SC order would mean that the change in law can't be an alibi for taxpayers to escape the proceedings initiated via the notices

• IN THE SUPREME COURT OF INDIA
• CIVIL APPELLATE JURISDICTION
• CIVIL APPEAL NO. 3005/2022
• Union of India & Ors. Versus Ashish Agarwal

THE SUPREME COURT ON HELD THAT the reassessment notices issued under the unamended Section 148 of the Income Tax Act on or after April 1, 2021, will not be deemed to be invalid just because they were issued under the old law.

The SC order would mean that the change in law can’t be an alibi for taxpayers to escape the proceedings initiated via the notices. The rare step taken by the apex court invoking the Constitution will help clear the backlog of over 9,000 appeals filed by the finance ministry in this connection. The apex court ruled that its order shall also govern the relevant pending cases before various HCs.

FACTS OF THE CASE

Revenue had preferred an appeal before the Supreme Court against the order of High Courts wherein several reassessment notices issued under old provisions of Section 148 were quashed. The notices were set-aside on the ground that the same was bad in law in view of the amendment made by the Finance Act, 2021.

SUPREME COURT HELD

The Supreme Court has held that the respective High Courts had rightly held that the benefit of new provisions shall be made available if reassessment notice under Section 148 were issued on or after 01-04-2021. The Supreme Court is in complete agreement with the view taken by the various High Courts in holding so.

The Court further held that these judgments would result in no reassessment proceedings at all. Thus some leeway must be shown in that regard which the High Courts could have done so. The Revenue cannot be made remediless, and the object and purpose of reassessment proceedings cannot be frustrated.

Accordingly, the Supreme Court has proposed to modify the judgments and orders passed by the respective High Courts as under:

1. Section 148 notices issued by the Assessing Officers shall be deemed to have been issued under Section 148A as substituted by the Finance Act, 2021 and to be treated as show­cause notices in terms of Section 148A(b);
2. The Assessing Officers shall, within 30 days from 04-05-2022, provide the information and material relied upon so that the assessees can reply to the notices within two weeks thereafter;
3.  The requirement of conducting any enquiry with the prior approval of the specified authority under Section 148A(a) be dispensed with as a one­time measure vis-à-vis those notices which have been issued under the old provisions from 01-04-2021 till date, including those which have been quashed by the High Courts;
4.  Thereafter, the Assessing Officers shall pass an order in terms of Section 148A(d) after following the due procedure as required under Section 148A(b) in respect of each of the concerned assessees;
5. All the defenses which may be available to the assessee under Section 149, available under the Finance Act, 2021 and in law, and whatever rights are available to the AO are kept open and shall continue to be available.

The Supreme Court has said that this order will strike a balance between the rights of the Revenue and the respective assessees. The Revenue may not suffer due to the bonafide belief of the AOs in issuing approximately 90,000 notices as ultimately it is the public exchequer which would suffer.

This order of the Supreme Court shall be applicable to pan India. Accordingly, all orders passed by different High Courts, wherein reassessment notices issued after 01-04-2021 were set aside, shall be governed by the present order and shall stand modified to the aforesaid extent.

The Supreme Court has passed this order in exercise of powers under Article 142 of the Constitution of India to avoid any further appeals on the very issue by challenging similar judgments and orders.

DISCLAIMER: The content/information presented here is only for general information of the user and shall not be construed as legal advice. While the author has exercised reasonable efforts to ensure the veracity of information/content presented ,author shall be under no liability in any manner whatsoever for incorrect information, if any.

FOOTNOTES

SECTION 147 OF INCOME TAX ACT - "Income escaping assessment"

 If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

PROVIDED THAT where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

PROVIDED FURTHER THAT nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:

PROVIDED ALSO THAT the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

EXPLANATION 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

EXPLANATION 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;

(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;

(c) where an assessment has been made, but-

(i) income chargeable to tax has been underassessed ; or

(ii) such income has been assessed at too low a rate ; or

(iii) such income has been made the subject of excessive relief under this Act ; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;

(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(d) where a person is found to have any asset (including financial interest in any entity) located outside India.

EXPLANATION 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.

EXPLANATION 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

SECTION 148 OF INCOME TAX ACT "ISSUE OF NOTICE WHERE INCOME HAS ESCAPED ASSESSMENT"

Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:

PROVIDED THAT no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice.

EXPLANATION 1.-For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,-

(i) any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;

(ii) any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.

EXPLANATION2.-For the purposes of this section, where,-

(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or

(ii) a survey is conducted under section 133A, other than under sub-section (2A) or sub-section (5) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or

(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.

EXPLANATION 3.-For the purposes of this section, specified authority means the specified authority referred to in section 151.

PLEASE NOTE THAT SECTION 148 HAS BEEN SUBSTITUTED BY SECTION 148A WITH EFFECT FROM 1-4-2021.

SECTION 148A OF INCOME TAX ACT "CONDUCTING INQUIRY, PROVIDING OPPORTUNITY BEFORE ISSUE OF NOTICE UNDER SECTION 148."

Section 148A. The Assessing Officer shall, before issuing any notice under section 148,-

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a case where,-

(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or

(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee.

EXPLANATION.-For the purposes of this section, specified authority means the specified authority referred to in section 151.

PLEASE NOTE THAT PROVISIONS OF SECTION 148A HAS BEEN INSERTED BY FINANCE ACT, 13 OF 2021, W.E.F. 01-04-2021.