UNION OF INDIA & ORS. versus ASHISH AGARWAL

[2022] 3 S.C.R.

UNION OF INDIA & ORS.

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(asamended by the Finance Act, 2021) – Issuance of notice whereincome has escaped assesssment – On facts, substituted ss.147 toC151 of the 1961 Act by the Finance Act, 2021 came into force on01.04.2021 – However, after 01.04.2021, the Revenue issuedreassessment notices under the erstwhile ss. 148 to 151 of theunamended IT Act – Quashed by the High Court on the ground thatthe same are bad in law in view of new provisions-ss. 147 to 151 –DOn appeal, held: Amended provisions prescribe the proceduregoverning 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 simplifyingthe tax administration, ease compliance and reduce litigation – Newprovisions being remedial and benevolent in nature, were substitutedEwith specific aim and object to protect the rights and interest ofthe assessee as well as the same being the public interest – Thus,the High Courts rightly held that the benefit of new provisions to bemade available even in respect of the proceedings relating to pastassessment years if the notices u/s. 148 has been issued on or afterF01.04.2021 – Revenue cannot be made remediless and the objectand purpose of reassessment proceedings cannot be frustrated –However, it is true that the Revenue issued impugned notices underthe unamended section due to bonafide mistake and in view ofsubsequent extension of time vide various notifications – Someleeway must be shown in that regard which the High Courts couldGhave done so – Thus, instead of quashing and setting aside thenotices issued under unamended provisions, order passed by theHigh Courts ought to construe the notices to deemed to have beenissued u/s. 148A and Revenue ought to be permitted to proceedfurther with the reassessment as per the substituted provisions –H

Thus, the judgments and orders of the respective High Courts standsmodified – Finance Act, 2021.

Partly allowing the appeals, the Court

HELD: 1.1 By substitution of Sections 147 to 151 of theIncome Tax Act, 1961 by the Finance Act, 2021, radical andreformative changes are made governing the procedure forreassessment proceedings. Amended sections 147 to 149 andsection 151 of the IT Act prescribe the procedure governinginitiation of reassessment proceedings. However, for severalreasons, the same gave rise to numerous litigations and thereopening were challenged inter alia, on the grounds such as novalid “reason to believe”, no tangible/reliable material/informationin possession of the assessing officer leading to formation of beliefthat income has escaped assessment, no enquiry being conductedby the assessing officer prior to the issuance of notice; andreopening is based on change of opinion of the assessing officerand lastly the mandatory procedure laid down by this Court inthe GKN Driveshafts (India) Ltd.’s case, has not been followed.[Para 6][657-A-D]1.2 The pre-Finance Act, 2021, the reopening waspermissible for maximum period up to six years and in somecases beyond even six years leading to uncertainty for aconsiderable time. Therefore, Parliament thought it fit to amendthe Income Tax Act to simplify the tax administration, easecompliances and reduce litigation. Therefore, with view toachieve the said object, by the Finance Act, 2021, sections 147to 149 and section 151 have been substituted. Under thesubstituted provisions of the IT Act vide Finance Act, 2021, nonotice under section 148 of the IT Act can be issued withoutfollowing the procedure prescribed under section 148A of the ITAct. Along with the notice under section 148 of the IT Act, theassessing officer (AO) is required to serve the order passedunder section 148A of the IT Act. Section 148A is new provisionwhich is in the nature of condition precedent. Introduction ofsection 148A of the IT Act can thus be said to be game changerwith an aim to achieve the ultimate object of simplifying the taxadministration, ease compliance and reduce litigation. [Para 6.1,6.2][657-D-G]

A1.3 By way of section 148A, the procedure has now beenstreamlined and simplified. It provides that before issuing anynotice under section 148, the assessing officer shall (i) conductany enquiry, if required, with the approval of specified authority,with respect to the information which suggests that the incomechargeable to tax has escaped assessment; (ii) provide anBopportunity of being heard to the assessee, with the prior approvalof specified authority; (iii) consider the reply of the assesseefurnished, if any, in response to the show-cause notice referredto in clause (b); and (iv) decide, on the basis of material availableon record including reply of the assessee, as to whether or not itCis fit case to issue notice under section 148 of the IT Act and(v) the AO is required to pass specific order within the timestipulated. Therefore, all safeguards are provided before noticeunder section 148 of the IT Act is issued. At every stage, theprior approval of the specified authority is required, even forconducting the enquiry as per section 148A(a). Only in caseDwhere, the assessing officer is of the opinion that before any noticeis issued under section 148A(b) and an opportunity is to be givento the assessee, there is requirement of conducting any enquiry,the assessing officer may do so and conduct any enquiry. Thus ifthe assessing officer is of the opinion that any enquiry is required,Ethe assessing officer can do so, however, with the prior approvalof the specified authority, with respect to the information whichsuggests that the income chargeable to tax has escapedassessment. Substituted section 149 is the provision governingthe time limit for issuance of notice under section 148 of the ITAct. The substituted section 149 of the IT Act has reduced theFpermissible time limit for issuance of such notice to three yearsand only in exceptional cases ten years. It also provides furtheradditional safeguards which were absent under the earlier regimepre-Finance Act, 2021. [Paras 6.4-6.6][658-A-H]

