90,000 notices under old provision stay valid: Supreme Court

MUMBAI: Nearly 90,000 reassessment notices that were issued by the income tax (I-T) department after April 1, 2021 under the provisions of the unamended section 148 have been held as valid by the Supreme Court (SC). These reassessment notices had been challenged in as many as 9,000 writ petitions across India.

A majority of the high courts — such as of Allahabad, Bombay, Calcutta, Delhi and Rajasthan — had quashed these notices. The Chhattisgarh HC was one exception as it had upheld issuance of section 148 reassessment notices after April 1, 2021 under the old provisions.

The apex court bench composed of Justice M R Shah and Justice B V Nagarathna have reversed the orders passed by a multitude of high courts that had favoured the taxpayers. The I-T department can now go ahead with the reassessment proceedings (open up past cases).

But the taxpayers will have recourse available under the amended law — such as the right to be heard. Section 148 of the I-T Act, granted the I-T officers the power to reopen past tax assessments, if they had ‘reason to believe’ that certain income had escaped assessment.

The Finance Act, 2021, introduced section 148A which streamlined the procedure and better protected the interest of the taxpayers. But between April 1 and June 30, 2021, I-T officers issued reassessment notices under the old provision, which was challenged by taxpayers. Surprisingly, in Wednesday’s order, the SC invoked the provisions of Article 142 of the Indian Constitution in a tax matter.

This, in turn, results in a far-reaching impact.SC advocate Deepak Joshi told TOI, “The SC has held that the notices issued for reassessment under the unamended section 148 after April 1, 2021 shall be deemed to be issued under the new regime under section 148A.”

“The notices quashed by the high courts have been given a fresh lease of life, with a rider that the safeguards under the new regime shall be followed. As a result, thousands of pending and already quashed cases will now be processed in terms of these directions,” explains Joshi.

Dhruva Advisors partner Ajay Rotti says, “This SC order is going to have a huge impact, given the number of reassessment notices which have got validated now in one action. The revenue department has been directed to follow the new procedure and decide if these are fit cases for reopening.”

“The hope now is that the I-T department will conduct a fair enquiry and drop those notices which do not pass the tests laid down by the new law. There is a short window of 30 days provided for this and this is going to be a strain on the time of the tax department and taxpayers alike,” adds Rotti.