Equilibrium Between Power Of The Income Tax Dept. Of Reassessment And Rights Of The Assessee: Supreme Court

At the same time, in order to protect the interests of the assessees, the Apex Court directed that the income tax officer must follow the procedure laid down as per amendments made by the Finance Act, 2021. All defences shall be available to the assessee under Section 149 of the Income Tax Act, as amended.

The bench of Justices M.R. Shah and B.V. Nagarathna observed that section 148 notices issued to respective assessees under the unamended section 148 of the Income Tax Act and which were the subject of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the Income Tax Act as substituted by the Finance Act, 2021, and construed or treated as show­cause notices.

The court directed the assessing officer to provide the assessees' information and material relied upon by the Revenue,within thirty days so that the assessee can reply to the show cause notices within two weeks.

The court observed that the requirement of conducting any enquiry, if required, with the prior approval of a specified authority under section 148A (a) has been dispensed with as a one­time measure vis­à­vis those notices which have been issued under section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts.

"All defences which may be available to the assesses, including those available under section 149 of the Income Tax 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," the court said.

The court held that the order shall be applicable on Pan India basis and all judgments and orders passed by different High Courts on the issue and under which similar notices which were issued after 01.04.2021 issued under section 148 of the Income Tax Act are set aside and shall be governed by the order and shall stand modified.

Background

Approximately 90,000 reassessment notices under section 148 of the unamended Income Tax Act were issued by the Revenue after 01.04.2021, which were the subject matter of more than 9000 writ petitions before various High Courts across the country and by different judgments and orders. The High Courts have taken a similar view and have set aside the respective reassessment notices issued under section 148 of the Income Tax Act on the grounds that they were bad in law in view of the amendment by the Finance Act, 2021, which amended the Income Tax Act by introducing new provisions, i.e., sections 147 to 151, w.e.f. April 1, 2021. The department has preferred the appeals before the Supreme Court.

Despite the substituted sections 147 to 151 of the Income Tax Act, 1961 by the Finance Act, 2021 coming into force, the Revenue issued approximately 90,000 reassessment notices to the respective assessees under the erstwhile sections 148 to 151 by relying on explanations in the Notifications dated 31st March, 2021 and 27th April, 2021. The reassessment notices were the subject matter of writ petitions before the various High Courts. The respective High Courts have held that all the respective reassessment notices issued under the erstwhile sections 148 to 151 of the Income Tax Act, 1961, are bad in law as the reassessment notices issued after 01.04.2021 are governed by the substituted sections 147 to 151 of the Income Tax Act, 1961, substituted by the Finance Act, 2021.

Reformative Finance Act, 2021

Amended sections 147 to 149 and section 151 of the Income Tax Act prescribe the procedure governing the initiation of reassessment proceedings. However, for several reasons, the same gave rise to numerous litigations and the reopening was challenged, inter alia, on various grounds, namely: no valid "reason to believe," no tangible/reliable material/information in possession of the assessing officer, leading to the formation of the belief that income had escaped assessment, and no enquiry being conducted by the assessing officer prior to the issuance of the notice; and the reopening was based on a change of opinion of the assessing officer.

Before the Finance Act of 2021, the reopening was permissible for a maximum period of up to six years, and in some cases, beyond even six years, leading to uncertainty for a considerable time. Therefore, Parliament thought it fit to amend the Income Tax Act to simplify the tax administration, ease compliance, and reduce litigation. Therefore, with a view to achieving the objective, by the Finance Act, 2021, sections 147 to 149 and section 151 have been substituted.

Under the substituted provisions of the Income Tax Act vide Finance Act, 2021, no notice under section 148 of the Income Tax Act can be issued without following the procedure prescribed under section 148A of the Income Tax Act. Along with the notice under section 148 of the Income Tax Act, the assessing officer (AO) is required to serve the order passed under section 148A of the Income Tax Act. Section 148A of the Income Tax Act is a new provision which is in the nature of a condition precedent. The introduction of section 148A of the Income Tax Act can thus be said to be a game changer with the aim of achieving the ultimate object of simplifying the tax administration, easing compliance, and reducing litigation.

Case Title: Union of India v. Ashish Agarwal

Citation: 2022 LiveLaw (SC) 444

Counsel For Appellant: Advocate N. Venkataraman

Counsel For Respondent: Senior Advocates Sundaram and Shri S. Ganesh

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