Recent Supreme Court Decision on Reassessment

One of the objects of the revolutionary change in reassessment proceedings was to reduce litigation.  Ironically, from the first day of its enactment that is 01.04.2021 onwards, all the notices issued for reassessment are part of the spate of litigation. The issue which was ongoing in the entire country regarding the validity of the notices issued on or after 01^st April 2021 under the old provision of the Income – tax Act, 1961 [“the Act”] has been addressed by the Hon’ble Apex Court in case of UOI v. Ashish Agarwal – [(2022) 138 taxmann.com 64 (SC)].  Before adverting to the judgement of the Hon’ble Apex Court, it is apposite to understand the brief history of this controversy.

A. BRIEF HISTORY

1. The pandemic was declared in India due to COVID – 19 in the month of March – 2020. Due to the pandemic, worldwide lockdown was imposed which disrupted the movement of the people.  Looking at the situation, a relaxation act was enacted by the Legislature.  The Act was named “Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020” [“TOLA”].

2. TOLA gave the power to extend the time limitations of various Acts including the Income Tax Act, 1961 [“the Act”]. The time limitation for filing the return of income, the time for making investments as per section 54, 54F, etc. was also extended.  In fact, the time limit for issuing notices including notice u/s 148 as well as for the passing of order was extended by issuing various notifications.

3. Accordingly, the time limit for issuing notice u/s 148 of the Act for AY 2013 – 14 under the old provision was 31.03.2020 which was extended to 31.03.2021 by various notifications. It is pertinent to note that the time limit for issuance of notice u/s 148 for AY 2014 –15 was also expiring on 31^st March 2021.

4. In the Finance Bill, 2021 which received the assent of the President on 28^th March 2021, the new provision of the reassessment proceedings was introduced by substituting the old provision with effect from 01^st April 2021.

5. On 31^st March 2021, one more notification was issued extending the time limit for issuance of notice u/s 148 for AY 2013 – 14 and 2014 –15 till 30^th April 2021 and a further extension was taken vide notification dated 27^th April 2021 extending the time limit from 30^th April 2021 to 30^th June 2021. The notifications issued on 31^st March 2021 and 27^th April 2021 contained an Explanation stating that notice u/s 148 issued on or after 01^st April 2021 till 30^th June 2021 shall be issued as per the old provision of the reassessment.

6. As per the Finance Act, 2021 new provision of reassessment came into effect from 01^st April 2021. Whereas the revenue issued approx. 90000 notices u/s 148 as per the old provision on or after 01^st April 2021.  This became the triggering point of the litigation.  Around 9000 writ petitions were filed across the country before various High Courts challenging the validity of the notices issued under the old provision of reassessment.

7. Various High Courts like Allahabad, Rajasthan, Delhi, Calcutta and Bombay decided the writ petitions in favour of the assessee and quashed the notices issued u/s 148 of the Act on the ground that the notifications issued on 31^st March 2021 and 27^th April 2021 are ultra vires to the TOLA. The only High Court that ruled against the assessee was the High Court of Chhattisgarh.

8. The Revenue filed a Special Leave Petition before the Hon’ble Supreme Court against the decision of the Allahabad High Court quashing the notice u/s 148.

B. SUMMARY OF THE JUDGEMENT OF THE HON’BLE SUPREME COURT

1. The Hon’ble Supreme Court in case of UOI v. Ashish Agarwal – [(2022) 138 taxmann.com 64 (SC)] has passed an order by invoking Article 142 of the Constitution of India.

2. The summary of the observations made by the Hon’ble Supreme Court in its order is as follows:

i) It discussed the old as well as the new provision of reassessment at length and made a statement that substitution of section 147 to 151 of the Act is radical and reformative change.

ii) Introduction of section 148A of the Act can be said to be game changer with an aim to achieve the object of simplifying the tax administration, ease compliance and reduce litigation.

iii) The new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section148 notice has been issued on or after 1st April, 2021. We are in complete agreement with the view taken by the various High Courts in holding so.

iv) 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 Act. The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated.

v) It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 1-4-2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the Act as per the Finance Act, 2021.

vi) 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. Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so.

3. The Hon’ble Supreme Court while delivering verdict on the aforesaid judgement modified the orders passed by the respective High Courts as follows:

i) Notice issued u/s 148 under the unamended provision shall be deemed to have been issued u/s 148A of the Act as substituted by the Finance Act 2021 and construed or treated to be show cause notice in terms of section 148A(b) of the Act.

ii) The assessing officer shall, within 30 days from 04.05.2022 provide to the respective assessees information and material relied upon by the Revenue.

iii) The assessee shall reply to the show cause notice within two weeks from the receipt of the information and material from the assessing officer.

iv) 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 vis-à-vis those notices which have been issued under section 148 of the unamended Act from 1-4-2021 till date.

v) 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).

vi) All defences which may be available to the assesses including those available under section 149 of the 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.

vii) The order shall be applicable PAN India and the orders passed by the different High Courts on the issue and under which similar notices which were issued after 01^st April 2021 issued u/s 148 of the Act is set aside and shall be governed by the present order and shall stand modified to the aforesaid extent.

4. The order passed by the Hon’ble Supreme Court is applicable to every notice issued u/s 148 after 01^st April 2021 under the unamended law. Even if the writ petition in this regard is filed or not before the High Court, the ruling of the Supreme Court will be applicable.