1.4 The new provisions substituted by the Finance Act,G2021 being remedial and benevolent in nature and substitutedwith specific aim and object to protect the rights and interest ofthe assessee as well as and the same being in public interest, therespective High Courts have rightly held that the benefit of newprovisions shall be made available even in respect of theH

proceedings relating to past assessment years, provided section148 notice has been issued on or after 1st April, 2021. The viewtaken by the various High Courts is upheld. [Para 7][658-H; 659-A-B]

1.5 However, at the same time, the judgments of the severalHigh Courts would result in no reassessment proceedings at all,even if the same are permissible under the Finance Act, 2021and as per substituted sections 147 to 151 of the IT Act. TheRevenue cannot be made remediless and the object and purposeof reassessment proceedings cannot be frustrated. It is true thatdue to bonafide mistake and in view of subsequent extension oftime vide various notifications, the Revenue issued the impugnednotices under section 148 after the amendment was enforced w.e.f.01.04.2021, under the unamended section 148. The same oughtnot to have been issued under the unamended Act and ought tohave been issued under the substituted provisions of sections147 to 151 of the IT Act as per the Finance Act, 2021. Thereappears to be genuine non-application of the amendments as theofficers of the Revenue may have been under bonafide beliefthat the amendments may not yet have been enforced. Therefore,some leeway must be shown in that regard which the High Courtscould have done so. Therefore, instead of quashing and settingaside the reassessment notices issued under the unamendedprovision of IT Act, the High Courts ought to have passed anorder construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to havebeen issued under section 148A of the IT Act as per the newprovision section 148A and the Revenue ought to have beenpermitted to proceed further with the reassessment proceedingsas per the substituted provisions of sections 147 to 151 of the ITAct as per the Finance Act, 2021, subject to compliance of all theprocedural requirements and the defences, which may be availableto the assessee under the substituted provisions of sections 147to 151 of the IT Act and which may be available under the FinanceAct, 2021 and in law. Therefore, the judgments and orders passedby the respective High Courts is modifed as under:-

(i) The respective impugned section 148 notices issued tothe respective assessees shall be deemed to have been

Aissued under section 148A of the IT Act as substituted bythe Finance Act, 2021 and treated to be show-cause noticesin terms of section 148A(b). The respective assessingofficers shall within thirty days from today provide to theassessees the information and material relied upon by theRevenue so that the assessees can reply to the noticesBwithin two weeks thereafter;

(ii) The requirement of conducting any enquiry with the priorapproval of the specified authority under section 148A(a)be dispensed with as one-time measure vis-à-vis thosenotices which have been issued under Section 148 of theCunamended Act from 01.04.2021 till date, including thosewhich have been quashed by the High Courts;

(iii) The assessing officers shall thereafter pass an order interms of section 148A(d) after following the due procedureas required under section 148A(b) in respect of each of theDconcerned assessees;

(iv) All the defences which may be available to the assesseeunder section 149 and/or which may be available under theFinance Act, 2021 and in law and whatever rights areavailable to the Assessing Officer under the Finance Act,E2021 are kept open and/or shall continue to be availableand;

(v) The present order shall substitute/modify respectivejudgments and orders passed by the respective High Courtsquashing the similar notices issued under unamendedFsection 148 of the IT Act irrespective of whether they havebeen assailed before this Court or not. [Para 8][659-B-H;660-A-G]

1.6 If the said order is passed, the Revenue may not sufferas ultimately it is the public exchequer which would suffer.GTherefore, the present order is passed with view avoiding filingof further appeals before this Court and burden this Court withapproximately 9000 appeals against the similar judgments andorders passed by the various High Courts. The said order ispassed in exercise of powers under Article 142 of the Constitutionof India by holding that the present order shall govern, not onlyH

the impugned judgments and orders passed by the High Court ofJudicature at Allahabad, but shall also be made applicable inrespect of the similar judgments and orders passed by variousHigh Courts across the country and therefore the present ordershall be applicable to PAN INDIA. The impugned commonjudgments and orders passed by the High Court of Allahabadand other allied tax appeals/petitions, is/are modified andsubstituted accordingly. [Para 9, 10][660-G-H; 661-A-D]

GKN Driveshafts (India) Ltd. v. Income Tax Officer andOrs. (2003) 1 SCC 72 : [2002] 4 Suppl. SCR 359 –referred to.

Case Law Reference

[2002] 4 Suppl. SCR 359referred to

Para 6

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3005of 2022.

From the Judgment and Order dated 30.09.2021 of the High Courtof Judicature at Allahabad in Writ Tax No. 742 of 2021.

With

Civil Appeal Nos. 3006, 3009, 3007, 3008, 3010, 3013, 3011, 3012,3014, 3015, 3016, 3017, 3019, 3020, 3610, 3604, 3603, 3607, 3602, 3608,3609, 3605, 3611 and 3606 of 2022.

N. Venkataraman, ASG, B. K. Satija, Vikas Bansal, Ms. RashmiMalhotra, V. Chandrashekhara Bharathi, Chandra Kant Sharma, ManishPushkarna, Shashank Bajpai, Santosh Kumar, Sanjay Kumar Yadav, AmitSharma, Ms. Megha Karanwal, Raj Bahadur Yadav, Advs. for theAppellants.

