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CBDT Instructions After Supreme Court Judgement on Section 148 Notices – Case Analysis

CBDT Instructions After Supreme Court Judgement on Section 148 Notices – Case Analysis

The provisions relating to reassessment have undergone multiple changes over the past two years. While they became more assessee friendly, a peculiar yet debatable situation arose after the issue of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (herein referred to as TOLA) that extended the time limit for various income tax deadlines.

The changes brought by the Finance Act, 2021 in the reassessment provisions (i.e., after Finance Act 2021 but before Finance Act 2022; herein referred to as ‘new law’) and the extension granted by TOLA led to the issue of more than 90,000 reassessment notices PAN India by the Income Tax Department and 9000+ appeals being filed in various high courts. Further, the matter was taken up to Supreme Court for ruling on Section 148 notices.

What was so significant in the changes brought by Finance Act 2021 and TOLA that led to this outcome? Another important question is – What is the Supreme Court judgement on Section 148 notices?

Here’s the complete case analysis of Union of India vs. Ashish Agarwal (Supreme Court) followed by the CBDT instructions for implementing the Supreme Court judgement.

The Finance Act, 2021 vs. TOLA

The Finance Act 2021 became applicable from 1st April 2021. One of the significant changes brought by the Finance Act 2021 in the reassessment provisions was the shortening of the time period for the issue of notice (from 4 years to 3 years) and the safeguards that the income tax officers should ensure before issuing the reassessment notices. The procedural safeguards were introduced under Section 148A whereby the AO shall satisfy certain conditions including the issue of show-cause notice to the assessee and giving him an opportunity of being heard before the issue of the reassessment notice.

After TOLA was issued, the time limit for issue of notice for reassessment as per the old law (i.e., before changes introduced by the Finance Act 2021) was extended till 30th April and 30th June 2021 respectively by the issue of notifications. However, as the Finance Act 2021 already became applicable, therefore, it led to contradicting situations whereby thousands of notices were issued under the old law without the safeguards being followed while the provisions of the new law were in force.

This led to various petitions filed in the high courts across the country with most of the rulings in the favour of the assessee leading to the quashing of the notices issued as per old law by the department.

The Case: Union of India vs. Ashish Agarwal – Supreme Court

An appeal was filed by the department in the Supreme Court against the decisions of the Allahabad High Court concerning the quashing of the notices. The Supreme court considered the changes brought by the Finance Act 2021 and the safeguards stated under Section 148A of the new law.

However, it also gave due consideration to the extension of timelines granted by TOLA to deter the difficulties created because of the Covid-19 crisis. As mid-way out, the Supreme Court ruled that the reassessment notices issued by the revenue department as per the old law shouldn’t be quashed and instead, shall be treated as notices under Section 148A(b) of the new law.

That means, the reassessment notices issued as per the old law shall be treated as the show cause notices under the new law whereby the revenue department shall furnish the relevant information based on which the reassessment proceedings are opened within 30 days. Further, the assessee shall furnish its reply as to why the reassessment proceedings shall not be conducted within 2 weeks. Further, the Supreme Court exercised its powers under Article 142 of the Constitution to hold that order passed by the Supreme Court shall be enforceable throughout India.

CBDT Instructions for Implementing Supreme Court Judgement

After the supreme court judgement, detailed CBDT instructions for implementing the Supreme Court judgement were released vide Instruction No. 01/2022 dated 11th May 2022. Following are the key points of the same:

1) Applicability

The supreme court judgement shall be applied to all the cases where the extended reassessment notices have been sent regardless of the fact whether the notice has been challenged or not.

2) Issue of Notices

Following are the instructions of the CBDT for the issue of notice for various preceding assessment years:

  • AY 2013-14, 2014-15 and AY 2015-16: Fresh notices for these assessment years can be issued with the prior approval of specified authority based on the provisions of new Section 149(1)(b) after the amendment of Finance Act 2021.
  • AY 2016-17 and AY 2017-18: Fresh notices for these assessment years can be issued with the prior approval of specified authority based on the provisions of new Section 149(1)(a) after the amendment of the Finance Act 2021. This is because the above assessment years fall within the time limit of 3 years from the end of the relevant assessment years.

3) Cases where the assessing officer is required to provide information

The Supreme Court has directed that the assessing officer shall provide the information and materials for all the cases within 30 days. However, the notices for the AY 2013-14, AY 2014-15 and AY 2015-16 cannot be issued if the income that has escaped assessment amounts to or is likely to amount to less than Rs. 50 lakhs.

Therefore, the instructions of CBDT have stated that the information and material may not be provided for cases relevant to AY 2013-14- AY 2014-15 and AY 2015-16 if the income escaping assessment for that year amounts to less than Rs. 50 lakhs. A separate set of instructions for disposing of such cases will be issued by the CBDT.

4) Procedure to be followed by the assessing officers as per the Supreme Court Judgement

Following is the procedure to be followed by the assessing officers as per the CBDT instructions after the Supreme Court judgement on Section 148:

  • The extended reassessment notices shall be deemed to be the notices as per the new Section 148A(b). Therefore, it shall be deemed that all the conditions, as stated prior to the issue of show-cause notices as per the new law have been complied with.
  • The notices as per point (3) above shall be excluded as separate instructions shall be provided for them.
  • The assessing officer shall provide the information and material relied upon for the issuance of the extended reassessment notices within 30 days i.e. by 2nd June 2022 to the assessee.
  • The assessee shall have 2 weeks to reply to the show-cause notice as to why a notice under Section 148 shall not be issued suggesting that income chargeable to tax has escaped assessment. The period of 2 weeks shall be counted from the last communication of information and material to the assessee.
  • All the defences as per the new law shall be available for the assessee. The assessee can request more time to file the given reply and the assessing officer shall consider such request on merit and may grant an extension of time accordingly. 
  • After the receipt of the reply, the assessing officer shall decide whether the notice under section 148 shall be issued or not by passing an order under Section 148A(d) of the new law with the prior approval of the specified authority. The order shall be passed within 1 month from the end of the month in which the time limit or any extended time limit for the reply of notice by the assessee expires.
  • If the assessing officer finds it fit to issue a notice under section 148, then it shall proceed so and serve the assessee with a notice under section 148 and a copy of the order passed under section 148A(d). However, if the assessing officer decides not to issue the notice, then it shall intimate the assessee of his decision by serving the order under section 148A(d).

In case of any query, please feel free to contact the ASC Group.

 

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