The Supreme Court’s balancing act in the reassessment controversy has garnered mixed reactions and invocation of Article 142 to render ‘complete justice’ has resulted in saving the reassessment notices issued under the erstwhile regime.

Mr. Prakash Sinha (Partner, Prakash Sachin & Co., Chartered Accountants) in this article analyses the SC ruling and brings out the key takeaways. He is of the view that the ruling is a watershed moment in the tax jurisprudence as he briefly discusses some of the landmark rulings in the context of Article 142. However, the author then opines that the judgment is likely to confuse the minds of both the Assessees and the Revenue as he refers to the letter addressed to CBDT by Association of Income Tax Gazetted Officers for seeking clarification as a mere tip of an iceberg.

The author underscores various issues of debate, including whether treating the 148 notices post Apr 1, 2021 as the notice issued 148A(b) would save the reassessment for AY 2013-14 and AY 2014-15, providing information to assessees within the time frame of 30 days etc. He analyses the pending reassessment matters and classifies them into five categories, and asserts that all the cases need to be separately analyzed by the Revenue in terms of the amended provisions and the limitation applicable and then only proceed towards 148A(d). He also highlights the challenge involved from the perspective of ITBA Portal in cases where Section 148 notices were issued and finds the need for some modifications in the Portal to overcome the technical issues.

“SC Ruling on Reassessment – A Beginning of Another Controversy?" 

The recent judgement of Supreme Court in the case of Union of India Vs Ashish Aggarwal  [TS-339-SC-2022] is a watershed moment in the taxation jurisprudence. In this case the Hon’ble Supreme Court has invoked the Article 142 of the Constitution and strike a balance between right of the Revenue as well as the Assessee.

Before we come to the other aspect of this case, let briefly discuss the Article 142.

Part V of the Constitution discuss about “The Union “and Chapter IV of this Part discuss about the “The Union Judiciary “. Article 124 to 147 are the part this Chapter IV.

In the Normal Course, the judgements of the Supreme Court are covered under article 141. Article 141 states that Law declared by Supreme Court shall be binding on all Courts within the territory of India.

However, the Supreme Court can also invoke Article 142 for doing “complete justice” in a given case. For the benefit of all, the Article 142 is reproduced as follows –

Article 142 - The Supreme Court in the exercise of its Jurisdiction may pass such decree or make such order as is necessary for doing complete justice in a case or matter pending before it and any decree so passed or order so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and , until the provision in that behalf is so made , in such manner as the President may be order prescribe .

Experience of Invocation of Article 142 –

a. In the case of A R Antulay Vs R S Nayak AIR 1988 SC 1531, It was stated that Supreme Court can grant appropriate relief – (i) Where there is some manifest illegality (ii) Where there is manifest want of jurisdiction (iii) where some pulpable injustice is shown to have been resulted. Such a power can be traced either to – Article 142 or power inherent to the court as the Guardian of the Constitution.

b. The Court can grant equitable relief to eradicate injustice. There should be question of law of General importance. (Manish Goel Vs Rohini Goel AIR 2010, SC 1099).

c. The Supreme Court in the case of Anil Kumar Jain Vs Maya Jain (Civil Appeal no -5952/2009) as held as under – (Para 18 & 19)

18. The second proposition is that although the Supreme Court can, in exercise of its extraordinary powers under Article 142 of the Constitution, convert a proceeding under Section 13 of the Hindu Marriage Act, 1955, into one under Section 13-B and pass a decree for mutual divorce, without waiting for the statutory period of six months, none of the other Courts can exercise such powers. The other Courts are not competent to pass a decree for mutual divorce if one of the consenting parties withdraws his/her consent before the decree is passed. Under the existing laws, the consent given by the parties at the time of filing of the joint petition for divorce by mutual consent has to subsist till the second stage when the petition comes up for orders and a decree for divorce is finally passed and it is only the Supreme Court, which, in exercise of its extraordinary powers under Article 142 of the Constitution, can pass orders to do complete justice to the parties.

