7 May 2022
Reassessment Controversy - put to an end!

The Finance Act 2021 revamped the reassessment process effective 1 April 2021. In early FY 2021-22 the tax authorities had issued more than 90000 notices selecting cases for reassessment. These notices were issued without following the remedial and benevolent procedure prescribed under amended provisions of law. This was done by relying on the extension provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (Relaxation Act). Many of these notices were contested by taxpayers before the various High Courts, which considered these as bad in law as the procedure provided under the amended law was not followed and were issued under the old reassessment regime, which did not exist on the notice issuing date. These notices were quashed by many High Courts, holding that the Relaxation Act doesn't empower the Revenue to continue reassessment proceedings under the old reassessment regime from 1 April 2021 as the new reassessment regime replaces the same. The Income Tax department filed a special leave petition against these notices before the Hon'ble Supreme Court.

Observations of the Hon'ble Supreme Court
  • The government has streamlined and simplified the procedure through the introduction of a new section which provides as under:
    • Conducting inquiry, if required, with the approval of the specified authority.
    • Providing an opportunity of being heard to the assessee with the prior approval of the specified authority.
    • Consider the assessee's response and decide on the basis of material available on record for issuing reassessment notice.
    • Pass a specific order within the time stipulated.
  • All the safeguards are provided before issuing the reassessment notice with prior approval from the specified authority based on the information which suggests escapement of income.
  • Some High Courts were of the view that the benefit of the new remedial and streamlined provisions for issuing notice under Section 148 of the Act is to be made available to assessee for proceedings relating to past years as well.
  • That Revenue cannot be rendered remediless considering the bonafide mistake that the notice can be issued under the old reassessment regime even after 1 April 2021 based on the extension provided in Relaxation Act.
  • The order is passed with a view to reduce litigation and the burden of 9000 appeals against the High Court orders and provide a balance between the rights of the Assessee and the rights of the Revenue.

The Hon'ble Supreme Court has held that the reassessment notices issued under the old regime shall be deemed to be show cause notices under the new regime and the reassessment proceedings shall be continued by the assessing officer by following the below procedure:

  • The assessing officer needs to provide information and material relied on by Revenue within 30 days of the judgment's pronouncement date, i.e., 4 May 2022.
  • Thereafter assessee needs to furnish its response within two weeks of providing information or material.
  • Considering the assessee's response, the assessing officer needs to pass an order in respect of each of the assessee. Also, based on the same, the assessing officer may issue a reassessment notice under the new regime.
  • Conducting inquiry has been dispensed with as a one-time measure, including orders quashed by High courts.

Furthermore, all defenses which may be available with the assessee and Revenue under Finance Act, 2021 shall be available to them, including rights and contentions regarding time limits for reassessment.

This order is passed in the exercise of powers under Article 142 of the Constitution of India. Accordingly, Revenue need not file any further appeals on this very issue by challenging similar judgments and orders by the other courts. This ruling will be applicable to PAN INDIA, and all the judgments and orders passed by the different High Courts on this issue and similar notices issued after 1 April 2021 shall be set aside and modified as per the guidance provided in this ruling.

Our Comments

The ruling will be a jolt to all the assessees who had received such notices from the Revenue as they would now have to go through the reassessment proceedings as this will be applicable to all the pending writ petitions. However, there is still an ambiguity on the reassessment process to be followed by the assessing officer on reassessment cases/notices issued and no writ has been preferred against such notices.

Also, the validity of notices is in question, which are issued beyond three years from the end of the relevant assessment year and doesn't represent the income escaped assessment in the form of an asset as amended by the Finance Act 2021.
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