All Notices Issued Under Section 148 of the IT Act Will Be Deemed To Be Issued Under Section 148A: Supreme Court

Ashish M. Shaji

09 May, 2022

On Wednesday the Supreme Court of India said that the reassessment notices issued under Section 148 of the unamended Income Tax Act beyond 1^st April, 2021 shall be deemed to have been issued under Section 148A of Income Tax Act as substituted by the Finance Act 2021 and shall be construed as show cause notices as per Section 148A(b). This article seeks to throw light on Courts’ ruling.

Amendments to the Income Tax Act

The parliament had made reformative changes to Section 147, 148, 149, and 151 of the Income Tax Act^[1]. These sections govern the initiation of reassessment proceedings. The amendment was made through the Finance Act 2021, passed on 28 March 2021. Radical and reformative changes were made to the procedure of reassessment proceedings.

Before the Finance Act of 2021, reopening was allowed for maximum 6 years period and in certain cases, even beyond 6 years which led to uncertainty. Therefore, parliament amended the income tax act with a view to simplify the tax administration, ease compliances and reduce tax litigation.

Facts in Brief- Notices under Section 148 deemed to be issued under Section 148A

The Court, while deciding an appeal against the order of the Allahabad High Court which had set aside reassessment notices issued by revenue department after 1^st April, 2021 under the unamended section 148 of Income Tax Act, a bench of Justice MR Shah and BV Nagarathna passed some directions in respect of such reassessment notices.

After 1^st April, 2021, close to 90000 reassessment notices were issued by the revenue department under Section 148 of unamended income tax act. The issuance of such notices was challenged before different high courts across the country in more than 9000 writ petitions. Different High courts had set aside the said reassessment notices. 

The bench after hearing the submissions made and after perusal of statutory provisions and government notifications partly allowed appeals and exercising power under Article 142 of the Indian constitution directed the order of the HC to be modified as under:

• The notices issued under unamended Section 148 of the Income Tax Act will be deemed to have been issued under Section 148A of Income Tax Act as substituted by the Finance Act and shall be construed or treated as show cause notices in terms of Section 148A(b).
• Further, the Court asked the assessing officer to provide to the respective assessee information and material relied upon by the revenue department within a period of 30 days so that the assessee can reply to the showcause notices in 2 weeks thereafter.
• The need for conducting enquiry with the prior approval of specified authority under Section 148A(a) is dispensed with as a one-time measure vis-à-vis notices that has been issued under Section 148 of the unamended Act from 1^st April, 2021 till date, including the ones that have been quashed by the HC. Holding any enquiry with the prior approval from the specified authority is not necessary but it is for the concerned assessing officer to hold any enquiry, if required.
• The assessing officer shall pass orders thereafter in terms of Section 148A(d) in respect of each of the assesses concerned. After following the procedure as under Section 148A, may issue notice under Section 148.
• All defences that were available to the assesses including the ones under Section 149 of the Income Tax Act and all rights and contentions which are available to the concerned assessees and revenue under Finance Act 2021 and in law shall continue to be available.

Applicability of the Judgement

The court said that the directions issued by it shall have a pan India effect and not just on the impugned judgements. The directions shall govern all other similar notices issued under the previous regime.

The court said the present order will be applicable pan India and the judgements and orders given by various high courts on the issue and under which similar notices that were issued under Section 148 of the Act after 1^st April, 2021 are set aside and will be governed by the present order and will stand modified to the extent described above.

The court further clarified that the order was passed under powers conferred under article 142 of Indian constitution so as to avoid further appeals on the very issue by challenging similar orders and judgements with a view to avoid burdening the court with 9000 appeals. Further the present order shall also govern the pending writ petitions that is pending before the high courts wherein similar notices under Section 148 of the Act issued after the said date are challenged.

Reasoning behind the judgement

The bench gave the rationale that the modifications stated above will strike a balance between the rights of the revenue and assesses. The court noted that the revenue cannot be made to suffer in this case when it had issued 90000 notices bonafide and if the revenue is penalised, it’s the public exchequer that will ultimately suffer.

Conclusion

Section 148 of the Income Tax Act talks about issuance of a notice on income that has escaped re-computation or assessment in case there is a “reason to believe” that income that has escaped re-computation or assessment. Under Section 148A of the Income Tax Act, the taxpayer should be heard and approval must be obtained from the specified authority before a notice can be issued.

Read Our Article: Finance Bill 2022: Amendments in Reassessments Provisions