2022 (5) TMI 240 - SC - Income Tax

Reassessment Notices Issued After 01.04.2021 Deemed Under New Section 148A; High Courts' Quashing Orders Modified

Union of India & Ors. Versus Versus Ashish Agarwal

The SC held that reassessment notices issued under the unamended section 148 after 01.04.2021 should be deemed issued under the new section 148A ... Reopening of assessment u/s 147 - Scope of new provision section 148A - Validation of notices after quashed by various High Courts - conducting of enquiries or issuance of show-cause notice or passing of order under section 148A - Scope of 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 - HELD 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 - Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated. It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 01.04.2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 as per the Finance Act, 2021. There appears to be 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. Therefore, we are of the opinion 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 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 There is a broad consensus on the aforesaid aspects amongst the learned ASG appearing on behalf of the Revenue and the learned Senior Advocates/learned counsel appearing on behalf of the respective assessee. We are also of the opinion that if the aforesaid order is passed, it will strike a balance between the rights of the Revenue as well as the respective assesses as because of a bonafide belief of the officers of the Revenue in issuing approximately 90000 such notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer. Therefore, we have proposed to pass the present order with a view avoiding filing of further appeals before this Court and burden this Court with approximately 9000 appeals against the similar judgments and orders passed by the various High Courts, the particulars of some of which are referred to hereinabove. We have also proposed to pass the aforesaid order 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. The present order 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 01.04.2021 issued under section 148 of the Act are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent. The present order is 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. We also observe that 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 01.04.2021 are under challenge. The impugned common judgments and orders passed by the High Court of Allahabad and the similar judgments and orders passed by various High Courts, more particularly, the respective judgments and orders passed by the various High Courts particulars of which are mentioned hereinabove, shall stand modified/substituted to the aforesaid extent only. ISSUES PRESENTED AND CONSIDERED 1. Whether reassessment notices issued under section 148 of the unamended Income Tax Act after 1 April 2021 are invalid because substituted sections 147-151 (Finance Act, 2021) govern reassessment proceedings from that date. 2. Whether the substituted provisions (including section 148A) being beneficial/remedial must be applied to reassessment notices issued on or after 1 April 2021 even if issued pursuant to the erstwhile procedure. 3. If reassessment notices issued after 1 April 2021 under the unamended law are defective, whether High Courts were correct to quash them outright, or whether a remedial/purposive remedy construing such notices as showcause notices under substituted section 148A is appropriate. 4. Whether prior approval for conducting enquiries under section 148A(a) is mandatory in all cases and whether that requirement can be dispensed with as a one-time measure for notices already issued under the unamended law after 1 April 2021. 5. Whether the Court may, in exercise of Article 142, pass a pan-India order modifying multiple High Court judgments to avoid multiplicity of litigation while preserving statutory and constitutional rights of parties. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of substituted sections 147-151 from 1 April 2021 Legal framework: Finance Act, 2021 substituted sections 147-151 with effect from 1 April 2021, introducing section 148A (pre-notice enquiry, showcause opportunity, specified authority approvals) and altering limitation under section 149. Precedent treatment: Multiple High Courts held reassessment notices issued after 1 April 2021 under the unamended provisions were bad in law and set them aside, treating the substituted provisions as the governing law for notices issued on or after that date. Interpretation and reasoning: The Court accepted that substituted provisions are 'radical and reformative', designed to simplify tax administration, ease compliance and reduce litigation. Being remedial and protective of assessee rights, they apply to notices issued on or after the substitution date. Ratio vs. Obiter: Ratio - substituted sections govern reassessment notices issued on or after 1 April 2021; obiter - wider policy statements on legislative intent. Conclusion: Notices issued on or after 1 April 2021 must be governed by substituted sections 147-151; High Courts were correct in principle to apply the amended law. Issue 2 - Beneficial application of substituted provisions to existing proceedings Legal framework: Principles permitting prospective application of procedural changes that are beneficial and protective of rights; statutory explanations in Relief/Relaxation notifications indicating pre-amendment procedure to apply to specified extended timelines. Precedent treatment: High Courts uniformly applied substituted provisions to notices issued after 1 April 2021 and quashed notices issued under the old regime. Interpretation and reasoning: The Court acknowledged substituted provisions as benevolent/remedial and agreed that benefit should extend to reassessment proceedings where notice is issued on or after 1 April 2021. However, the Court balanced this with protection of Revenue interests where notices were issued bona fide under mistaken belief because of timeline extensions. Ratio vs. Obiter: Ratio - substituted, beneficial provisions apply to reassessment notices issued on or after the effective date; Observational reasoning supports remedial