After a year full of disputed reopening of assessment under the pre-amendment provisions, the Hon’ble Apex Court finally put an end to this legal controversy by striking a balance between the Revenue’s and Assessees’ rights in the ruling of Union of India & Ors vs. Ashish Agarwal. The Hon’ble Supreme Court held that notices of reopening issued under the old regime after the date the amended mechanism became effective, being 01st April, 2021, will be deemed to be issued under the new amended provisions of section 148A. Accordingly, it modified the judgements of various High Courts such as Bombay High Court, Punjab High Court, Allahabad High Court, etc., which had ruled entirely in favour of the assesses in the said issue by quashing the notices of reopening issued as per the old provisions on or after 1st April 2021.
Now lets us understand the issue in the first instance and then we will look for a possible solution.
The Finance Act, 2021 had introduced new procedure to be adopted mandatorily for reassessment under the Income-tax Act, 1961 by inserting section 148A. However, in pursuance of the power vested under section 3 of the Relaxation Act, 2020, the Central Government issued Notifications extending the timelines expiring on 31-03-2021 to 30-06-2021 prescribed under section 149 for issuance of reassessment notices under section 148 of the Income Tax Act, 1961.
The Explanations to the Notifications dated 31st March 2021 and 27th April 2021 issued under section 3 of the Relaxation Act, 2020 also stipulated that the provisions, as they existed before the amendment by the Finance Act, 2021, shall apply to the reassessment proceedings initiated thereunder. Now, despite the amendment in Finance Act 2021, the Assessing Authorities issued as many as around 90,000 reassessment notices from 01-04-2021 to 30-06-2021 under the erstwhile provisions of the Act thereof by relying on explanations in the Notifications dated 31st March 2021 and 27th April 2021. Aggrieved by the same, the said reassessment notices were the subject matter of writ petitions before the various High Courts.
Respective High Courts (except Chhattisgarh High Court) held that all the 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 01st April 2021 are governed by the substituted sections 147 to 151 of the Income Tax Act, 1961, as amended by the Finance Act, 2021. Consequently, the High Courts set aside all the reassessment notices issued under section 148 of the Income Tax Act, 1961.
Aggrieved by the same, the Revenue appealed before the Hon’ble Supreme Court.
Thereafter the Supreme Court on 04th May 2022 passed its judgment, summary of Observation of the Supreme Court is as under:
1. The object and Purpose of reassessment proceedings cannot be frustrated. The Revenue proceeded with the pre-amended provisions under a genuine and bonafide mistake and therefore some leeway must be shown in this regard which could have been done by the High Courts itself.
2. All the impugned notices issued u/s 148 on or after 01st April 2021 as per the old provisions of section 148 shall be deemed to have been issued under section 148A of the Income-tax Act, 1961 as substituted by the Finance Act, 2021 and also shall be treated as show cause notices in pursuance of section 148A(b). Hence, the requirement of conducting the inquiry with prior approval under section 148A(a) is dispensed with as a one-time measure.
Newly inserted section 148A of the Act requires the AO to issue the notice u/s 148A(b) of the Act after the approval of specified authority as to why a notice under section 148 should not be issued on information which suggests that income chargeable to tax has escaped assessment. Hence to conclude, all the notices issued under the erstwhile section 148 of the Act from 01st April 2021 to 30th June 2021 will be deemed to be notices issued u/s 148A(b) of the Act.
3. The AO is bound to provide reasons for reopening the assessment within 30 days from the date of the SC Judgement being 04th May, 2022, i.e. on or before 02nd June, 2022;
As per the reading of the order of the Hon’ble Supreme Court, the AO is under a mandate to provide to the assessees the information and material relied upon by the Revenue. However, the question here is what if the reasons are already provided to date.
4. On receipt of such reasons, the assessee will have to submit a response within 2 weeks ;
5. On submission of such a response, the AO will have to pass an order u/s 148A(d) whether or not it is a fit case to issue a notice under section 148. Thereafter after following the procedure as required under section 148A may issue a notice under section 148 (as substituted).
Here, the Hon’ble Supreme Court has inserted the two mandatory conditions for continuing the reassessment proceedings. Firstly, AO has to pass an order u/s 148A(d) of the Act, and secondly, to issue the new 148 notice if it is a fit case for a reassessment. It is pertinent to note that the Hon’ble Supreme Court has also mentioned that the time limit u/s 149 of the Act has to be complied with. Hence, now if the notice u/s 148 is to be issued then the time limit to issue a notice under the newly amended provisions of section 149 of the Act needs to be kept in mind.
6. 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.
Now, it is vital to understand that for which AY the notice u/s 148 of the Act can be issued. One can notably argue that for AY 2014-15, the time limit to issue notice had expired on 31-03-2021. Further, the amended proviso of section 149 of the Act does not permit the issue of notice on or after 01-04-2021 for the AY 2014-15 and prior AY’s.
Also, a view can be taken that for AY 2015-16, the time limit of six years expired on 31-03-2022. The decision of the Hon’ble Supreme Court requires the AO to issue the notice u/s 148 (as per para 10 of the order). Considering the timeline as per the amended section 149 of the Act, the notice under the old regime for the AY 2015-16 could have been issued till 31-03-2022. Hence it is arguable that the issue of notice for AY 2015-16 post 31-03-2022 might not hold good.
All judgments and orders passed by different High Courts on this matter shall be governed by the present order and shall stand modified to the aforesaid extent.
The 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.
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