Supreme Court holds income tax re-assessment order issued under Section 148 as valid

The Supreme Court on Wednesday ruled in favour of the Income Tax Department regarding the re-assessment controversy. It held that all notices issued under old Section 148 will be deemed to have been issued under Section. 148A.

A division bench of Justices M R Shah and B V Nagarathna said “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.”

This ruling has been made on the special review petition filed by the Centre after three of the High Courts - Delhi, Allahabad and Rajasthan — have quashed the notices running into hundreds and hundreds while Chattishgarh High Court held them correct.

Using the powers available under Article 142 of the Constitution of India, the bench issued the order to avoid any further appeals by the Revenue (Income Tax Department) on the very issue by challenging similar judgments and orders, with a view not to burden this Court with approximately 9000 appeals.  It also observed that present order will also govern the pending writ petitions, pending before various High Courts in which similar notices under Section 148 of the Act issued after April 01, 2021 are under challenge.

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“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,” the bench said.

Tax experts say the Supreme Court has been refraining to invoke extra-ordinary constitutional power in tax matters and interpreting tax laws based on statute book, as it stands. In cases challenging validity of reassessment proceedings, the Apex Court has till now been taking a strict interpretation holding income tax proceedings to be bad in law and void ab initio, if the relevant notice/ order initiating reassessment proceedings is issued without jurisdiction or without following the due process prescribed under law or is barred by limitation.

However, considering the large number of cases, which might escape assessment of tax due to quashing of such reassessment notices issued on/ after 01st April 2021 and its potential tax impact on the exchequer, the Supreme Court has taken an exception in the present case and considered it fit to invoke Article 142, holding that if these notices issued u/s 148 are quashed at the threshold itself, without giving an opportunity to the Income tax department to examine the cases on merits and to determine, whether any income has actually escaped assessment, it will not render complete justice to income tax department. I

According to Rakesh Nangia, Chairman, Nangia Andersen India, after this judgment, all the reassessment notices issued u/s 148 of the Act on/ after 01st April 2021 will be deemed to have been issued under Section 148A of the Income Tax Act, 1961 (as amended by Finance Act, 2021).  It may be noted that reassessment proceedings are not revived in all the 90,000 cases and validity of proceedings in each case will be tested based on provisions of new law. “If the reassessment notices are considered to be valid even under the new amended law, then taxpayers will now need to be ready to file their ITR in response to the reassessment notice and be ready with all the necessary records, documents and explanations for questions expected to be asked by Income tax authorities in relation to these reassessment proceedings,” he said.

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