C. A. Sundaram, S. Ganesh, Sr. Advs., Ms. Kavita Jha, VaibhavKulkarni, Anant Mann, Ms. Archana Sahadeva, Ms. Pragati Agrawal,Gaurav Jain, Ms. Akshita Goyal, Abhinav Agrawal, Shubham Gupta,Rajiv K. Virmani, Atul Malhotra, Kapil Goel, Dhananjay Garg, SandeepGoel, D. K. Garg, Abhishek Garg, Nishit Agrawal, Harsh Mishra,Dr. Rakesh Gupta, Ambhoj Kumar Sinha, Somil Agarwal, Ved KumarJain, Rich Mishra, Subodh S. Patil, Kush Chaturvedi, Ms. PriyashreeSharma P. H., Abhinav Mehrotra, Syed Faroz Alam, Venketesh Chaurasia,Divyanshu Agrawal, Vaibhav Niti, Ms. Madhavi Agrawal, Advs. for theRespondent.

AThe Judgment of the Court was delivered by

M. R. SHAH, J.

Leave granted in SLP (C) Nos. 6448/2022, 5381/2022, 5079/2022,6092/2022, 6534/2022, 6158/2022, 6316/2022, 6281/2022, 6545/2022,6038/2022.B

1. Feeling aggrieved and dissatisfied with the impugned commonjudgment and order passed by the High Court of Judicature at Allahabadin Writ Tax No. 524/2021 and other allied writ tax petitions, by which theHigh Court has allowed the said writ petitions and has quashed severalreassessment notices issued by the Revenue, issued under section 148Cof the Income Tax Act, 1961, on the ground that the same are bad in lawin view of the amendment by the Finance Act, 2021 which has amendedIncome Tax Act by introducing new provisions i.e. sections 147 to 151w.e.f. 1[st] April, 2021, the Revenue has preferred the present appeals.

2. Similar judgments and orders are passed by various other HighDCourts including High Court of Delhi; High Court of Rajasthan; HighCourt of Calcutta; High Court of Madras; High Court of Bombay, theparticulars of which are as under: -

At this stage, it is required to be noted that approximately 90,000such reassessment notices under section 148 of the unamended IncomeTax Act were issued by the Revenue after 01.04.2021, which were thesubject matter of more than 9000 writ petitions before various HighCourts across the country and by different judgments and orders, theparticulars of which are as above, the High Courts have taken similarview and have set aside the respective reassessment notices issued undersection 148 on similar grounds.

2.1 The common judgment and order passed by the AllahabadHigh Court is the subject matter of the present appeals. ShriN. Venkataraman, learned ASG, stated at the bar that the Revenue iscontemplating to prefer appeals against the similar judgments and orderspassed by various High Courts. However, as the issue is common andthere will be multiplicity of the proceedings and to lessen the burden ofthis Court and for the reasons stated hereinbelow, as we propose to passan order in exercise of powers under Article 142 of the Constitution ofIndia the present order shall govern all the other judgments and orderspassed by various High Courts on the similar issue. Hence, we observethat the Revenue need not file separate individual appeals which may bemore than 9000 in numbers.

2.2 In fact, we have heard Shri C.A. Sundaram, learned SeniorAdvocate, appearing on behalf of the respective assessee, who werebefore the Delhi High Court also.

3. While appreciating the controversy, few facts and the relevantstatutory provisions applicable pre 01.04.2021 and post 01.04.2021 arerequired to be referred to.

The procedure governing initiation of reassessment proceedingsprior to coming into force of the Finance Act, 2021 was governedby the following provisions: -

“Income escaping assessment-

147. If the Assessing Officer has reason to believe that any incomechargeable to tax has escaped assessment for any assessmentyear, he may, subject to the provisions of sections 148 to 153,assess or reassess such income and also any other incomechargeable to tax which has escaped assessment and which comesto his notice subsequently in the course of the proceedings under

Athis section, or recomputed the loss or the depreciation allowanceor any other allowance, as the case may be, for the assessmentyear concerned (hereafter in this section and in sections 148 to153 referred to as the relevant assessment year):

Provided that where an assessment under sub-section (3) of sectionB143 or this section has been made for the relevant assessmentyear, no action shall be taken under this section after the expiry offour years from the end of the relevant assessment year, unlessany income chargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part of the assesseeto make return under section 139 or in response to noticeCissued under sub-section (1) of section 142 or section 148 or todisclose fully and truly all material facts necessary for hisassessment, for that assessment year:

Provided further that nothing contained in the first proviso shallapply in case where any income in relation to any asset (includingDfinancial interest in any entity) located outside India, chargeableto tax, has escaped assessment for any assessment year:

Provided also that the Assessing Officer may assess or reassesssuch income, other than the income involving matters which arethe subject matters of any appeal, reference or revision, which isEchargeable to tax and has escaped assessment.

Explanation 1.—Production before the Assessing Officer ofaccount books or other evidence from which material evidencecould with due diligence have been discovered by the AssessingOfficer will not necessarily amount to disclosure within the meaningFof the foregoing proviso.

Explanation 2.—For the purposes of this section, the followingshall also be deemed to be cases where income chargeable to taxhas escaped assessment, namely :—

(a) where no return of income has been furnished by the assesseeGalthough his total income or the total income of any other personin respect of which he is assessable under this Act during theprevious year exceeded the maximum amount which is notchargeable to income-tax;

(b) where return of income has been furnished by the assesseebut no assessment has been made and it is noticed by the AssessingOfficer that the assessee has understated the income or hasclaimed excessive loss, deduction, allowance or relief in the return;

(ba) where the assessee has failed to furnish report in respectof any international transaction which he was so required undersection 92E;

(c) where an assessment has been made, but—

(i) income chargeable to tax has been underassessed; or

(ii) such income has been assessed at too low rate; or

(iii) such income has been made the subject of excessive reliefunder this Act; or

(iv) excessive loss or depreciation allowance or any otherallowance under this Act has been computed;

(ca) where return of income has not been furnished by theassessee or return of income has been furnished by him and onthe basis of information or document received from the prescribedincome-tax authority, under sub-section (2) of section 133C, it isnoticed by the Assessing Officer that the income of the assesseeexceeds the maximum amount not chargeable to tax, or as thecase may be, the assessee has understated the income or hasclaimed excessive loss, deduction, allowance or relief in the return;

(d) where person is found to have any asset (including financialinterest in any entity) located outside India.

