90,000 reassessment notices issued post Finance Act, 2021 deemed to be issued under S. 148A, IT Act; such order to be applicable 'PAN INDIA' under Article 142: Supreme Court

The Supreme Court on Wednesday held that reassessment notices issued by the Department of Revenue under the erstwhile Section 148 of the IT Act 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 will be treated to be show­-cause notices in terms of section 148A(b).

With a view to strike a balance between the rights of the Revenue as well as the respective assesses, and relying on the bonafide belief of the officers of the Revenue in issuing approximately 90000 such notices, the Top Court has held that with the passing of such an order the Revenue may not suffer as ultimately it is the public exchequer which would suffer.

"...in exercise of our powers under Article 142 of the Constitution of India by holding that the present order shall govern, not only the impugned judgments and orders passed by the High Court of Judicature at Allahabad, but shall also be made applicable in respect of the similar judgments and orders passed by various High Courts across the country and therefore the present order shall be applicable to PAN INDIA", ordered a division bench.

Various High Courts across the country quashed several reassessment notices issued by the Revenue, issued under Section 148 of the Income Tax Act, 1961, on the ground that the same were bad in law in view of the amendment by the Finance Act, 2021 which has amended Income Tax Act by introducing new provisions i.e. sections 147 to 151 w.e.f.1st April, 2021. Against such order the Revenue preferred appeals before the Top Court.

The new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and being introduced in public interest, the Supreme Court held that the respective High Courts had rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years.

The top further court noted that by substitution of sections 147 to 151 of the Income Tax Act (IT Act) by the Finance Act, 2021, radical and reformative changes were made governing the procedure for reassessment proceedings.

"....pre-­Finance Act, 2021, the reopening was permissible for a maximum period 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 compliances and reduce litigation. Therefore, with a view to achieve the said object, by the Finance Act, 2021, sections 147 to 149 and section 151 have been substituted", said the bench.

However, the court was of the view that the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act.

“The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated”, said a bench of Justices MR Shah and BV Nagarathna.

With a view that a bonafide mistake was committed by the Revenue in issuing the impugned notices under section 148 after the amendment was enforced and it appeared to be a genuine non-­application of the amendments as the officers of the Revenue may have been under a bonafide belief that the amendments may not yet have been enforced, the Court held that,

“…some leeway must be shown in that regard which the High Courts could have done so. Therefore, 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 ...”

Accordingly, while allowing the appeal in part, the Top Court has modified the impugned quashing orders to initiate reassessment proceedings as per the new amended legal provisons.

Case title: Union of India & Ors. vs. Ashish Agarwal