the Revenue within 30 days i.e. by 2nd June 2022:
| Relevant Assessment Year | CBDT’s Clarification |
| For AY 2013-14, 2014-15 & 2015-16 | Information and material relied upon to be provided to the assesse by 2nd June 2022 only in cases where the income escaping assessment amounts to Rs. 50 lakh or more for that year.
All other cases below the monetary limit of Rs. 50 lakhs will be dropped by the Revenue in prescribed manner. |
| For AY 2016-17 & 2017-18 |
Information and material relied upon to be provided to the assesse by 2nd June 2022 in all cases irrespective of any monetary limit. |
4. Rights available to the assesse:
- The assesse has 2 weeks time to reply as to why a notice u/s 148 should not be issued, on the basis of information which suggest that income chargeable to tax has escaped assessment in his case for relevant assessment year.
- The aforesaid 2 weeks time shall be counted from the last date of communication of information and material by the AO.
- In case of a request by the assesse for allowing more time to file reply to the show cause notice, AO may allow such request on merit.
5. Passing of order u/s 148A(d) by the AO:
- After receiving the reply, the AO shall decide on the basis of submission made by the assesse along with material on record as to whether or not it is fit case to issue a notice u/s 148.
- Thereafter within 1 month from the end of the month in which the reply is received by the AOs, an order u/s 148A(d) is required to be passed by the AOs after obtaining approval of specified authorities of the new law.
- In case of no reply by the assesse, the order u/s 148A(d) is required to be passed within 1 month from the end of the month in which time or extended time allowed to furnish a reply expires.
6. Issuance of notice u/s 148 by the AOs:
- If it is fit case to issue a notice u/s 148, the AO shall serve on the assesse a notice u/s 148 along with a copy of order passed u/s 148A(d) after obtaining approval of the specified authority u/s 151 of the new law.
- If it is not a fit case to issue a notice u/s 148, the order passed u/s 148A(d) to that effect shall be served on the assesse.
Conclusion:
In order to strike a balance between the rights of the Revenue as well as the respective assesses as because of a belief of the officers of the Revenue in issuing approximately 90000 reassessment notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer, the honourable Supreme Court has given its landmark judgment by exercising its extra ordinary power under Article-142 of the Constitution of India, which shall be applicable PAN India.
In nutshell, the Supreme Court held that the validity of all such impugned notices, although originally issued under old section 148, shall now be governed by the amended reassessment provisions in sections 147-151, as per the Finance Act, 2021.
By following the Supreme Court’s Judgment, the CBDT has importantly clarified that for the Assessment Year 2013-14, 2014-15 & 2015-16, fresh notice u/s 148 can be issued only in cases where the income escaping assessment amounts to Rs. 50 lakh or more for that year and cases for the above assessment years which are below these monetary limit will be dropped.
(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)
[The author is a Chartered Accountant and can also be reached at goyalcanitin@gmail.com]
Author Bio
Please have a look at Article of Mr.Mayank Mohanka
https://taxguru.in/income-tax/curious-case-missing-proviso-section-149-miscounting-3-years-cbdt-instruction-sc-judgement.html?utm_source=feedburner&utm_medium=email
It gives better insight on Instructions of CBDT. The Hon’ble SC have not said any word on TOLA.