The old reassessment regime has been fundamentally changed by the amendments introduced in Finance Act 2021 with subsequent amendments in the Finance Act 2022, through which a legal authorization is provided to Revenue to reopen the assessment based on the “information” which is defined specifically. Mr. Viral Shah (Chartered Accountant)  in this article discusses the Supreme Court decision wherein it is directed that the notices issued u/s 148  aissued after April 1, 2021 under the old regime will be deemed to have been issued u/s 148A(b) under the new regime. To provide the background of the controversy the author highlights that the notices were issued under the old regime pursuant to the extension granted vide Notifications dated March 31, 2021  and April 21, 2021, meanwhile the old reassessment regime was substituted by new reassessment regime vide Finance Act 2021. The author emphasises that the High Courts of the various jurisdictions have quashed the reopening of assessment under the old regime, however, SC has validated such notices deeming it to be issued under new provisions. The author underscores that the Supreme Court invoked the provisions of Article 142  of the Constitution of India whereby the present order shall be governing cases where orders are passed by the HC as well as where appeals on similar matters are pending before the HC at PAN India level. The author opines that the Supreme Court order has definitely quietus the litigative issue which was persisting PAN India, however, it will likely be the source of new litigation issues.

SC on reopening cases – Notices issued under old provisions to be reinforced under new provisions

The new reassessment regime introduced in the Finance Act 2021 (‘FA 2021’), with subsequent amendments in the Finance Act 2022 (‘FA 2022’), has been a fundamental change to the age old reassessment proceedings. Noticing the fact that the reopening of assessment is mostly “information” driven, there was an introduction of new reassessment regime to provide a legal authorization to the Revenue to reopen the assessment based on the “information” which is defined specifically. The new regime has come into force from April 1, 2021. The point of consideration would now be the availability of arguments that the taxpayers would have, to defend its case against the sword of reopening of assessment that is available with the Revenue in the new regime.

Whereas the interpretation of new provisions may be appraised by the Courts over a period of time, the present Article is on the decision of the Supreme Court Ashish Agarwal [TS-5031-SC-2022-O], wherein it is directed that the notices issued u/s 148 under the old regime (after April 1, 2021) will be deemed to have been issued u/s 148A(b) under the new regime. The notices were issued under the old regime pursuant to the extension granted vide Notifications dated March 31, 2021 Notification No. 20 of 2021 and April 21, 2021 Notification No. 38 of 2021. However, the FA 2021 had substituted the new reassessment procedure with effect from April 1, 2021. The said decision of the SC has put a quietus on the litigative 90,000 reopening cases, which proceedings were haunting on the validity issue.

The High Court of the various jurisdictions have quashed such reopening of assessment under the old regime. However, SC has validated such notices deeming it to be issued under new provisions. Additionally, the SC has exercised the powers under Article 142 of the Constitution of India whereby the present order shall be governing cases where orders are passed by the HC as well as where appeals on similar matters are pending before the HC at PAN India level.

The SC had given a finding that the notice for reassessment should have been issued under the new provisions. However, simultaneously, it also recognized the bonafide belief of the Revenue to issue notice under old provisions and the sincere non-application of the amendments. While rendering the decision, the SC modified and substituted the appeals / petitions as follows:

1) Notice issued u/s 148 shall be deemed to have been issued u/s 148A and construed to be show cause notice u/s 148A(b);

2) AO shall provide information and material relied upon within thirty days from the date of the SC order (i.e. within 30 days from May 4, 2022);

3) Opportunity to the taxpayer to submit the reply within 15 days of providing the information by the AO;

4) Requirement of conducting any enquiry under sub-section (a) of section 148A is dispensed off, in reference to any notices issued u/s 148 till date. SC additionally has clarified that the enquiry to be conducted under sub-section (a) is not mandatory;

5) Pass such orders in terms of section 148A(d);

6) All defences available, including all rights and contentions, which would otherwise available to the concerned taxpayers as well as Revenue under the FA 2021 shall continue to be available.

Having validated the reopening notices issued by the Revenue under old provisions, it is imperative to understand the impact of the decision of the SC, few of which are highlighted as follows:

- New regime was introduced in the FA 2021 with further amendments in FA 2022. Certain amendments made in the FA 2022 are applicable prospectively, as is clear from the Memorandum to Finance Bill i.e. amendments made in the FA 2022 are applicable prospectively from April 1, 2022.

The SC has deemed the notices issued in FY 2021-22 to have been issued under the new provisions. In such a case, it is clear that the reassessment process initiated u/s 148A would be deemed to have been initiated in FY 2021-22 only and not in the FY 2022-23. The SC has only provided an extension for the compliance to the Revenue and taxpayer u/s 148A. However, the notice would still be deemed to have been issued in the FY 2021-22 and would be governed by the provisions introduced in FA 2021. Further, the SC has also held that all the defences available under the FA 2021 would be available to the taxpayer, which indicates that the provisions of the FA 2021 would apply in such litigative cases.

- Few amendments made in the FA 2022 are as follows:

All the above amendments will be effective from April 1, 2022. Thus, where notices are issued until March 31, 2021, the provisions introduced in the FA 2021 will be applicable and the above amendments will not be available (which are mostly prejudicial to the taxpayer). Accordingly, following could be the implications:

1) Many cases were reopened based on the information received from the investigation wing or audit objection or information from another AO. Whether such basis of reopening could be said to have been covered by the definition of “information” needs to be verified i.e. whether such information were flagged in accordance with the Risk Management Strategy formulated by the board.

2) Approval from the specified authority is required while issuing notice u/s 148A(b). If the erstwhile notices issued under old section 148 does not have the approval of the specified authority as per the new section 151 (where the approving authority has changed), the said notices would not be a valid notice as per the new regime. The SC has only modified the notices deemed to have been issued u/s 148A; but it can be contended that the procedures as prescribed in the new regime needs to be followed. Only the procedure required under sub-section (a) to section 148A is dispensed with.

3) It could be seen that the reasons recorded in such reopening cases were provided to the taxpayer and the taxpayers would have filed objections to the same. However, now where the notice is deemed to have been issued u/s 148A, the AO is bound to provide ‘information’ which he possessed for reopening the assessment and once again issue notice to that effect as directed by the SC. Further, the said information should be covered within the definition of ‘information’ as per the FA 2021.

4) Where the assessment year for which the notice is received, is after the prescribed period of three years (after the end of the assessment year), it needs to be seen as to whether the income alleged to have escaped assessment is represented in the form of an “asset”. As the rest of the conditions are applicable only from April 1, 2022

- Where the notices are issued for period before AY 2018-19, the said notices should qualify within the permissible time period of ten years, in light of the conditions stated in new section 149.

- SC has dispensed with the procedure prescribed under clause (a) of section 148A (which required approval of specified authority before conducting any inquiry). However, the main section 148 restricts the issuance of notice only where “there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment”. Further, the definition for ‘information’ has also been prescribed. Accordingly, as mentioned above, the taxpayer can still enforce upon the Revenue to follow the procedure prescribed under clause (b) (in force for FY 2021-22), in order to issue a valid notice as per section 148A. In other words, the AO has to have an information and that there has to be an approval from the specified authority.