application while safeguarding Revenue where bona fide mistakes occurred. Conclusion: The substituted provisions apply to notices issued on/after 1 April 2021, but relief to Revenue may be afforded by construing defective notices as compliant where appropriate procedural safeguards are subsequently provided. Issue 3 - Appropriate remedy: quash vs cure by construction as section 148A showcause notice Legal framework: Judicial power to mould relief to do complete justice; interaction between invalid procedural steps and availability of corrective measures; section 148A prescribes specific pre-notice steps (enquiry, showcause, order). Precedent treatment: High Courts largely quashed notices; Delhi High Court noted liberty for Revenue to take further steps if law permits. Interpretation and reasoning: The Court found that outright quashing would nullify reassessment proceedings even where substantive reassessment might be permissible under the Finance Act, 2021. Noting bonafide mistakes by Revenue officers relying on relaxation notifications and the public interest in preserving exchequer rights, the Court exercised remedial jurisdiction to treat impugned section 148 notices (issued under the unamended Act after 1 April 2021) as having been issued under section 148A and as showcause notices under 148A(b), subject to subsequent compliance with section 148A(d) and other substituted provisions. Ratio vs. Obiter: Ratio - defective notices issued after 1 April 2021 are to be construed as having been issued under section 148A (showcause notices), with further procedural steps to be completed by Revenue; Obiter - policy justification regarding public exchequer and bonafide officer mistakes. Conclusion: High Courts should not have universally quashed such notices; instead, notices will be deemed/showcause notices under section 148A and Assessing Officers must provide material and follow section 148A procedure within prescribed timelines to validate reassessment steps. Issue 4 - Requirement of prior approval for enquiries under section 148A(a) and one-time dispensation Legal framework: Section 148A(a) requires conducting any enquiry, if required, with prior approval of the specified authority; section 151 prescribes the specified authority for sanctions. Precedent treatment: High Courts did not uniformly address dispensation; many quashed notices without addressing whether procedural gaps could be cured. Interpretation and reasoning: The Court observed that prior approval is required where an enquiry is to be conducted, but recognized practical difficulties where thousands of notices were issued bona fide under previous understanding. As a matter of equitable relief and to balance competing interests, the Court dispensed with the requirement of prior approval for conducting enquiries under section 148A(a) as a one-time measure in respect of notices issued under the unamended section 148 from 1 April 2021 to date (including those quashed), while preserving the Assessing Officer's power to conduct enquiries where needed. Ratio vs. Obiter: Ratio - one-time dispensation of prior approval under section 148A(a) for already issued notices; Obiter - comments that prior approval is not mandatory in all cases and is subject to the assessing officer's discretion where enquiries may not be required. Conclusion: For notices already issued after 1 April 2021 under the unamended law, requirement of prior approval for enquiry under section 148A(a) is dispensed with as a one-time measure; Assessing Officers must nevertheless follow section 148A procedure prospectively. Issue 5 - Use of Article 142 to issue pan-India, remedial directions modifying multiple High Court judgments Legal framework: Article 142 empowers the Court to pass orders necessary for doing complete justice; jurisdiction to afford equitable, comprehensive remedies in national interest and to prevent multiplicity of litigation. Precedent treatment: The Court invoked Article 142 to avoid thousands of repetitive appeals and to formulate a uniform remedy applicable PAN-INDIA. Interpretation and reasoning: The Court found broad consensus among parties for a uniform remedy that balances Revenue and assessee rights. Considering approximately 90,000 notices and over 9,000 writs, the Court exercised Article 142 to modify High Court orders, direct Assessing Officers to provide information and follow section 148A procedure, and preserve all substantive and procedural defenses available under the Finance Act, 2021 and law. Ratio vs. Obiter: Ratio - Article 142 was rightly invoked to issue a binding pan-India order that (a) deems impugned notices to be showcause notices under section 148A, (b) dispenses with prior approval for enquiry as a one-time measure for such notices, (c) directs Assessing Officers to supply material and pass orders under 148A(d), and (d) keeps all legal defenses open; Obiter - policy observations about public exchequer and administrative bonafides. Conclusion: The Court validly used Article 142 to issue a uniform, remedial order applicable nationwide modifying High Court judgments to avoid multiplicity of litigation while protecting assessee and Revenue rights; this order governs pending and decided writs on the subject. Final operative conclusions 1. Substituted sections 147-151 apply to reassessment notices issued on or after 1 April 2021. 2. Impugned notices issued under the unamended section 148 on or after 1 April 2021 shall be deemed to be notices under section 148A (treated as showcause notices under section 148A(b)). 3. Assessing Officers must, within the timelines directed, furnish material relied upon and pass orders under section 148A(d) following which they may issue reassessment notices under substituted section 148, with all defenses and rights preserved for both assessees and Revenue. 4. The requirement of prior approval for conducting enquiry under section 148A(a) is dispensed with as a one-time measure for notices already issued under the unamended regime after 1 April 2021. 5. The Court's directions are PAN-INDIA, modify similar High Court rulings to that extent, and are issued under Article 142 to avoid thousands of repetitive appeals; costs reserved (no order as to costs in the appeals at hand).