Impact of the SC’s decision in the case Ashish Agarwal vs. CBDT’s instruction

Erstwhile section 147 to 151 of the Income Tax Act, 1961 provided for reassessment of income escaping assessment till 31.03.2021 which required issue of notice under section 148 of the Income Tax Act, 1961 by the Assessing Officer with approval of the specified authority under section 151 of the Income Tax Act, 1961 if he had a reason to believe based on some tangible material that an assessee’s income for an Assessment Year escaped assessment. The assessee thereafter had to file his/her return and had to ask for a copy of the “recorded reasons” and file objections to the same if he objected to the reasons recorded, which were to be disposed off by the Assessing Officer by passing a speaking order as per the ruling of the Hon’ble Supreme Court of India in the case of GKN Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963/[2003] 259 ITR 19.

However, with an object of simplifying the reassessment provisions, ease compliance and reduce litigation, the erstwhile/old reassessment provisions contained in sections 147, 148, 149 & 151 of the Income Tax Act, 1961 were substituted by the Finance Act, 2021 w.e.f. 01.04.2021 and new sections 147, 148, 148A, 149, 151 were inserted in the Income Tax Act, 1961 w.e.f. 01.04.2021. Now, as per the new/substituted provisions of reassessment brought in by the Finance Act, 2021 the procedural safeguards articulated by the Hon’ble Supreme Court of India in its earlier decision of GKN Driveshafts (India) Ltd.(supra) was streamlined through the insertion of section 148A of the Income Tax Act, 1961. As per the new law of reassessment brought in by the Finance Act, 2021, notice under section 148 of the Income Tax Act can be issued by following the procedure prescribed under new regime of the Income Tax Act. The new/amended provisions of reassessment brought in by the Finance Act, 2021 require prior approval from specified authorities at several stages before the commencement of reassessment proceedings like conducting an enquiry under section 148A(a) of the Income Tax Act, 1961 with prior approval of specified authority, issue of show cause notice under section 148A(b) of the Income Tax Act, 1961 thereafter to the concerned assessee providing an opportunity of hearing, consideration of the assessee’s reply furnished in response to the 148A(b) show cause notice, under section 148A(c) of the Act and finally passing an order under section 148A(d) of the Act with the prior approval of specified authority, on the basis of material on record including reply of assessee to section 148A(b) show cause notice. Thus the new section 148A of the Income Tax Act is in the nature of a condition precedent.

The Finance Act, 2021 has also reduced the permissible time limit for issuance of a notice under section 148 to three years since the close of the relevant assessment year (from four years under the pre-amendment regime) as per clause (a) of sub section (1) of section 149 of the Income Tax Act, 1961 where income escaping assessment is less than Rs.50 lakhs while for income escaping assessment in the form of assets being Rs.50 lakhs or more, the permissible time limit for issuance of a notice under section 148 is ten years since the close of the relevant assessment year. Defences to the said time limit are further provided in this provision’s Provisos.

Despite the new reassessment regime brought in by the Finance Act, 2021 w.e.f. 01.04.2021 by substituting sections 147 to 151 of the Income Tax Act, 1961 and inserting new section 148A in the Income Tax Act, 1961, the Revenue issued approximately 90,000 reassessment notices to respective assessees pan India under the erstwhile section 148 of the Income Tax Act, 1961 from 01.04.2021 to 30.06.2021 thereof, by relying on extension of limitation period vide explanations to Board’s Notifications dated 31st March, 2021 and 27th April, 2021 issued under power conferred by TOLA. Atleast 9,000 of these notices issued under the erstwhile section 148 of the Income Tax Act, 1961 from 01.04.2021 to 30.06.2021 were assailed in writ petitions by assessees across the country and the Hon’ble Allahabad, Delhi, Bombay, Calcutta, Madras and Rajasthan High Courts (with the Hon’ble Chhattisgarh High Court being an exception) vide different judgments and orders quashed/set aside these notices issued under erstwhile section 148 of the Income Tax Act, 1961 from 01.04.2021 to 30.06.2021 as being invalid and defective on account of being without jurisdiction and also overlapping and being in contravention with the new reassessment law brought in by the Finance Act, 2021 from 01.04.2021.

Pursuant to the various High Courts’ decisions, this issue of validity of notices issued under erstwhile/old section 148 of the Income Tax Act, 1961 from 01.04.2021 to 30.06.2021 reached the Hon’ble Supreme Court of India in a batch of appeals with the Hon’ble Allahabad High Court’s decision being the lead matter.

The Hon’ble Supreme Court of India in it’s historic and landmark decision dated 4^th of May, 2022 in the case of Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64 has put to rest the controversy which arose on issue of almost 90,000 notices under the erstwhile/old section 148 of the Income Tax Act, 1961 for the Assessment Years 2013-14 to 2017-18 by the Revenue pan India basis from 01.04.2021 to 30.06.2021, inspite of the new reassessment law having been enforced w.e.f. 01.04.2021 by the Finance Act, 2021.

The Hon’ble Supreme Court of India in it’s landmark decision dated 4^th of May, 2022, briefly outlining the changes brought about by the Finance Act, 2021 to the reassessment procedure held that the amendments made by the Finance Act, 2021 were introduced to streamline the reassessment process and grant further protection to such taxpayers whose assessments were being reopened. However the Hon’ble Supreme Court of India observed that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under erstwhile section 148 after the amendment in reassessment laws was enforced w.e.f. 01.04.2021 by the Finance Act, 2021 and that the said notices ought not to have been issued under the unamended section 148 of the Income Tax Act, 1961 and in fact they should have been issued under the substituted provisions of sections 147 to 151 of the Income Tax Act as per the Finance Act, 2021. The Hon’ble Supreme Court of India observed that 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 assessees as well as 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 section 148 notice has been issued on or after 1st April, 2021.

Click Here To Read The Full Article