19. The various decisions referred to above merely indicate that the Supreme Court can in special circumstances pass appropriate orders to do justice to the parties in a given fact situation by invoking its powers under Article 142 of the Constitution, but in normal circumstances the provisions of the statute have to be given effect to. The law as explained in Smt. Sureshta Devi's case (supra) still holds good, though with certain variations as far as the Supreme Court is concerned and that too in the light of Article 142 of the Constitution.

d. In Union Carbide Corporation & Ors. Vs Union of India (1991 4 SCC 584), in para 6 , the court has stated as under –

The proposition that a provision in any ordinary law irrespective of the importance of the public policy on which it is founded, operates to limit the powers of the Apex Court under Article 142(1) is unsound and erroneous. The power of the court under Article 142 in so far as quashing of criminal proceedings are concerned is not exhausted by Sections 320 on 321 or 482 Cr.P.C. or all of them put together. The power under Article 142 is at an entirely different level and of a different quality. Prohibitions on limitations on provision contained in ordinary laws cannot, ipso-facto, act as prohibitions or limitations on the constitutional powers under Article 142. Such prohibitions or limitations in the statutes might embody and reflect the scheme of a particular law, considering the nature and status of the authority or the court on which conferment of powers-limited in some appropriate way is contemplated. The limitations may not necessarily reflect or be based on any fundamental considerations of public policy. It will be wholly incorrect to say that powers under Article 142 are  subject to express statutory prohibitions. That would   convey the idea that statutory provisions override a constitutional. In exercising powers under Article 142 and in assessing the needs of complete justice of a cause or matter the Apex Court will take note of the express prohibitions in any substantive statutory provisions based on some fundamental principles of public policy and regulate the exercise of its power and discretion accordingly. The proposition does not relate to the powers of the Court under Article 142, but only to what is or is no 'complete justice' of a cause or matter and in the ultimate analysis of the 259 propriety of the exercise of the power. No question of lack of jurisdiction or of nullity can arise.

Invocation of Article 142 in this case

Before invocation of Article 142 the revenue was able to canvass and also convinced the Court that amended 148A is a procedural in nature and not substantive.  Once the law is declared to be procedure in nature , that open a wide ambit to the judiciary to modulate it in such a manner , with the object of complete justice , so that substantial right  is not impeded.

The Revenue relied upon the para no – 65 to 67 of the Delhi High court order in the case of Mon Mohan Kohli vs ACIT as reported in [TS-6605-HC-2021(DELHI)-O] which held as under:-

65. Based on the aforesaid substituted provisions as well as the speech of Finance Minister and the Memorandum explaining the provisions in the Finance Bill, 2021, it is apparent that the legislative intent behind the aforesaid substitutions/amendments is to reduce the time limit in ordinary cases to three years and to increase the threshold amount of income having escaped assessment to Rs.50 lakhs for invoking extended time limit of ten years is to reduce litigation and compliance burden, remove discretion, impart certainty and promote ease of doing business.

66. This Court is of the opinion that the new provisions are remedial and benevolent provisions which are meant and intended to protect the rights and interests of assessee as well as promote public interest. In Imperial Tobacco Ltd v. Attorney General [1979] QB 555 at 581, Ormrod LJ said, ‘The object of all procedural rules is to enable justice to be done between the parties consistently with the public interest’. If the procedural rules are defective, the legal apparatus works less efficiently and the public interest suffers. If legislation is introduced to remedy the defective rule and no one suffers thereby, it is sensible to apply it to pending proceedings.

67. Consequently, this Court is of the view that the Finance Act, 2021 introduces a new regime regarding the procedure to be complied with in respect of the re-opening of an Income-tax assessment and accordingly, the benefit of the new provisions must necessarily be made available even in respect of proceedings relating to past Assessment Years provided, of course, Section 148 notice has been issued on or after 1st April, 2021.

Thus, once the law held to be a procedural law, it can operate both retrospective and prospectively.  In matters of procedures are presumed to be retrospective unless such a construction is textually inadmissible. The rule that an act of Parliament is not to be given retrospective effect applies only to the statutes which affect vested rights . It does not apply to the statute which only alter the form of procedure or the admissibility of the evidence or the effect which the court gives to the evidence. If the New act affects matters of procedure only, then prima facie , it applies to all action pending as well as future . (Extracted from Page no 585 of the Principle of Statuary Interpretation by Justice G P Singh , 14th Edition).

Further in the procedural law, it is well settled that the rule or procedures are handmaid  of justice and not its mistress (Supreme court in the case of Auraiya Chamber of Commerce).

Further in the case of Noor Mohammed vs Jethanand & Anr (2013) 5 SCC 202,  the apex court has held that procedure law is not to be tyrant but a servant , not an obstruction but an aid to justice. Procedural Prescription are the handmaid and not the mistress, a lubricant not a resistant in the administration of justice.

Therefore, Supreme Court in order to cure the procedural defect and when the re-assessment is also possible under the amended provision has held that revenue cannot be made remediless, and object and purpose of the re-assessment proceeding cannot be frustrated.  Further it held that since the revenue has issued around 90000 notices under a bonafide believe that amendment may not yet had been enforced, a leeway has been carve out, without upturning the High Court order,  in order to do a complete justice by invoking Article 142 and giving the lifeline to  so called still -born notices by treating such notices issued under 148A(b).