Explanation 3.—For the purpose of assessment or reassessmentunder this section, the Assessing Officer may assess or reassessthe income in respect of any issue, which has escaped assessment,and such issue comes to his notice subsequently in the course ofthe proceedings under this section, notwithstanding that the reasonsfor such issue have not been included in the reasons recordedunder sub-section (2) of section 148.

Explanation 4.—For the removal of doubts, it is hereby clarifiedthat the provisions of this section, as amended by the FinanceAct, 2012, shall also be applicable for any assessment yearbeginning on or before the 1st day of April, 2012.

Issue of notice where income has escaped assessment-

148.(1) Before making the assessment, reassessment orrecomputation under section 147, the Assessing Officer shall serveon the assessee notice requiring him to furnish within such period,as may be specified in the notice, return of his income or theincome of any other person in respect of which he is assessableunder this Act during the previous year corresponding to therelevant assessment year, in the prescribed form and verified inthe prescribed manner and setting forth such other particulars asmay be prescribed; and the provisions of this Act shall, so far asmay be, apply accordingly as if such return were return requiredto be furnished under section 139:

Provided that in case—

(a) where return has been furnished during the periodcommencing on the 1st day of October, 1991 and ending on the30th day of September, 2005 in response to notice served underthis section, and

(b) subsequently notice has been served under sub-section (2)of section 143 after the expiry of twelve months specified in theproviso to subsection (2) of section 143, as it stood immediatelybefore the amendment of said sub-section by the Finance Act,2002 (20 of 2002) but before the expiry of the time limit for makingthe assessment, re-assessment or recomputation as specified insub-section (2) of section 153, every such notice referred to inthis clause shall be deemed to be valid notice:

Provided further that in case—F

(a) where return has been furnished during the periodcommencing on the 1st day of October, 1991 and ending on the30th day of September, 2005, in response to notice served underthis section, and

G(b) subsequently notice has been served under clause (ii) ofsub-section (2) of section 143 after the expiry of twelve monthsspecified in the proviso to clause (ii) of sub-section (2) of section143, but before the expiry of the time limit for making theassessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in thisHclause shall be deemed to be valid notice.

Explanation.—For the removal of doubts, it is hereby declaredthat nothing contained in the first proviso or the second provisoshall apply to any return which has been furnished on or after the1st day of October, 2005 in response to notice served under thissection.

(2) The Assessing Officer shall, before issuing any notice underthis section, record his reasons for doing so.

Time limit for notice-

149. (1) No notice under section 148 shall be issued for the relevantassessment year,—

(a) if four years have elapsed from the end of the relevantassessment year, unless the case falls under clause (b) or clause(c);

(b) if four years, but not more than six years, have elapsedfrom the end of the relevant assessment year unless the incomechargeable to tax which has escaped assessment amounts toor is likely to amount to one lakh rupees or more for that year;

(c) if four years, but not more than sixteen years, have elapsedfrom the end of the relevant assessment year unless the incomein relation to any asset (including financial interest in any entity)located outside India, chargeable to tax, has escapedassessment.

Explanation.—In determining income chargeable to tax which hasescaped assessment for the purposes of this sub-section, theprovisions of Explanation 2 of section 147 shall apply as they applyfor the purposes of that section.

(2) The provisions of sub-section (1) as to the issue of notice shallbe subject to the provisions of section 151.

(3) If the person on whom notice under section 148 is to beserved is person treated as the agent of nonresident undersection 163 and the assessment, reassessment or recomputationto be made in pursuance of the notice is to be made on him as theagent of such non-resident, the notice shall not be issued after theexpiry of period of six years from the end of the relevantassessment year.

Explanation.—For the removal of doubts, it is hereby clarifiedthat the provisions of sub-sections (1) and (3), as amended by theFinance Act, 2012, shall also be applicable for any assessmentyear beginning on or before the 1st day of April, 2012.

Sanction for issue of notice-

151. (1) No notice shall be issued under section 148 by an AssessingOfficer, after the expiry of period of four years from the end ofthe relevant assessment year, unless the Principal ChiefCommissioner or Chief Commissioner or Principal Commissioneror Commissioner is satisfied, on the reasons recorded by theAssessing Officer, that it is fit case for the issue of such notice.

(2) In case other than case falling under sub-section (1), nonotice shall be issued under section 148 by an Assessing Officer,who is below the rank of Joint Commissioner, unless the JointCommissioner is satisfied, on the reasons recorded by suchAssessing Officer, that it is fit case for the issue of such notice.

(3) For the purposes of sub-section (1) and sub-section (2), thePrincipal Chief Commissioner or the Chief Commissioner or thePrincipal Commissioner or the Commissioner or the JointCommissioner, as the case may be, being satisfied on the reasonsErecorded by the Assessing Officer about fitness of case for theissue of notice under section 148, need not issue such noticehimself.”

