In CIVIL APPEAL NO.3005/2022-SC- Reassessment notices issued u/s 148 of unamended Income Tax Act shall be deemed to have been issued under u/s 148A as amended by Finance Act, 2021 and have to be treated as show-cause notices u/s 148A(b): SC Justices M.R. Shah and B.V. Nagarathna [04-05-2022]

Read Order: UNION OF INDIA AND ORS Vs.  ASHISH AGARWAL 

Mansimran Kaur

New Delhi, May 05, 2022: In a case where approximately 90,000 reassessment notices under section 148 of the unamended Income Tax Act were issued by the Revenue after April 1, 2021, which were the subject matter of more than 9000 writ petitions before various High Courts across the country, the Supreme Court has held that such impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b). 

While dealing with the revenue notices issued under the impugned Section 148 of the Income Tax Act, the Division Bench of Justice M.R. Shah and B.V. Nagarathna observed  that instead of quashing and setting aside the reassessment notices issued under the unamended provision of the Act, the High Courts ought to have  passed  an  order  construing   the  notices  issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act. 

The Bench further observed that the new provisions substituted by the Finance Act 2021 were remedial and benevolent in nature and were substituted with the objective to protect the rights and interests of the assessee and the same was in the interest of the public. 

The Division Bench was dealing with  the impugned common judgment and order passed by the High Court of Allahabad whereby the High Court allowed the instituted  writ petitions and quashed the revenue notice on the ground that the same were bad in law with the advent 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 from April1, 2021.

Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the High Court of Allahabad, the Revenue preferred the present appeals. 

According to ASG, despite the substituted sections 147 to 151 of the Income Tax Act, 1961 by the Finance Act, 2021 coming into force on 1st April, 2021, the Revenue issued approximately 90,000 reassessment notices to the respective assessees under the erstwhile sections 148 to 151 thereof by relying on explanations in the Notifications dated 31st March, 2021 and 27th April, 2021. The said reassessment   notices   were   the subject  matter of writ petitions before the various High Courts. 

The Apex Court observed that it was not a disputed fact that by substitution of Sections 147 to 151 of the Income Tax Act by the Finance Act, 2021 was a radical and reformative change. However,the same gave rise to numerous litigations and the reopening were challenged on the grounds such as no valid reason to believe, no tangible/reliable material/information in possession of the assessing officer leading to formation of belief that income has escaped assessment, no enquiry being conducted by the assessing officer prior to the issuance of notice, reopening is based on change of opinion of the assessing officer and lastly the mandatory procedure laid down by this Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and ors, has not been followed.

The Apex Court further reanalyzed the amendments made to the IT Act and said, “Thus, the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021. We are in complete agreement with the view taken by the various High Courts in holding so.”

Meanwhile the Court also noted that the judgments of several High Courts would result in no reassessment proceedings at all even if the same is permissible under the Finance Act, 2021.  It was further observed that due to that due to a bonafide mistake and in view of subsequent extension of time by  various notifications, the Revenue issued the impugned notices   under   section   148   after   the   amendment   was enforced w.e.f. April 1,2021, under the unamended section 148.  

In view of the same, the Court opined that the same should have not been issued under the unamended Act and should have been issued under the substituted provisions of Sections 147 to 151 of the Act as per the Finance Act, 2021.  It was further observed that there was genuine non-application of the amendments as the officers of the Revenue must be under the impression that the amendments may not have been enforced. 

The Court observed that some leverage should have been given by the High Court with respect to the same. Thus, the Top Court  was of the opinion  that instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to  have   passed  an  order  construing  the  notices  issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act  as per the new provision section 148A and the revenue  ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act,   2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available   under   the   Finance   Act,   2021   and   in  law. 

In light of the same, the Court held, “The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b). The assessing officer shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the show-cause notices within two weeks thereafter”

In addition to this it was observed that the requirement of conducting any enquiry,   if required, with the prior approval of specified authority under section 148A (a) was dispensed with as a one time measure vis-à-vis those notices which have been issued under section 148 of the unamended Act from April 1, 2004 till date, including those which have been quashed by the High Courts. 

The Court further  held that the same shall be applicable Pan India and all judgments and orders passed by different High Courts on the   issue   and   under   which   similar   notices   which   were issued after April1, 2004 issued under section 148 of the Act were set aside and were held to be governed by the present order and also stood modified to the aforesaid extent. 

The present order was passed in exercise of powers under Article 142 of the Constitution of India so as to avoid any further appeals by the Revenue on the very issue by challenging similar judgments and orders, with a view not to burden this   Court   with   approximately   9000   appeals. It was also opined  that the present   order shall also govern the pending writ   petitions,   pending   before   various   High   Courts   in which similar notices under Section 148 of the Act issued after April 1, 2004 are under challenge. Accordingly, the present appeals were partly allowed.