UNION OF INDIA & ORS. vs. ASHISH AGARWAL

CIVIL APPEAL No. 3005/2022Supreme Court[2022] 3 S.C.R. 63804 May 2022Bench: 2 JudgesAuthor: M.R. SHAH, B.V. NAGARATHNA SUPREME COURT REPORTS25 pages
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What did the Supreme Court hold?

The Supreme Court held that the amended provisions of Sections 147 to 151 of the Income Tax Act, 1961, introduced by the Finance Act, 2021, are procedural and benevolent, aimed at simplifying tax administration, easing compliance, and reducing litigation. The Court upheld the High Courts' view that the benefit of these new provisions should be available even for proceedings relating to past assessment years, provided the Section 148 notice was issued on or after April 1, 2021. However, instead of quashing the notices issued under the unamended provisions, the Court modified the High Courts' orders. It directed that these notices be deemed to have been issued under Section 148A of the substituted provisions. The Revenue was permitted to proceed with reassessment proceedings as per the substituted provisions, subject to compliance with all procedural requirements. The requirement of conducting an enquiry with prior approval under Section 148A(a) was dispensed with as a one-time measure for these notices. All defenses available to the assessees under the new provisions were preserved. The Court invoked Article 142 of the Constitution to apply this order PAN India, modifying all similar judgments of High Courts and governing pending petitions.

What were the facts?

The Union of India (Revenue) is appealing against judgments of various High Courts that quashed reassessment notices issued under the erstwhile Sections 148 to 151 of the Income Tax Act, 1961. These notices were issued after April 1, 2021, the effective date of the Finance Act, 2021, which substituted Sections 147 to 151 with new provisions. The High Courts held these notices to be bad in law as they did not follow the mandatory procedure prescribed by the amended Sections 148A to 151. The Revenue contended that the notices were issued due to a bonafide mistake and in view of subsequent extensions of time. The amount in dispute is not specified, but the judgment notes approximately 90,000 such notices were issued.

What were the issues?

1. Whether reassessment notices issued under the unamended Sections 148 to 151 of the Income Tax Act, 1961, after April 1, 2021 (the effective date of the Finance Act, 2021), are valid, considering the new procedure prescribed by the substituted Sections 147 to 151. Assessee's Contention (implied from High Court judgments): The notices are invalid as they were issued without following the mandatory procedure laid down in the newly substituted Sections 147 to 151, particularly Section 148A, which requires enquiry and an opportunity of being heard before issuing a notice under Section 148. Revenue's Contention: The notices were issued under a bonafide mistake due to a misunderstanding of the enforcement of the amendments and subsequent extensions of time. The Revenue sought leeway and permission to proceed with reassessment under the new provisions, arguing that the object of reassessment should not be frustrated. The Revenue relied on the principle of showing leniency in cases of bonafide mistakes and the need to protect the public exchequer.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 151,Section 148A,Section 149

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A B C D E F G H 638 SUPREME COURT REPORTS [2022] 3 S.C.R. UNION OF INDIA & ORS. v. ASHISH AGARWAL (Civil Appeal No. 3005 of 2022) MAY 04, 2022 [M. R. SHAH AND B. V. NAGARATHNA, JJ.] Income Tax Act, 1961: ss.148 to 151, ss. 147 to 151(as amended by the Finance Act, 2021) – Issuance of notice where income has escaped assesssment – On facts, substituted ss.147 to 151 of the 1961 Act by the Finance Act, 2021 came into force on 01.04.2021 – However, after 01.04.2021, the Revenue issued reassessment notices under the erstwhile ss. 148 to 151 of the unamended IT Act – Quashed by the High Court on the ground that the same are bad in law in view of new provisions-ss. 147 to 151 – On appeal, held: Amended provisions prescribe the procedure governing initiation of reassessment proceedings – No notice u/s. 148 can be issued without following the procedure prescribed u/s. 148A – Ss 148A-151 was introduced with the object of simplifying the tax administration, ease compliance and reduce litigation – New provisions being remedial and benevolent in nature, were substituted with a specific aim and object to protect the rights and interest of the assessee as well as the same being the public interes

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