3.1 In pursuance to the power vested under section 3 of theRelaxation Act, 2020, the Central Government issued followingFNotifications inter-alia extending the time lines prescribed undersection 149 for issuance of reassessment notices under section148 of the Income Tax Act, 1961:

The Explanations to the Notifications dated 31[st] March, 2021 and27[th] April, 2021 issued under section 3 of the Relaxation Act, 2020 alsostipulated that the provisions, as they existed prior to the amendment by

the Finance Act, 2021, shall apply to the reassessment proceedingsinitiated thereunder.

3.2 The Parliament introduced reformative changes to Sections147 to 151 of the Income Tax Act, 1961 governing reassessmentproceedings by way of the Finance Act, 2021, which was passed on 28[th]March, 2021. The substituted sections 147 to 149 and section 151applicable w.e.f. 01.04.2021, passed in the Finance Act, 2021, are asunder:-

Income escaping assessment-

“147. If any income chargeable to tax, in the case of an assessee,has escaped assessment for any assessment year, the AssessingOfficer may, subject to the provisions of sections 148 to 153, assessor reassess such income or recompute the loss or the depreciationallowance or any other allowance or deduction for suchassessment year (hereafter in this section and in sections 148 to153 referred to as the relevant assessment year).

Explanation.—For the purposes of assessment or reassessmentor recomputation under this section, the Assessing Officer mayassess or reassess the income in respect of any issue, which hasescaped assessment, and such issue comes to his noticesubsequently in the course of the proceedings under this section,irrespective of the fact that the provisions of section 148A havenot been complied with.”.

Issue of notice where income has escaped assessment-

148. Before making the assessment, reassessment orrecomputation under section 147, and subject to the provisions ofsection 148A, the Assessing Officer shall serve on the assessee anotice, along with copy of the order passed, if required, underclause (d) of section 148A, requiring him to furnish within suchperiod, as may be specified in such notice, return of his incomeor the income of any other person in respect of which he isassessable under this Act during the previous year correspondingto the relevant assessment year, in the prescribed form and verifiedin the prescribed manner and setting forth such other particularsas may be prescribed; and the provisions of this Act shall, so faras may be, apply accordingly as if such return were returnrequired to be furnished under section 139:

Provided that no notice under this section shall be issued unlessthere is information with the Assessing Officer which suggeststhat the income chargeable to tax has escaped assessment in thecase of the assessee for the relevant assessment year and theAssessing Officer has obtained prior approval of the specifiedauthority to issue such notice.

Explanation 1.—For the purposes of this section and section 148A,the information with the Assessing Officer which suggests thatthe income chargeable to tax has escaped assessment means,—

(i) any information flagged in the case of the assessee for therelevant assessment year in accordance with the risk managementstrategy formulated by the Board from time to time;

(ii) any final objection raised by the Comptroller and Auditor-General of India to the effect that the assessment in the case ofthe assessee for the relevant assessment year has not been madein accordance with the provisions of this Act.

Explanation 2.—For the purposes of this section, where,—

(i) search is initiated under section 132 or books of account,other documents or any assets are requisitioned under section132A, on or after the 1st day of April, 2021, in the case of theEassessee; or

(ii) survey is conducted under section 133A, other than undersub-section (2A) or sub-section (5) of that section, on or after the1st day of April, 2021, in the case of the assessee; or

(iii) the Assessing Officer is satisfied, with the prior approval ofthe Principal Commissioner or Commissioner, that any money,bullion, jewellery or other valuable article or thing, seized orrequisitioned under section 132 or under section 132A in case ofany other person on or after the 1st day of April, 2021, belongs tothe assessee; or

(iv) the Assessing Officer is satisfied, with the prior approval ofPrincipal Commissioner or Commissioner, that any books ofaccount or documents, seized or requisitioned under section 132or section 132A in case of any other person on or after the 1stday of April, 2021, pertains or pertain to, or any informationcontained therein, relate to, the assessee, the Assessing Officer

shall be deemed to have information which suggests that the incomechargeable to tax has escaped assessment in the case of theassessee for the three assessment years immediately precedingthe assessment year relevant to the previous year in which thesearch is initiated or books of account, other documents or anyassets are requisitioned or survey is conducted in the case of theassessee or money, bullion, jewellery or other valuable article orthing or books of account or documents are seized or requisitionedin case of any other person.

Explanation 3.—For the purposes of this section, specified authoritymeans the specified authority referred to in section 151.”

Conducting inquiry, providing opportunity before issue ofnotice under section 148 -

“148A. The Assessing Officer shall, before issuing any noticeunder section 148,—

(a) conduct any enquiry, if required, with the prior approval ofspecified authority, with respect to the information which suggeststhat the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, withthe prior approval of specified authority, by serving upon him anotice to show cause within such time, as may be specified in thenotice, being not less than seven days and but not exceeding thirtydays from the date on which such notice is issued, or such time,as may be extended by him on the basis of an application in thisbehalf, as to why notice under section 148 should not be issuedon the basis of information which suggests that income chargeableto tax has escaped assessment in his case for the relevantassessment year and results of enquiry conducted, if any, as perclause (a);

