[Opinion] Reassessment Controversy – Post SC judgement in Ashish Agarwal

CA Sri Harsha & CA Narendra – [2023] 148 taxmann.com 193 (Article)

Background

Reassessment under Section 147 of ITA is always a major source for litigation before the judicial fora. In order to reduce the litigation and create a tax friendly environment, reassessment provisions under Section 147 were completely replaced with new provisions though the FA, 2021.

However, insertion of new reassessment provisions has indirectly created huge litigation during recent times. Even after the matter reached the Hon’ble Supreme Court, the issue has not been resolved completely. Let us understand the history of controversy which was created by the new reassessment provisions under Section 147 – Section 151 as amended by the FA, 21.

During the outbreak of COVID-19 pandemic, CG has enacted the TOLA, 20. Section 3 of TOLA extends the time limit for various compliances under the ITA to 31.03.2021, if the due date for such compliance falls between 20.03.2020 and 31.12.2020. It further provides that the CG may further extend the time period specified in above. By utilizing the power conferred under Section 3 of TOLA, the CG, by Notification5, extended the time limit for issue of notice under Section 148 to 30.04.2021 and the same is further extended to 30.06.2021.

However, when the Notifications are effective, through the FA,21, provisions of reassessment have been replaced with a new set of provisions which are effective from 01.04.2021.

This insertion of new provisions by the FA,21 has created huge controversy. This is because, on one hand, the last date under section 149 for issue of notice under section 148 (if such date falls between 20.03.2020 and 31.03.2021) has been extended to 30.06.2021. On the other hand, reassessment provisions have been completely changed though the FA,21 with effective from 01.04.2021.

When there is an overlap between old and new provisions, a notification issued by the CG under the TOLA states that provisions of section 149 and section 151 as stood before the amendment by FA,21 shall be applicable. The major question of law that has been raised before the Hon’ble High Court is:

‘as the old provisions for reassessment has been substituted by Finance Act, 2021 and such old provisions are not applicable on or after 01.04.2021, whether the central government with the delegated power is empowered to issue such Notification extending the time limit for issue of notice even on or after 01.04.2021 under the old provisions?’

In this regard, many High Courts have held that as the reassessment provisions have been completed changed through the FA,21 with no saving clause for the old provisions, and parliament has made the new provisions effective from 01.04.2021 though it is well aware of the existence of Notification for extension of dates, notice issued under section 148 post 01.04.2021 under old reassessment provisions are not tenable accordingly quashed the reassessment notices. For detailed analysis, read our article.

The Hon’ble Chhattisgarh High Court has upheld the issue of notice under section 148 whereas Allahabad High Court, Rajasthan High Court and Delhi High Court have quashed the reassessment notice under section 148. Against the High Court Judgment, Revenue has filed an SLP before the Hon’ble Supreme Court.

At the Supreme Court

After considering facts, the Hon’ble Supreme Court has allowed the appeal of the revenue with the following remarks:

• The respective impugned section 148 notices issued to respective assessee shall be deemed to have been issued under section 148A of the ITA as amended by FA, 21 and AO shall provide information and material to the assessee within 30 days so that assessee can reply within 2 weeks.
• The requirement of conducting enquiry as specified under section 148A(a) be dispensed with as one time measure vis-à-vis those notices which have been issued under old provisions from 01.04.2021 to till date.
• Thereafter, AO shall pass order under section 148A(d) appropriately and issue notice under section 148 as amended.
• All defences which may be available to the assessee under section 149 or under FA 2021, and whatever rights available to the AO under FA, 2021 are kept open and continue to be available.

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