5. The Central Board of Direct Taxes [“the CBDT”] has come with the instructions regarding the implementation of judgement of the Supreme Court, vide instruction no. 1/2022, dated 11^th May 2022. The instructions are in contrary to the rulings laid down by the various High Courts, which is approved by the Hon’ble Supreme Court in its Para No. 7 and 8 of its order and it is also contrary to section 149 of the Act.

6. It is pertinent to mention that the CBDT had come up with Instruction No. 225/2021, dated 10.12.2021.  As per the Instructions of the CBDT, it has accepted the position that notice u/s 148 can be issued only up to 31.03.2022 for AY 2015 – 16 under the provisions of section 149(1)(b).  Accordingly, it may be inferred that as per the said CBDT instructions, time limit to issue notice u/s 148 for AY 2013 – 14 and AY 2014 – 15 is already time barred after 31.03.2021.  Therefore, Instruction No. 1/2022, is also in contradiction with Instruction No. 225/2021.

7. Following chart depicts position of issuance of fresh notice u/s 148 giving effect to the decision of the Supreme Court, as per the Instructions dated 11.05.2022 issued by the CBDT and in the opinion of the author

Sr. No.	Assessment Year	Amt of escapement	As per the Instructions	Author’s opinion	Refer
1.	2013 –14	Less than ₹ 50 Lakh	Time barred	Time barred	Section 149(1)(a)
2.	2013 – 14	₹ 50 Lakh or more	Eligible	Time barred	Proviso to section 149(1)(b)
3.	2014 – 15	Less than      ₹ 50 Lakh	Time barred	Time barred	Section 149(1)(a)
4.	2014 – 15	₹ 50 Lakh or more	Eligible	Time barred	Proviso to section 149(1)(b)
5.	2015 – 16	Less than      ₹ 50 Lakh	Time barred	Time barred	Section 149(1)(a)
6.	2015 – 16	₹ 50 Lakh or more	Eligible	Time barred	Proviso to section 149(1)(b)
7.	2016 – 17	₹ Less than      ₹ 50 Lakh	Eligible	Time barred	Section 149(1)(a)
8.	2016 – 1 7	₹ 50 Lakh or more	Eligible	Eligible	Section 149(1)(b)
9.	2017 – 18	₹ Less than      ₹ 50 Lakh	Eligible	Time barred	Section 149(1)(a)
10.	2017 – 18	₹ 50 Lakh or more	Eligible	Eligible	Section 149(1)(b)

8. In the author’s opinion, on perusal of the CBDT instructions, it prima facie appears that again new series of the litigation will start as the CBDT instruction seems to be contrary to the legislative intent of enacting the new regime of the reassessment and as well as to the judgements of various High Courts.

9. The time period for providing the information in 30 days as ruled by the Supreme Court is getting lapsed on 03.06.2022, the information not received till 03.06.2022 for any of the cases, may be assumed to be dropped by the Assessing Officer. The cases where the information is received it is mandatory to file a reply to the show cause notice on the basis of the information received.

10. It is very important to note that it is well settled through a series of the judgements that reassessment, even in a case where the return was not scrutinized before, cannot be resorted to reassessment unless the Assessing Officer has information that depicts the prima facie escapement of income. In other words, for mere fishing or roving inquiry or verification reopening of the assessment is not permissible.

11. The time period allowed to file the objections is two weeks from the date of receipt of the information. Drafting the detailed submission in reply to the show cause notice by taking all the appropriate objections is very important.

12. There are a few very important judgements on the new regime of the reassessment. One may refer while drafting the submission to show cause notice.  The case laws are as follows:

a) Divya Capital One (P). Ltd v. ACIT – [W.P. No. 7406 of 2022, Order dated 12.05.2022, Delhi HC]

Under the amended provisions, the term “information” in Explanation 1 to section 148 cannot be lightly resorted to so as to reopen assessment.  Merely because the Revenue classifies a fact already on record as “information” may vest it with the power to issue a notice of reassessment under s. 148A(b) but would certainly not vest it with the power to issue a reassessment notice under section 148 post an order under section 148A(d).

b) Shri Sai Co – operative Thrift & Credit Society Ltd v. ITO – [W. P. No. 7385 of 2022, dated 12.05.2022, Delhi – HC]

The High Court quashed the order passed u/s 148A(d) as minimum stipulated time of 7 days to respond to the show cause notice was not given to the assessee.

c) Mahananda Enterprises Ltd. v. ITO – [S C A. No. 8208 / 2022, dated 02.05.2022, Guj HC]

It goes without saying that any information must be substantiated on the basis of the record available. If any information is not substantiated with anything on paper, then perhaps the Assessing Officer may not be justified in just randomly issuing such notice. Therefore, tomorrow if the Assessing Officer is not able to substantiate the information on the basis of any record in writing in the form of a bank statement itself, then we may make appropriate observation as to how the Assessing Officer is expected to proceed in accordance with law.

Disclaimer:  The content/information in this article is only for the general information of the reader and shall not be construed as legal advice.  The opinion expressed herein is the personal opinion of the author and it cannot be treated or deemed as the legal opinion.  The author does not intend in any manner to solicit work through these taxation-related articles. The articles are only to share information based on recent developments and regulatory changes. While the Author has exercised reasonable efforts to ensure the veracity of the information/content published, the Author shall be under no liability in any manner whatsoever for incorrect information, if any.