(c) consider the reply of assessee furnished, if any, in response tothe show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record includingreply of the assessee, whether or not it is fit case to issue anotice under section 148, by passing an order, with the priorapproval of specified authority, within one month from the end ofthe month in which the reply referred to in clause (c) is received

by him, or where no such reply is furnished, within one monthfrom the end of the month in which time or extended time allowedto furnish reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in acase where,—

(a) search is initiated under section 132 or books of account,other documents or any assets are requisitioned under section132A in the case of the assessee on or after the 1st day ofApril, 2021; or

(b) the Assessing Officer is satisfied, with the prior approvalof the Principal Commissioner or Commissioner that anymoney, bullion, jewellery or other valuable article or thing, seizedin search under section 132 or requisitioned under section132A, in the case of any other person on or after the 1st day ofApril, 2021, belongs to the assessee; or

(c) the Assessing Officer is satisfied, with the prior approvalof the Principal Commissioner or Commissioner that any booksof account or documents, seized in search under section 132or requisitioned under section 132A, in case of any other personon or after the 1st day of April, 2021, pertains or pertain to, orany information contained therein, relate to, the assessee.

Explanation.—For the purposes of this section, specified authoritymeans the specified authority referred to in section 151.”

Time limit for notice-

“149. (1) No notice under section 148 shall be issued for therelevant assessment year,—

(a) if three years have elapsed from the end of the relevantassessment year, unless the case falls under clause (b);

(b) if three years, but not more than ten years, have elapsed fromthe end of the relevant assessment year unless the AssessingOfficer has in his possession books of account or other documentsor evidence which reveal that the income chargeable to tax,represented in the form of asset, which has escaped assessmentamounts to or is likely to amount to fifty lakh rupees or more forthat year:

Provided that no notice under section 148 shall be issued atany time in case for the relevant assessment year beginning onor before 1st day of April, 2021, if such notice could not havebeen issued at that time on account of being beyond the time limitspecified under the provisions of clause (b) of sub-section (1) ofthis section, as they stood immediately before the commencementof the Finance Act, 2021:

Provided further that the provisions of this sub-section shallnot apply in case, where notice under section 153A, or section153C read with section 153A, is required to be issued in relationto search initiated under section 132 or books of account, otherdocuments or any assets requisitioned under section 132A, on orbefore the 31st day of March, 2021:

Provided also that for the purposes of computing the periodof limitation as per this section, the time or extended time allowedto the assessee, as per show-cause notice issued under clause (b)of section 148A or the period during which the proceeding undersection 148A is stayed by an order or injunction of any court, shallbe excluded:

Provided also that where immediately after the exclusionof the period referred to in the immediately preceding proviso, theperiod of limitation available to the Assessing Officer for passingan order under clause (d) of section 148A is less than seven days,such remaining period shall be extended to seven days and theperiod of limitation under this sub-section shall be deemed to beextended accordingly.

Explanation.—For the purposes of clause (b) of this subsection,“asset” shall include immovable property, being land or building orboth, shares and securities, loans and advances, deposits in bankaccount.

(2) The provisions of sub-section (1) as to the issue of notice shallbe subject to the provisions of section 151.’

Sanction for issue of notice-

“151. Specified authority for the purposes of section 148 andsection 148A shall be—

A(i) Principal Commissioner or Principal Director orCommissioner or Director, if three years or less than threeyears have elapsed from the end of the relevant assessmentyear;

(ii) Principal Chief Commissioner or Principal Director GeneralBor where there is no Principal Chief Commissioner or PrincipalDirector General, Chief Commissioner or Director General, ifmore than three years have elapsed from the end of the relevantassessment year.”

3.3 In sub-section (1) of section 151A of the Income Tax Act, inCthe opening portion, after the words and figures “issuance of noticeunder section 148”, the words, figures and letter “or conductingof enquiries or issuance of show-cause notice or passing of orderunder section 148A” are inserted.

4. Despite the substituted sections 147 to 151 of the Income TaxDAct, 1961 by the Finance Act, 2021 coming into force on 1[st] April, 2021,according to learned ASG, the Revenue issued approximately 90,000reassessment notices to the respective assessees under the erstwhilesections 148 to 151 thereof by relying on explanations in the Notificationsdated 31[st] March, 2021 and 27[th] April, 2021. The said reassessmentnotices were the subject matter of writ petitions before the various HighECourts. The respective High Courts have held that all the respectivereassessment notices issued under the erstwhile sections 148 to 151 ofthe Income Tax Act, 1961, are bad in law as the reassessment noticesissued after 01.04.2021 are governed by the substituted sections 147 to151 of the Income Tax Act, 1961, substituted by the Finance Act, 2021.FConsequently, the respective High Courts have set aside all thereassessment notices issued under section 148 of the Income Tax Act,1961 wherever assailed. The common judgment and order passed bythe High Court of Allahabad is the subject matter of the present appeals.However, the High Court of Delhi in its common judgment and orderdated 15.12.2021 while quashing the respective reassessment noticesGhas also observed that if the law permits the revenue to take furthersteps in the matter they shall be at liberty to do so.

5. We have heard Shri N. Venkataraman, learned ASG appearingon behalf of the Revenue and Shri C.A. Sundaram and Shri S. Ganesh,learned Senior Advocates and other learned counsel appearing on behalfHof the respective assessee.

