Union of India and Others v. Ashish Agarwal
"Reassessment notices issued after 1 April 2021 under the old Section 148 must conform to the new scheme; by a one-time order under Article 142 they were treated as show cause notices under Section 148A(b), with all defences under the new law, including the time limits in Section 149, kept open to the assessees."
Issues Before the Court
- (i)
Whether reassessment notices issued after 1 April 2021 under the unamended Section 148 of the Income Tax Act, 1961, relying on extensions of time under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, were valid after the Finance Act, 2021 had substituted Sections 147 to 151 from that date?
- (ii)
If not, how should the many High Court judgments quashing such notices be dealt with?
Law & Rules Applicable
- (i)
Income Tax Act, 1961, Sections 147 to 151 as substituted by the Finance Act, 2021, including Section 148A (inquiry, information and an opportunity of being heard before a notice under Section 148) and Section 149 (time limits).
- (ii)
Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and the CBDT notifications of 31 March and 27 April 2021 extending time limits.
- (iii)
Constitution of India, Article 142 (power to do complete justice).
Application to Facts & Circumstances
From 1 April 2021 the Finance Act, 2021 replaced the reassessment provisions with a new scheme that required, among other things, a show cause notice and an order under Section 148A before a notice under Section 148 could issue. Relying on notifications extending time under the 2020 Relaxation Act, the Revenue nevertheless issued about 90,000 notices under the old Section 148 after that date. Several High Courts quashed them in thousands of writ petitions.
The Supreme Court accepted that the new provisions, which are beneficial to assessees, had to be followed, but considered that the Revenue should not be left without a remedy where its officers had acted in the bona fide belief that the old provisions still applied. To balance the two, it modified the High Court judgments under Article 142.
The notices were deemed to have been issued under Section 148A and treated as show cause notices under Section 148A(b). The Assessing Officers were to supply the information and material relied upon within thirty days, the assessees could reply within two weeks, and the officers would then pass orders under Section 148A(d) and, where warranted, issue notices under the new Section 148. The requirement of an inquiry with prior approval under Section 148A(a) was dispensed with as a one-time measure.
All defences available to the assessees, including those under Section 149, and all rights and contentions of both sides under the Finance Act, 2021 and in law, were kept open. The directions applied across the country, including to notices already quashed by the High Courts.
Conclusion & Ruling
- (i)
The appeals were allowed in part and the High Court judgments were modified, so that the notices survived as show cause notices under the new Section 148A.
- (ii)
Reassessment notices issued on or after 1 April 2021 are governed by the new scheme; notices issued under the old provision were saved only by treating them as notices under that scheme, as a one-time measure under Article 142.
- (iii)
Questions about the time limits applicable to such notices were later addressed in Union of India v. Rajeev Bansal.
Authorities Cited
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- Union of India v. Rajeev Bansal, 2024 INSC 754Full text of Union of India v. Rajeev Bansal on Indian Kanoon