[Opinion] With Defences Available u/s 149 to TOLA Batch of Reassessment Notices, Made to Become a Mirage, What Next for the Assessees?

Mayank Mohanka – [2024] 167 taxmann.com 310 (Article)

“A legal fiction may even say that a man shall be deemed to be a woman or a woman shall be deemed to be a man.”

Well Friends, frankly speaking, it was not until the judgements being pronounced by the hon’ble Supreme Court in the cases of ‘Asish Agarwal‘ [2022] 138 taxmann.com 64 and ‘Rajeev Bansal‘ [2024] 167 taxmann.com 70 (SC), that I realised the true purport, significance and the weighty force of the concept of ‘Legal Fiction’, being so aptly summarised in the above words, by the hon’ble Justice D.S Tewatia in the case of ‘CIT v. Swaroop Krishan‘ [1985] 21 Taxman 404 (Punj. & Har.).

Magic of ‘Legal Fiction’

Para 97 of the ‘Rajeev Bansal’ judgement explains the concept of ‘legal fiction’ as,

“a supposition of law that a thing or event exists, even though, in reality, it does not exist.”

In my humble understanding, it is this doctrine of ‘legal fiction’ only, which more than anything else, has turned out to be the ‘Saviour’ and ‘Messiah’, coming to the rescue and saving of the 90,000 reassessment notices, issued for AYs 2013-14 till 2017-18,under the unamended section 148 of the Income Tax Act, which otherwise had become time barred and dead, going by the strict but plainand correct interpretation of the relevant substantive legislative provisions of the substituted reassessment regime, by the Finance Act, 2021.

In ensuing paras, I have discussed the magic of ‘legal fiction’ coming into play in full circle, in the said two judgements, to revive the otherwise dead reassessment notices.

(i) Reassessment Notices issued under Old Section 148 Deemed as Show Cause Notices under New Section 148A(b) of the Income Tax Act:

The hon’ble Supreme Court, in the case of ‘Asish Agarwal’, by invocation of its extraordinary jurisdiction under Article 142 of the Constitution of India, which probably became the first such instance in the direct tax matters, conceived and created a deeming legal fiction wherein such 90,000 reassessment notices issued under the old reassessment regime, were held as deemed to have been issued under the new reassessment regime, as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices (SCNs) in terms of section 148A(b) of the Income Tax Act.

However, in the very same judgement, the hon’ble Apex Court, in no unclear terms, had also pronounced that all defences which may be available to the assessees including those available under substituted section 149 of the Income Tax Act, under the Finance Act, 2021 and in law, shall continue to be available.

The first round of litigations didn’t get settled even after the said judgement of the hon’ble Supreme Court. The apex body CBDT brought in an Instruction No 1 of 2022 dated 11.5.2022, bringing a fictional concept of ‘time travel’, envisaging that the reassessment notices will travel back in time to their original dates when such notices were to be issued and then new section 149 of the Act is to be applied at that point.

Subsequently, notices u/s 148 of the new regime were issued to the assesses by the assessing officers between July and September 2022 for the AYs 2013-2014 till 2017-2018. These notices were challenged by assessees before several High Courts on PAN India basis. The hon’ble High Courts on PAN India basis, had held the notices to be invalid on the ground that they were: (i) time-barred; and (ii) issued without the appropriate sanction of the specified authority.

With the second round of litigations, in the TOLA batch of cases, again travelling upto the hon’ble Supreme Court, with ‘Rajeev Bansal’ as the leading case, the hon’ble Apex Court, has again given a new lease of life to such otherwise quashed reassessment notices, and once again the doctrine of ‘Legal Fiction’ has become instrumental in doing this magic as under.

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