6. It cannot be disputed that by substitution of sections 147 to 151of the Income Tax Act (IT Act) by the Finance Act, 2021, radical andreformative changes are made governing the procedure for reassessmentproceedings. Amended sections 147 to 149 and section 151 of the ITAct prescribe the procedure governing initiation of reassessmentproceedings. However, for several reasons, the same gave rise tonumerous litigations and the reopening were challenged inter alia, onthe grounds such as (1) no valid “reason to believe” (2) no tangible/reliable material/information in possession of the assessing officer leadingto formation of belief that income has escaped assessment, (3) no enquirybeing conducted by the assessing officer prior to the issuance of notice;and reopening is based on change of opinion of the assessing officer and(4) lastly the mandatory procedure laid down by this Court in the case ofGKN Driveshafts (India) Ltd. Vs. Income Tax Officer and ors;(2003) 1 SCC 72, has not been followed.

6.1 Further pre-Finance Act, 2021, the reopening was permissiblefor maximum period up to six years and in some cases beyondeven six years leading to uncertainty for considerable time.Therefore, Parliament thought it fit to amend the Income TaxAct to simplify the tax administration, ease compliances andreduce litigation. Therefore, with view to achieve the saidobject, by the Finance Act, 2021, sections 147 to 149 andsection 151 have been substituted.

6.2 Under the substituted provisions of the IT Act vide FinanceAct, 2021, no notice under section 148 of the IT Act can beissued without following the procedure prescribed under section148A of the IT Act. Along with the notice under section 148Fof the IT Act, the assessing officer (AO) is required to servethe order passed under section 148A of the IT Act. section148A of the IT Act is new provision which is in the nature ofa condition precedent. Introduction of section 148A of the ITAct can thus be said to be game changer with an aim toachieve the ultimate object of simplifying the tax administration,Gease compliance and reduce litigation.

6.3 But prior to pre-Finance Act, 2021, while reopening anassessment, the procedure of giving the reasons for reopeningand an opportunity to the assessee and the decision of theobjectives were required to be followed as per the judgment

658SUPREME COURT REPORTS

Aof this Court in the case of GKN Driveshafts (India) Ltd.(supra).

6.4 However, by way of section 148A, the procedure has nowbeen streamlined and simplified. It provides that before issuingany notice under section 148, the assessing officer shall (i)Bconduct any enquiry, if required, with the approval ofspecified authority, with respect to the information whichsuggests that the income chargeable to tax has escapedassessment; (ii) provide an opportunity of being heard to theassessee, with the prior approval of specified authority; (iii)consider the reply of the assessee furnished, if any, in responseCto the show-cause notice referred to in clause (b); and (iv)decide, on the basis of material available on record includingreply of the assessee, as to whether or not it is fit case toissue notice under section 148 of the IT Act and (v) the AOis required to pass specific order within the time stipulated.D6.5 Therefore, all safeguards are provided before notice undersection 148 of the IT Act is issued. At every stage, the priorapproval of the specified authority is required, even forconducting the enquiry as per section 148A(a). Only in casewhere, the assessing officer is of the opinion that before anyEnotice is issued under section 148A(b) and an opportunity isto be given to the assessee, there is requirement of conductingany enquiry, the assessing officer may do so and conduct anyenquiry. Thus if the assessing officer is of the opinion that anyenquiry is required, the assessing officer can do so, however,with the prior approval of the specified authority, with respectFto the information which suggests that the income chargeableto tax has escaped assessment.

6.6 Substituted section 149 is the provision governing the timelimit for issuance of notice under section 148 of the IT Act.The substituted section 149 of the IT Act has reduced theGpermissible time limit for issuance of such notice to threeyears and only in exceptional cases ten years. It also providesfurther additional safeguards which were absent under theearlier regime pre-Finance Act, 2021.

7. Thus, the new provisions substituted by the Finance Act, 2021Hbeing remedial and benevolent in nature and substituted with specific

aim and object to protect the rights and interest of the assessee as wellas and the same being in public interest, the respective High Courtshave rightly held that the benefit of new provisions shall be made availableeven in respect of the proceedings relating to past assessment years,provided section 148 notice has been issued on or after 1[st] April, 2021.We are in complete agreement with the view taken by the various HighCourts in holding so.

8. However, at the same time, the judgments of the several HighCourts would result in no reassessment proceedings at all, even if thesame are permissible under the Finance Act, 2021 and as per substitutedsections 147 to 151 of the IT Act. The Revenue cannot be maderemediless and the object and purpose of reassessment proceedingscannot be frustrated. It is true that due to bonafide mistake and in viewof subsequent extension of time vide various notifications, the Revenueissued the impugned notices under section 148 after the amendmentwas enforced w.e.f. 01.04.2021, under the unamended section 148. Inour view the same ought not to have been issued under the unamendedAct and ought to have been issued under the substituted provisions ofsections 147 to 151 of the IT Act as per the Finance Act, 2021. Thereappears to be genuine non-application of the amendments as the officersof the Revenue may have been under bonafide belief that theamendments may not yet have been enforced. Therefore, we are of theopinion that some leeway must be shown in that regard which the HighCourts could have done so. Therefore, instead of quashing and settingaside the reassessment notices issued under the unamended provisionof IT Act, the High Courts ought to have passed an order construing thenotices issued under unamended Act/unamended provision of the ITAct as those deemed to have been issued under section 148A of the ITAct as per the new provision section 148A and the Revenue ought tohave been permitted to proceed further with the reassessmentproceedings as per the substituted provisions of sections 147 to 151 ofthe IT Act as per the Finance Act, 2021, subject to compliance of all theprocedural requirements and the defences, which may be available tothe assessee under the substituted provisions of sections 147 to 151 ofthe IT Act and which may be available under the Finance Act, 2021 andin law. Therefore, we propose to modify the judgments and orders passedby the respective High Courts as under: -

