[Opinion] Analysis of Judgement of Hon’ble Apex Court in Rajeev Bansal’s Case

D.C. Agrawal – [2024] 167 taxmann.com 147 (Article)

1. Introduction

Hon’ble Apex Court in Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70 considered the validity of notices issued u/s 148 of Income Tax Act during the period from 01-04-2021 to 30-06-2021 for reassessment under old regime. While issuing these notices Revenue considered that the benefit of Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA), will be available to them. However, Hon’ble Allahabad High Court in Rajeev Bansal v. Union of India [2023] 147 taxmann.com 549/453 ITR 153 and other High Courts held the view that issue of notice u/s 148 on or after 01-04-2021 will be governed by new regime and therefore, will be governed by First Proviso to Section 149(1). It meant that if a notice u/s 148 could not be issued under old regime because of expiry of limitation of six years, the same could also not been issued under new regime of reassessment. Hon’ble Allahabad High Court held that the TOLA, 2020 will not govern the time frame under the First Proviso to section 149(1) as inserted by Finance Act 2021. This judgement and judgement of other High Courts holding same view particularly by Hon’ble Gujarat High Court in Keenara Industries (P.) Ltd. v. ITO [2023] 147 taxmann.com 585/453 ITR 51, by Hon’ble Bombay High Court in Godrej Industries Ltd. v. Asstt. CIT [2024] 160 taxmann.com 13 and New India Assurance Company Ltd. v. Asstt. CIT [2024] 158 taxmann.com 367 (Bom.) and others were challenged by Union of India before Hon’ble Apex Court. The lead case was that of Hon’ble Allahabad High Court in Rajeev Bansal’s case (supra). In this article, the submissions, reasoning and consequences of the judgement are briefly described.

2. Background

2.1 TOLA

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA), was promulgated by the President of India on 31 March 2020, in response to the challenges posed by the COVID-19 pandemic. The ordinance was introduced to extend time limits for various statutory and regulatory compliances under specified Acts, such as the Income Tax Act, which were due between 20 March 2020 and 29 June 2020. Initially, the time limit was extended until 30 June 2020.

On 24 June 2020, the Central Government issued a notification under Section 3(1) of the TOLA Ordinance, further extending the deadline for compliance under the specified Acts to 31 March 2021. Later, on 29 September 2020, Parliament enacted TOLA, giving it retrospective effect from 31 March 2020. Section 3(1) of TOLA empowered the Central Government to extend these deadlines further, allowing compliance or completion of actions beyond 31 March 2021 by issuing subsequent notifications.

In pursuance of this, several notifications were issued to extend the deadlines. For instance, Notification No. 93 of 2020 extended the deadline to 30 March 2021, while Notification No. 20 of 2021 further extended it to 30 April 2021. Lastly, Notification No. 38 of 2021 extended the deadline until 30 June 2021. These extensions provided relief to taxpayers and authorities by extending the time limit for completing statutory actions such as passing orders, issuing notices, and obtaining sanctions under the Income Tax Act, covering the period from 20 March 2020 to 30 June 2021.

2.2 Amendment by Finance Act 2021

The Finance Act 2021 introduced significant changes to the reassessment procedure under Sections 147 to 151 of the Income Tax Act, effective from 1 April 2021. These changes revamped the entire scheme of reassessment, aiming to make the process more structured and transparent. The key highlights of the new regime are as follows:

1. Initiation of Reassessment Proceedings (Section 148): The assessing officer is now required to initiate reassessment proceedings based on prior information, and such initiation must be approved by a specified authority. This ensures that proceedings are initiated with proper oversight and based on specific grounds, rather than arbitrarily.
2. Procedure Before Issuing a Reassessment Notice (Section 148A): The new Section 148A mandates that the assessing officer conduct an inquiry (if needed) and provide the assessee with an opportunity to be heard before issuing a reassessment notice. The decision to issue such a notice must be made after considering the assessee’s reply and must be approved by the specified authority.
3. Reduced Time Limit for Reopening Assessments (Section 149): The time limit for reopening assessments has been reduced from four years to three years. However, in cases where income that escaped assessment amounts to ?50 lakhs or more, assessments can be reopened within ten years. The new regime prohibits reopening of assessments that were time-barred under the old regime.
4. Changes in Sanctioning Authorities (Section 151): The Finance Act 2021 introduced new specified authorities for approving reassessment notices, depending on the number of years that have passed since the relevant assessment year. For cases within three years, approval is required from the Principal Commissioner or Commissioner, while for cases beyond three years, higher authorities such as the Principal Chief Commissioner or Director General must provide approval.

2.3 The decision in Union of India v. Ashish Agarwal[2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1 (SC)

In its judgement Hon’ble Apex Court addressed the issue of reassessment notices issued under the old regime of the Income Tax Act after the Finance Act 2021 had replaced Sections 147 to 151. The Court recognized that the reassessment notices, which had been issued on or after 1 April 2021, were based on a “bona fide belief” by the Revenue that the amendments introduced by the Finance Act 2021 were not yet in force. However, the Court agreed with the High Courts’ position that the benefit of the new provisions should apply to reassessment proceedings for past assessment years.

To balance the interests of both the Revenue and the taxpayers, the Supreme Court exercised its powers under Article 142 of the Constitution. It directed that all reassessment notices issued after 1 April 2021 under the unamended Section 148 should be treated as notices issued under Section 148A(b) of the new regime. These notices would now be considered as show-cause notices, giving the assessees an opportunity to respond before a reassessment was finalised.

2.4 Key directions issued by the Court

1. The reassessment notices issued under the old regime after 1 April 2021 would be deemed to have been issued under the new regime, Section 148A(b), and would be treated as show-cause notices.
2. The assessing officers must provide the assessees with the information and material relied upon by the Revenue within 30 days, allowing the assessees two weeks to respond.
3. As a one-time measure, the requirement for conducting an enquiry under Section 148A(a) was dispensed with for these reassessment notices, although such enquiries are generally not mandatory.
4. The assessing officers would then pass orders under Section 148A(d) based on the responses from the assessees and could subsequently issue reassessment notices under the new regime, if necessary.

The Court also clarified that all defences and rights available to the assessees and the Revenue under the Finance Act 2021 and other legal provisions would continue to be available during the reassessment process.

2.5 Instructions issued by the CBDT

The Central Board of Direct Taxes (CBDT) issued Instruction No. 01/2022 on 11 May 2022, providing guidance for implementing the Supreme Court’s decision in the Ashish Agarwal case. This Instruction clarifies that the decision applies to all cases where extended reassessment notices had been issued, regardless of whether they were challenged. The critical point of the Instruction is that reassessment notices under the old regime (Section 148) would be considered as if they were issued under the new regime (Section 148A), with retrospective effect, essentially “traveling back in time” to the original issuance date.

1. Paragraph 6.1 of the Instruction stated that the reassessment notices should be treated as if issued on their original date and the new Section 149 of the Income Tax Act would be applied accordingly. For assessment years (AY) 2013-14, 2014-15, and 2015-16, fresh notices could be issued only under specific conditions (i.e., clause (b) of sub-section (1) of Section 149), and for AY 2016-17 and AY 2017-18, fresh notices could be issued as they fell within a three-year window, requiring approval from the specified authority under Section 151.
2. Subsequently, assessing officers issued notices under the new regime between July and September 2022. However, these notices were challenged in various High Courts, which ruled them invalid, citing reasons such as being time-barred or lacking proper sanction from the specified authority.
3. The Supreme Court, in the Ashish Agarwal case, held that reassessment notices issued after 1 April 2021 should have followed the new regime. However, the Court allowed the notices issued under the old regime to be deemed as issued under the new regime (Section 148A(b)). The Court did not address whether these notices complied with the time limits prescribed by the Income Tax Act, which became the central issue in subsequent appeals

Click Here To Read The Full Article