Takeaway from this judgement – SC providing a right balance between the right of the revenue to reassess and right of the assessee to defend.

A. Where the revenue has acted bonafide under an impression that, through the notification such notice will become valid and subsequently High Court quashing all the notices saying that such notices is not permissible under the amended provision, but it can be permissible under the amended provision from 147 to 151, therefore revenue cannot be remediless otherwise the object and purpose of such reassessment will be frustrated. The Supreme Court had found a leeway by giving a lifeline to the dead notices by stating that said notices will be deemed to be a notice under 148A(b).

B. The revenue was allowed to proceed further with the reassessment proceeding as per the amended provision of 147-151 subject to the compliance of the procedure requirement and the defenses which are available to the assessee under the amended provision or under any law. Therefore, a fine balancing has been done by giving the right to proceed for re-assessment to the department as well as affirming the defense of the assessee wherever available to it.

C. The Supreme Court acknowledge that re-assessment under the unamended statute was not proper and therefore it has given a lifeline to the 148 notices under the unamended provision by deeming it 148A(b) notice under the amended provision.

D. This is a fine blending of constitutional power and judicial discretion, application of doctrine of complete justice as envisaged in Article 142 by isolating the default under old provision and giving such notices a new life under the amended provision.

E. In para 9 of the judgement the Supreme Court has tried to draw that this judgement is the outcome of a board consciousness so that neither revenue should suffer from his right to re-assess should suffer as all the defenses under the new provision as well as other law will be available to him.

F. The Supreme Court acknowledge that this issue is on PAN INDIA and therefore in order to avoid the multiple litigation its says that this order to avoid the multiple litigation it says this order by virtue of Article 142 shall governed not only the impugned judgement but also order passed by other High Court.

G. The Hon’ble Supreme Court has neither touched the TOLA nor the notification no 20/2021 dated 31st March 2021 or Notification no 38/2021 dated 27th April 2021. Further it has upheld the judgement of the High Court for not upholding the notice as a valid notice. Therefore, we can conclude that this judgement has fortified the Hight Courts inference that the extension of limitation only beyond 31/03/2021 through the above said two notification was unconstitutional.

Issue of Debate

This judgement is a watershed moment in the jurisprudence of the taxation. By invocation of article 142 the Supreme Court has made an attempt to do the complete Justice and for this purpose has given new life to still born notices by deeming such notice should be treated as the notice under 148A(b). In doing so, the Hon’ble Supreme Court has dispelled the requirement of 148A(a). However, the judgment can create lot of confusion also both in the minds of revenue as well as the assessee and ultimately all matter may choke the court. The recent letter of Association of Income Tax gazette officer to the CBDT are in the same direction and in the letter the issues raised are just the tip of the iceberg and devils may be in the detail which the time will tell us.

However, practically it would be difficult to envisage all the issues as of now , but we have tried to summaries the issue and these are as follows:

     I. Supreme Court on para 7 has stated that the amended provision are remedial and benevolent in nature and subjected with an specified aim and object to protect the interest and right of the assessee as well as same being in the public interest therefore the issue arises whether this amendment are procedure in nature and has a retrospective implications. If it is retrospective, then the issue arises were whether this amendment would indeed travel back in a pre-2021 situation. If it is so, whether procedure not followed in issuing 148 notices prior to 31.12.2021 can be amenable to writ jurisdiction before the High Court.

   II.  Whether treating the 148 notices post 01.04.2021 as the notice issued 148A(b) would save the re-assessment of A.Y. 2013-14 and

A.Y. 2014-15 we are of the opinion that initiation of the re- assessment of the A.Y. 2013-14 and A.Y. 2014-15 could be barred by limitation in terms of proviso clause of 149 and the revenue cannot open it even though escaped income is more than 50 lakhs. However, there are contrary view also. Thus, there are two situations first where the escapement of income is less than 50 lacs and other which exceeds Rs.50 lacs. In in our personal view the revenue can’t open in both the cases, however the matter will definitely going to be landed at the court and unless CBDT issues some clarification in this regard, there may be more litigation on this aspect.

 III. The Supreme Court in the operative para of 8(i) has stated as under

– “The respective impugned section 148 notices issued to the respective assessee shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be show cause notices in terms of section 148A(b). The respective assessing officers shall within thirty days from today provide to the assessee the information and material relied upon by the Revenue so that the assesses can reply to the notices within two weeks thereafter:”