660SUPREME COURT REPORTS

A(i)The respective impugned section 148 notices issued to therespective assessees shall be deemed to have been issuedunder section 148A of the IT Act as substituted by theFinance Act, 2021 and treated to be show-cause notices interms of section 148A(b). The respective assessing officersshall within thirty days from today provide to the assesseesBthe information and material relied upon by the Revenue sothat the assessees can reply to the notices within two weeksthereafter;

(ii)The requirement of conducting any enquiry with the priorapproval of the specified authority under section 148A(a)Cbe dispensed with as one-time measure vis-à-vis thosenotices which have been issued under Section 148 of theunamended Act from 01.04.2021 till date, including thosewhich have been quashed by the High Courts;

(iii)The assessing officers shall thereafter pass an order in termsDof section 148A(d) after following the due procedure asrequired under section 148A(b) in respect of each of theconcerned assessees;

(iv)All the defences which may be available to the assesseeunder section 149 and/or which may be available under theEFinance Act, 2021 and in law and whatever rights areavailable to the Assessing Officer under the Finance Act,2021 are kept open and/or shall continue to be availableand;

(v)The present order shall substitute/modify respectiveFjudgments and orders passed by the respective High Courtsquashing the similar notices issued under unamended section148 of the IT Act irrespective of whether they have beenassailed before this Court or not.

9. There is broad consensus on the aforesaid aspects amongstGthe learned ASG appearing on behalf of the Revenue and the learnedSenior Advocates/learned counsel appearing on behalf of the respectiveassessees. We are also of the opinion that if the aforesaid order is passed,it will strike balance between the rights of the Revenue as well as therespective assesses as because of bonafide belief of the officers of

the Revenue in issuing approximately 90000 such notices, the Revenuemay not suffer as ultimately it is the public exchequer which would suffer.

Therefore, we have proposed to pass the present order with aview avoiding filing of further appeals before this Court and burden thisCourt with approximately 9000 appeals against the similar judgmentsand orders passed by the various High Courts, the particulars of some ofwhich are referred to hereinabove. We have also proposed to pass theaforesaid order in exercise of our powers under Article 142 of theConstitution of India by holding that the present order shall govern, notonly the impugned judgments and orders passed by the High Court ofJudicature at Allahabad, but shall also be made applicable in respect ofthe similar judgments and orders passed by various High Courts acrossthe country and therefore the present order shall be applicable to PANINDIA.

10. In view of the above and for the reasons stated above, thepresent Appeals are ALLOWED IN PART. The impugned commonjudgments and orders passed by the High Court of Judicature at Allahabadin W.T. No. 524/2021 and other allied tax appeals/petitions, is/are herebymodified and substituted as under: -

(i)The impugned section 148 notices issued to the respectiveassessees which were issued under unamended section 148of the IT Act, which were the subject matter of writpetitions before the various respective High Courts shall bedeemed to have been issued under section 148A of the ITAct as substituted by the Finance Act, 2021 and construedor treated to be show-cause notices in terms of section148A(b). The assessing officer shall, within thirty days fromtoday provide to the respective assessees information andmaterial relied upon by the Revenue, so that the asseseescan reply to the show-cause notices within two weeksthereafter;(ii)The requirement of conducting any enquiry, if required, withthe prior approval of specified authority under section148A(a) is hereby dispensed with as one-time measurevis-à-vis those notices which have been issued under section148 of the unamended Act from 01.04.2021 till date, includingthose which have been quashed by the High Courts.

Even otherwise as observed hereinabove holding anyenquiry with the prior approval of specified authority is notmandatory but it is for the concerned Assessing Officers tohold any enquiry, if required;

(iii)The assessing officers shall thereafter pass orders in termsBof section 148A(d) in respect of each of the concernedassessees; Thereafter after following the procedure asrequired under section 148A may issue notice under section148 (as substituted);

(iv)All defences which may be available to the assessesincluding those available under section 149 of the IT ActCand all rights and contentions which may be available to theconcerned assessees and Revenue under the Finance Act,2021 and in law shall continue to be available.

11. The present order shall be applicable PAN INDIA and alljudgments and orders passed by different High Courts on the issue andDunder which similar notices which were issued after 01.04.2021 issuedunder section 148 of the Act are set aside and shall be governed by thepresent order and shall stand modified to the aforesaid extent. The presentorder is passed in exercise of powers under Article 142 of the Constitutionof India so as to avoid any further appeals by the Revenue on the veryissue by challenging similar judgments and orders, with view not toEburden this Court with approximately 9000 appeals. We also observethat present order shall also govern the pending writ petitions, pendingbefore various High Courts in which similar notices under Section 148of the Act issued after 01.04.2021 are under challenge.

12. The impugned common judgments and orders passed by theFHigh Court of Allahabad and the similar judgments and orders passed byvarious High Courts, more particularly, the respective judgments andorders passed by the various High Courts particulars of which arementioned hereinabove, shall stand modified/substituted to the aforesaidextent only.GAll these appeals are accordingly partly allowed to the aforesaidextent.

In the facts of the case, there shall be no order as to costs.

Nidhi Jain

(Assisted by : Shashwat Jain, LCRA)

Appeals partly allowed.